The strategic use of ROI

I’ve a question and a challenge – how good is your charity at optimising its ROI?
It is not always something we want to ask, the numbers often don’t excite or enthral, but look beneath the surface and I think there’s a fundamental question around how charities work internally and interact with both supporters & prospects.
Simply put, as we all know, ROI gives us a measurement of our “fundraising margin”. As such it is a fundamental measure of fundraising efficiency.
But there’s little consistency across the sector and often even within charities
In calculating ROI some charities include staff costs, others include gift aid, some include external agency development fees…..
Often, even within individual organisations there’s no consistent approach. There are charities that analyse their performance in some channels using 4 year ROI whilst in others channels it’s 1 year.
Without consistency we have to ask ourselves, how can an organisation make the best decisions as to where to effectively spend the limited fundraising budget?
How do we ensure that we are maximising the ROI?
In every charity on a daily basis activities are being planned and decisions are being made. Of course the big strategic issues – such as decisions to invest significant amounts of money into fundraising for long term benefit will be agreed at a senior level.
But how good are we are shifting fundraising budget from one opportunity to another. How simple for example is it to take money out of direct marketing and shift it to an event because the ROI will be better (or of course vice versa)?
My experience is that many organisations still work within their silos and only look at these questions when it’s budget and planning time. And this becomes even more difficult if the changes in fundraising activity might impact on staff – if by moving money out of one area the implication is that there is too much resource.
To tackle this issue, charities need to look toward a robust process and system to enable proactive shifting of budgets and activities – of course this requires the information to be consistent and easily accessible.
Alongside this do we or should we worry what the supporter (or potential supporter) thinks?
From the research, we know that typically the public perceive that (at least) 70% – 80% of any money raised should go to the cause. Is this relevant and how do we apply it?
Let’s bring this to the real world.
A charity that I worked with had an issue. Their flagship event generated significant net income – over £1million and what’s more they knew that those who took part felt more inspired and motivated to the cause.
But bluntly the ROI was not great – in the region of £50p for every pound spent. Despite many attempts to improve ROI there were no obvious significant improvements available that worked.
So, what next? At what point is ROI so low that the event needs to be stopped (or restructured at a lower cost or with a higher income opportunity)?
The charity concerned felt that if supporters realised that 50% of their sponsorship money was contributing to the cost of the event they would feel let down, and this was unacceptable. They made a strategic decision to stop the event. Although it made a sizeable dent in their fundraising income and as a consequence what they could deliver for their mission, they felt that supporter trust was more important.
The key question they asked themselves was “how would we feel about this if we were a supporter” and this drove their decision making.
None of this is straightforward to resolve and let’s be clear that ROI alone should not be the key measure for success, it’s just one element of your measurement toolkit – albeit a very important metric. But by using ROI strategically, doing less of the poorer performing fundraising and switching this into the more successful areas, I bet for almost every charity there are improvements that could be made. What’s more by doing this it evidences to your Trustees that fundraising is not always just about asking for more money!