The Realities of Fund-Raising Costs and Accountability

by Stephen J. Smallwood and Wilson C. Levis

Reprinted from The Philanthropy Monthly, September 1977

Stephen J. Smallwood is Vice-President for Development, the New York Hospital, Cornell Medical Center in New York City. He is chairman of the Fund-Raising, Cost Study Program of the National Society of Fund- Raisers.

Wilson C. Levis, Fund Raising System Consultant of Washington, D.C. is director of the NICE Fund-Raising Cost Study Program of the National Society of Fund Raisers.

Each year, Americans contribute billions of dollars to a wide range of philanthropic organizations and causes, encompassing educational, health and welfare, cultural, scientific and religious programs and objectives. Estimates are that in 1976 over $29 billion was given by individuals and corporations to charitable pursuits. Currently, giving by individuals constitutes about 88 percent of total annual contributions.

A considerable portion of these billion dollars is given to philanthropy because the recipient institutions and organizations solicited the support from the donors. The solicitation effort is often conducted by volunteers, who are enlisted and trained by professional staff members with fund-raising responsibilities and in some instances, professional fund-raising consultants who have been hired by the organizations to guide the solicitation efforts over a specific period of time. By using volunteers the methods of solicitation used generally result in lower fund-raising costs. For organizations who do not have volunteers, the solicitation effort is more limited, hence more expensive fund-raising methods have to be utilized.

Recent years have witnessed an increasing interest in the costs of fund-raising by charitable organizations. This interest has been fostered as the result of a few instances of inefficient and/or abusive fund-raising, practiced by ostensible or actual philanthropic groups or by outside fund-raisers. The focus on fund-raising costs has become so intense that many well-intentioned evaluators (including potential contributors) of charitable organizations are tending to view the level of such costs as the principal or perhaps the only characteristic to take into account in estimating the "worthiness" or legitimacy of the organizations.

These developments are causing professional staffs with fund-raising responsibilities and fund-raising consultants to begin to reevaluate fund-raising practices and costs, in an effort to ascertain what cost levels are appropriate and to minimize or eliminate inefficiency in administration and excessive fund-raising costs.

Similarly, in response to growing demands for greater "disclosure" and "public accountability" by the philanthropic sector--particularly as respects fund-raising costs--the voluntary sector and professional fund-raisers have been rethinking measurement techniques and reporting formats, in an effort to design and effectuate a meaningful disclosure and reporting system. In this way, it is hoped that contributors (individuals and corporations), grantors (foundations and government agencies), administrators, auditors, regulators, legislators, and others can be provided the information about charitable organizations they require to enable them to fully meet their responsibilities. At the same time, this objective must be balanced against the equally competing goal of assuring that charitable dollars are not spent to meet unfairly burdensome and wasteful disclosure and reporting requirements.

An effective and fair disclosure and reporting system for the philanthropic sector (including that utilized in state and federal regulation) cannot evolve until those who would design, implement and enforce the system understand the realities of fund-raising for charity. The purpose of this article is to provide an introductory guide to the practice of fund-raising for the philanthropic sector.

Role of Philanthropy in America

The political and economic philosophy upon which America was founded and remains organized strongly emphasizes individual initiative and an active role for the voluntary sector. This principle of pluralism stresses the inherent value of decentralized and non-governmental choice-making as essential to the preservation of individual liberty. These doctrines are also the basis of a system of voluntarism more responsive to public needs and more efficient than the cumbersome and less flexible allocation process of government administration.

When those in the voluntary sector of United States society embark on a public undertaking for the common good, they nearly always do so by means of nonprofit organizations. The widespread use of charitable institutions to advance public ends is unique to this country and is an integral feature of our heritage and societal structure. It is virtually impossible to catalog the diversity of the charitable community: schools, colleges, universities, hospitals and other health care institutions, churches and other religious organizations, cultural organizations, the voluntary health and welfare agencies, and more.

