Innovation in Fundraising: Overhead, Risk, and Pancakes

Stack of Pancakes and SyrupBooster clubs I speak with tell me that they have to raise more money than ever before. More than ever, school districts depend on booster clubs to fill the ever-growing gap between after-school budgets and actual student need. How can booster clubs radically increase revenues? Does reducing overhead mean more money for programs? When does fundraising clash with a club’s mission?

Experts address these questions in very different ways. In this post I borrow points from Dan Pallotta’s TED talk “The Way We Think About Charity is Wrong,” and a conversation on philanthropy.com featuring Nell Edgington. Both authors are fundraising gurus that encourage small financial risks/investments to generate value for nonprofits.

Why My Mother Had a Bone to Pick with Pancake Fundraisers

When I was in 3rd grade, my school took a field trip to Manhattan to see the musical Annie. The school thought it a good idea to try to defray every child’s cost by throwing three separate pancake breakfast fundraisers. My mother felt so responsible for the success of the fundraising that she brought our family of four, all three times. On top of paying for those 12 pancake breakfasts, she had to pay for a babysitter for my younger siblings while she worked in the kitchen. She didn’t know how much it would end up costing her, and how little it would do for the other students.

She pointed out that people don’t appreciate spending $100 or more per family just to reduce the cost of the expensive trip by $3 per student. It is unlikely that a savings of $3/student actually changed who could and who couldn’t afford to go. While it was nice for the PTA to offer a fundraiser, many would have preferred to give directly.

iStock_000010368907SmallSome booster clubs do create strong traditions of selling wrapping paper or other projects, and resale makes sense for them. But more often than not, selling baked goods, wrapping paper, or other prefab products is a waste of your supporters’ resources. Reselling items is based on the flawed assumption that supporters would buy those items anyway (and they’ll buy them from the booster club at a slightly higher price). It also assumes that the act of selling won’t detract from the club’s mission.

Nell Edgington: Stick With Your Mission

Another disadvantage of resale is that it rarely supports your club’s mission. If your booster club supports a sports team, it makes sense to sell tickets to games—you’re promoting sports. If your booster club supports a music ensemble, it makes sense to host a battle of the bands—contestants will inspire or even include your students. But neither of those clubs advance their missions—aside from fundraising and awareness—by having a pancake breakfast or selling wrapping paper.

That’s why Nell Edgington, the nonprofit strategist, encourages organizations to raise money by performing services that exercise their existing skill sets. In a conversation on philanthropy.com, she cites a tutoring NGO that raised extra money by offering tutoring services for local public school districts. That allowed their staff to keep doing what they do—work with kids. I think we can translate this to the booster club world. Think about a basketball team, all working together to organize a 3-on-3 tournament. The kids get to help organize the brackets, work as referees, and compete with their friends and family. Fundraising still happens, but not at the expense of the club’s mission. There’s also the added benefit of grooming the next generation of club organizers.

Dan Pallotta: Measure Success by Profit, Not Overhead

The pancake flop also shows the folly of high overhead. Throw too much money into a fundraiser with not much return, and you might be squandering your supporters’ dollars. However, overhead is a limited metric. And it’s a metric that fundraising professional Dan Pallotta practically ignores. In the TED talk (click on the photo below), he makes his case for investment; marginal overhead that leads to higher profits. (I summarize the salient points in the talk in case you don’t want to watch it right this second.)

DanPallottaTED

Pallotta pioneered a sub-industry of fundraisers, including the 3-Day Breast Cancer Walks and AIDS Rides. Together, his fundraisers have generated over 500 million dollars of net donations for medical research. But they did have a high overhead—around 30% for advertising and event administration that attracted hundreds of thousands of participants.

“We got that many people to participate by buying full-page ads in The New York Times, […] in prime-time radio and TV advertising,” says Pallotta. “Our generation does not want its epitaph to read, ‘We kept charity overhead low.’ We want it to read that we changed the world.”

Booster clubs need to scale down Pallotta’s advice. You’re not going to put an ad in the New York Times for your next car wash. But booster club officers should consider spending as business propositions (will they bring in more donations?) rather than moral quandaries (couldn’t this advertising money go straight to kids?). For example, let’s say an event normally raises only $2,000, but has an overhead of only 5% (netting $1,900 in donations). What if promoting the same event, or investing in a new one, you could raise $5,000, even with a high overhead? At 30% overhead, a $5,000 event would still net $3,500. The investment might be a risk, and the overhead might raise some eyebrows. Yet the end result—a higher net donation—will do more net good.

Risk and Investment

Many booster club presidents I speak with eschew risk. They tell me they’re not trying to expand, and that’s understandable. Normally, the main responsibility of booster clubs is perpetuation; sustaining the same levels of funding for the same programs.

However, in many districts, funding has been or will soon be cut. Perpetuating the same old fundraising levels isn’t an option. Instead of throwing their hands in the air, booster clubs are dreaming bigger and looking to secure the financial future of the programs they support by building endowments or expanding fundraising. Those ambitious plans require growth, and for growth to take root, you need innovative ideas and permission to fail.

“I know when you prohibit failure, you kill innovation,” says Pallotta. “If you kill innovation in fundraising, you can’t raise more revenue. If you can’t raise more revenue, you can’t grow.”

Every booster club’s first fundraiser was a risk. And that meant the possibility of failure and loss of money or time. Clearly, there’s a balance between risky and conservative fundraising. Edgington, who works with smaller nonprofits, wants us to find that balance.

“Don’t bet the house on an untried strategy,” she says. I like to think that innovation should be a small but regular budget item to support what Edgington calls “small experiments with radical intent.” This is what responsible investment looks like. “Take the time to learn from what you’ve tried…. Only when you have a well-tested strategy should you invest (or seek) big dollars to scale up.”

Translating your experiments into larger action—scaling up—will depend on the needs and circumstances of your organization.

Conclusion: Three Tips Towards Fundraising Innovation

I believe that Pallotta’s and Edgington’s advice is complementary, not contradictory. Booster clubs should try new things, allow for failure, and avoid losing big sums of money along the way.

  • Invest—conservatively—time and money into new fundraising ideas.
  • Remember your mission—while selling wrapping paper might increase your budget, it doesn’t add much value to your participants, donors, or volunteers.
  • Net donations are more important than overhead costs.

As with everything I write, this advice is based on the feedback and experiences of sample of booster clubs with their own circumstances, histories, and methods. What works for them—or doesn’t work for them– might produce different results in your club. Either way, I’m always eager to hear about your results, so do drop me a line.

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