How to Calculate Fundraising ROI: Quick Guide for Nonprofits
Chris Paver – 9 August 2021
It can be easy to get caught up in gross revenue numbers from campaigns rather than fundraising ROI. But when we’re assessing the effectiveness of a fundraising campaign, ROI is truly among the most important fundraising metrics that organizations should be tracking.
Until we start looking at the costs of the fundraising effort and consider where we might otherwise have invested that money, we can’t actually judge the overall effectiveness of the campaign.
This article will give you a crash course on fundraising ROI—how to calculate it, how to improve it, and how to know when you need even more information to make informed strategic decisions.
How to Calculate Fundraising ROI
Step 1: Calculate your campaign’s costs (i.e. your ‘investment’).
How should you calculate the costs of a particular fundraising campaign? This can be as complex as you want to make it. Do you include indirect costs like office rent, electricity, and website maintenance and then try to apportion them across all your campaigns? We’d suggest that’s not necessary. Instead, focus on direct campaign costs like:
- The cost per call for a phone campaign
- The cost of print and postage for a direct mail campaign
- All of your event costs for a fundraising event
- Campaign creative and design costs
- Advertising and promotional costs
- An estimated cost for staff time spent on the campaign
Step 2: Calculate your campaign’s return.
For this step, measure the income generated from your campaign. Easy! However, a common mistake is not properly attributing income to a particular fundraising campaign. It’s very hard to measure your ‘return’ if you’re not keeping track of where your revenue comes from, so make sure every gift is attributed to one source or another.
A word about multi-channel campaigns:
Measuring your return can get more difficult with multi-channel fundraising campaigns. For instance, if a donor is included in a direct mail campaign, but also receives emails, and then gives via the website, to which channel should you attribute the income? Things get complicated quickly.
If we zoom out and look at the campaign as a whole, this question doesn’t matter so much because the income is still connected to the overall effort. For our purposes today, this is sufficient.
However, if you are interested in understanding the relative importance of each channel within a campaign, things become more complex. The only real way to do this would be to run experiments such as by dropping certain channels from the campaign mix for certain donors and measuring the impact. However, given the complexity of this process, most organizations settle on a rule-of-thumb approach to apportion income between channels in most situations.
Step 3: Calculate your fundraising ROI.
To calculate fundraising ROI, use this formula:
Subtract your total costs (amount spent) from your total return (amount raised). This gives you your campaign’s net revenue. Next, divide your net revenue by the total costs. This gives your fundraising ROI as a ratio. To present it as a percentage, multiply by 100.
Using this formula, a Fundraising ROI of 1.0 or 100% means you raised twice as much as you spent—excellent! Let’s walk through a few other examples:
Here’s another example of a successful campaign. Let’s assume:
Return (amount raised): $315,000
Costs (amount spent): $127,000
[(315,000 – 127,000) / 127,000] x 100 = 148.03%
Congratulations! This was a great campaign where the nonprofit more than doubled its investment.
Now let’s look at an example of a campaign that lost money (at least upfront). Let’s assume:
Return (amount raised): $98,000
Costs (amount spent): $127,000
[(98,000 – 127,000) / 127,000] x 100 = -22.83%
If you find that a campaign or appeal returns a negative ROI, you’ve lost money (and therefore time and other resources) on that campaign. It’s important to track fundraising ROI so that you can flag underperforming campaigns. From there, you can dig deeper to find particular areas where you fell short and take steps to improve fundraising ROI next time.
How to Improve Your Campaign ROI
If improving ROI is your goal, you need to minimize your costs while increasing your returns.
The most direct way to do this is to make sure you’re talking to the right people in each campaign and not wasting your investment by calling or sending mail to too many people.
Traditionally, nonprofits do this through donor segmentation—sorting donors into groups based on shared demographic characteristics and/or previous donation metrics. This allows you to make broad assumptions about which donors will be most receptive to which messages. But there’s an issue: Broad assumptions aren’t as accurate or valuable as true predictions.
Technology helps fill this gap. With AI-driven predictive modeling, you can predict which people are the most likely to respond to your particular fundraising campaign and focus on speaking with them, which increases your return.
Examples of Fundraising ROI Improvements
Here are a few ways organizations have used AI technology to improve their fundraising ROI:
- Greenpeace increased ROI by 22.8% in a direct mail appeal using Dataro’s predictive scoring.
- Parkinson’s UK increased net revenue by 23% using the same approach.
- Victor Chang Cardiac Research Institute used AI to execute a donor retention drive with an estimated ROI of 319%.
There are a lot of ways that you can measure the value obtained from a fundraising effort. Of course, the ultimate goal is to make sure that your campaigns are raising as much money as possible to maximize your organization’s impact.
The Value and Limits of Fundraising ROI
Understanding fundraising ROI is extremely valuable because it gives you insight into the efficiency of your campaigns and appeals. Simply put, are your strategies generating or losing revenue for your mission? Then, when you correctly associate donations with their sources, you can dig even deeper—do email appeals generate more revenue than direct mail? Where should you be focusing your efforts, and where can you keep improving?
However, it’s also important to note that all metrics, including fundraising ROI and net revenue, have their limitations.
The simple fact is that no single metric will give you a complete picture of the success or shortcomings of a fundraising program. For example, campaign ROI does not take into account the potential lifetime value of donors, which is arguably more important when planning strategic investment decisions.
Similarly, we should expect different ROIs from different types of fundraising campaigns. If you plan a campaign around the main goal of re-engaging lapsed donors or acquiring new donors, your final ROIs will look different. But each campaign can generate value for your mission over time in different ways. For a range of compelling perspectives on fundraising ROI, take a look at this article from The Guardian.
Taking a More Comprehensive Approach
Rather than relying on a handful of limited metrics, nonprofits should understand how a wider variety of fundraising metrics give them more lenses through which to measure campaign performance. Fundraising ROI is certainly important, but it’s not the whole picture.
Artificial intelligence gives nonprofits access to predictive metrics—accurate predictions about how donors will behave based on the entirety of their historical data. It’s like studying all of your fundraising metrics to determine how likely individuals are to make donations, churn from your program, or upgrade their donation at any given time, something that would be practically impossible to do with manual analysis and calculations.
Nonprofits will always benefit from having a solid understanding of fundraising metrics like ROI and building data infrastructures to track and study them. Looking ahead, modern tools like AI will play increasingly important roles because they allow you to use your data in smarter ways with less work upfront.
To learn more about AI and the role of data in fundraising, keep researching with these additional resources:
- Donor Segmentation: Understanding the RFM Approach. Segmentation is the process of using your data to refine your outreach strategies. Learn how to segment your own donors with this crash course on the most common approach, RFM segmentation.
- 3 Easy Ways to Get Started with AI for Fundraising. Excited to learn more about AI for fundraising? Check out these easy ways that nonprofits are already using artificial intelligence to raise more money.
- 5 Tips to Successfully Engage and Retain ‘At-Risk’ Donors. Donor churn is extremely costly for nonprofits. Learn our top tips for identifying, re-engaging, and retaining these valuable supporters of your mission.