It is philanthropy that provides the resources that enables charitable groups to make their contributions to the country's progress. In this mission, philanthropy is aided by a favorable tax system which encourages charitable giving.

Philanthropy is assisted by the fund-raising profession, whether by individuals who are employees of the institution (often Vice President, or Director of Development), or by professional fund-raising consultants. Philanthropic institutions of all types are aided by the members of this profession, such as in connection with an appeal to alumni and students of an educational institution, to friends of a community hospital, to members of an organization, and the like. This assistance is rendered with respect to various annual appeals for support, capital campaigns, and deferred giving and bequest programs.

The professional fund-raising community is greatly concerned about charitable fund-raising costs and supports reasonable efforts to reduce the expenses of soliciting charitable support. Before such efforts are undertaken whether by government regulators or by self-regulation by the voluntary sector--the realities of fund-raising for charity must be understood.

Categories of Fund-Raising Activities

Any understanding of fund-raising costs experienced by charitable organizations first requires a realization that there are several types of fund-raising methods.

One of the most common of fund-raising methods employed by charitable organizations is to solicit gifts using direct mail. Such fund-raising may occur continuously throughout a year or during a portion of a year. In either case, the organization usually refers to such fund-raising as a major effort of its annual giving program or, in short, the "annual fund." For the typical charitable organization, fund-raising by means of the mail may well constitute the principal, if not the sole, fund-raising technique. For the older, better known organizations, fund-raising is frequently accomplished by enlisting volunteers who personally solicit their friends, classmates or peers, since larger gifts usually result from this method of solicitation.

There are, however, two fundamentally different fund-raising activities within the concept of solicitations of annual gifts by mail. The distinction is based upon the nature of the recipient of the solicitation. namely, whether or not the recipient has previously made a contribution to the organization. These two fund-raising activities are frequently referred to as "donor renewal" and "donor acquisition."

The chief objective of an organization in engaging in a "donor renewal" activity is to cause the prior donor-recipient to make another contribution to it. Since the mailing is to a list of previous contributors, this fund-raising technique is prevalent among older, more established, institutions with long lists of faithful supporters.

By contrast, the chief objective of an organization in engaging in a "donor acquisition" effort is not to acquire a contribution but to identify an individual sympathetic to the purpose for which the funds are being raised. Such an individual then becomes the subject of subsequent appeals as part of the annual giving program.

This fundamental bifurcation of the annual giving program is little understood and is the source of much confusion among those unfamiliar with the fund-raising profession. Until the advent of computer technology, most charitable organizations did not distinguish between donor acquisition and donor renewal. Rather, all receipts (and all costs) were lumped under the annual fund. The lack of differentiation in this area is still the rule for most organizations.

Another fund-raising method is the use of "special events", such as dinners, luncheons, benefits, tours, sports events, or theater parties, where the charitable organization is the recipient of the net proceeds realized from the event. These events are useful not only for donor (actual and potential) solicitation but also educating and cultivating new prospective donors.

A fund-raising activity closely related to the special event is the sale of goods or services. With this method, charitable organizations seek to raise money by conducting bake sales, auctions, bazaars, car washes, flea markets, sale of advertising, and the like.

Funds raised by the foregoing methods are usually expended on the organization's ongoing programs. Where, however, a charitable institution seeks financial assistance in connection with a major capital-enhancing effort, the result is a "capital campaign." The proceeds from such a campaign are used to facilitate new construction, renovation of existing facilities, acquire land, reduce debt incurred for such improvements or enhance the endowment fund. Contributors are usually solicited by volunteers for a major, one-time gift or pledge, frequently payable in installments.

Contributors of the foregoing types of gifts have the benefit of the charitable contribution deduction in computing their Federal (and usually state) income if they itemize their deductions. Charitable gifts are also excluded from the Federal gift tax.

Some charitable organizations maintain one or more "life income programs", (sometimes referred to as "deferred giving" programs), whereby the donor makes a gift of cash, securities or property and receives in return income payments for a designated period and a charitable contribution deduction for the remainder interest which will later pass to the charity. This type of gift is made to a "pooled income fund" or to a "charitable remainder trust," or gives rise to a "charitable gift annuity." The fund-raising associated with this method is accomplished by means of the distribution of explanatory materials and personal contact by volunteers and fund-raising staff members trained in this specialized area.

Charitable organizations may also maintain a "bequest program" whereby the organization, by means of the distribution of explanatory materials and personal contact, will work to encourage individuals to make provision for the organization in their wills. At the death of the testator, the charitable bequest is paid to the organization from the estate. The Federal tax deduction is available for the payment.

Factors Affecting Fund-Raising Costs

In addition to the realization that fund-raising activities are diverse, an understanding of fund-raising costs incurred by charitable organizations requires an appreciation of the fact that the legitimate costs associated with the several fund-raising methods vary considerably.

The only way to fairly and productively understand the fund-raising costs of an organization that utilizes more than one of these methods is not to look at the total of such costs for a particular period but to look at the total of such costs for each fund- raising activity over a period of several years. Therefore, the key to understanding and evaluating fund-raising costs of a charitable organization is to "pluralize" the fund-raising function.

The difference in the levels of reasonable fund-raising costs is starkly illustrated by comparing the costs of donor renewal to those of donor acquisition.

Organizations which differentiate between the processes of donor acquisition and renewal find astronomical differences in costs per dollar received--with donor acquisition costs being 10 to 20 times that of the cost of renewals. The process of securing new donors is a matter of specific motivation, education and a great deal of cultivation. Therefore, it is far more expensive than the task of renewing a gift from a donor who already knows the organization and feels he has a stake or investment in it by virtue of his prior support.

For long-established organizations, it makes little difference that donor acquisition is such a costly effort. These organizations have sufficient donors on their rolls to assure continued support as well as volunteers who assist in the donor renewal and upgrading process at relatively little expense. The necessity of donor acquisition to cover the natural attrition in their donor file is an ongoing process subsidized by their much larger renewal activities. Enabled to merge the two activities in their financial reports, such organizations are able to show their fund-raising costs as a relatively low and respectable percentage of return.

However, for the new organization, the story is much different, since it usually lacks a large volunteer core and must confront the task of a great deal of donor acquisition and very little donor renewal. Since it costs 10 to 20 times as much to get every new donor and donation, the mix of fund-raising costs in this situation becomes entirely different. Moreover, in many states, such fund-raising costs levels are illegal because the law imposes a ceiling on maximum annual fund-raising costs (generally, between 25 and 35 percent of receipts). Thus, unless such an organization obtains a few large gifts, particularly in its early years, it cannot legally continue its fund-raising efforts. With few exceptions, it is impossible for a new charity to solicit a broad spectrum of potential donors and expect to raise funds within the percentages allowed by such state legislation. In effect, this means that new charities cannot lawfully be formed or operated in these states. In trying to legislate against charlatans, these state laws (and legislators in other states who are formulating legislation) are inadvertently denying life to charities which lack immediate broad support. The result is likely to be repression of groups advocating new or unpopular causes.

It is generally accepted that a large, established organization should expend no more than 20 cents for each dollar raised from the annual donor renewal process using direct mail and personal solicitation techniques. By contrast, the same organization, seeking to expand its overall donor base by initiating a new donor acquisition program, may reasonably expend the entirety of each dollar raised or somewhat more in connection with its donor acquisition effort.

For the other categories of fund-raising activities, a 50 percent cost per dollar raised is reasonable for fund-raising by special events, while a 10 percent cost per dollar raised is reasonable for capital campaigns, life income (deferred giving) programs, and bequest programs.

With respect to direct mail and special event fund-raising, these percentage ranges can generally be fairly ascertained by making the computation over a twelve-month period. For capital campaigns, the measuring period should be at least three and preferably five years, to reflect the fact that such campaigns are conducted over that period of time, with a substantial portion of the costs incurred during the first twelve to eighteen months of the period. For life income and bequest programs, it is not possible to correlate the expenditure of a dollar and the receipt of a dollar because of the uncertainties over the value and timing of receipt of a gift in relation to the effort previously made to stimulate it.

To demonstrate the foregoing, Illustration 1 is a hypothetical example showing the fund-raising activities of an organization on a pluralized basis, where all of the fund-raising costs are in the range of reasonableness.

Thus, two of the principle factors affecting a. charitable organization's fund-raising costs are the length of time that it has been in existence and the type of fund-raising methods employed. Closely related and important aspects are the organization's cause, th nature of its leadership and constituency, the of volunteers working on raising funds, and its overall management capabilities. Other elements impacting on the level of fund-raising costs include the organization S geographical location, and the costs of doing business generally.

Performance Evaluation--Limitations of the "Bottom Line" Ratio

Charitable organizations are constantly being evaluated by their boards of trustees or directors for adherence to their basic policy objectives, by government agencies and private foundations as potential grantees, by contributors as potential donees, and by state regulatory officials. Particularly as respects contributors, ways are always being sought to judge a charitable organization's "worthiness."

In recent years, evaluators of philanthropic groups have come to focus on the level of their fund-raising costs as the prime indicator of worthiness and entitlement to support. This focus has had two unfortunate manifestations.

The first of these manifestations is the belief that the level of fund-raising costs is the only or the chief characteristic of an organization to evaluate as to worth. This is not the case. Why? Other variables, as noted, include the organization's age, the nature of its programs, the acceptance or popularity of its "cause," the type(s) of fund-raising techniques employed, and its geographical location. Also, general administrative and management costs should be reviewed in addition to fund-raising costs (since inefficiency of administration is as regrettable as excessive fund-raising costs, because either expenditure reduces the flow of dollars to the charitable purpose), as should the level of outlays for salaries, rent, accounting services, legal advice, investment management assistance, and the like.

The second of these unfortunate manifestations is the belief that the level of fund-raising costs is best measured and reported by means of a single percentage, constructed by a ratio comparing total receipts against total fund-raising expenses. In Illustration No. 1, the organization's fund-raising costs for the statement year would be expressed, pursuant to this approach, as 12.3 percent of receipts--a very moderate outlay for fund-raising purposes.

The problem associated with the use of the "bottom-line" ratio is threefold: (1) it ignores the fundamentally important pluralization concept, thereby enabling organizations with an unreasonably high cost for one fund-raising method to hide the cost by offsetting it with a seemingly low fund-raising cost for another method, (2) it ignores the absence of a ready definition of "fund-raising costs," which enables organizations (usually those the advocates of the bottom-line percentage are trying to expose) to treat, without challenge, a portion of fund-raising expense as program expense (such as by claiming part of a solicitation document to be educational), and (3) it ignores the absence of a reliable allocation rule to curb the ability of organizations to (assuming any allocation is legitimate in the first instance) be overly liberal in allocating costs away from the fund-raising category. Consequently, where more than one fund-raising technique is being practiced, the bottom-line ratio measurement device can be misleading, manipulated, and counterproductive to and defeating of the principal purposes of the focus on fund-raising costs: meaningful and informative disclosure and accurate measurement of fund-raising effectiveness.

The single ratio measurement is relatively accurate in the instance represented by Illustration No.1 because each of the sub-categories of fund-raising costs is reasonable. (Of course, some will find it difficult to realize that a fund-raising cost of 116.4 percent is reasonable, until the distinction between donor renewal and donor acquisition, as discussed above, is understood.)

One of the deficiencies of the bottom-line ratio is demonstrated by Illustration No.2.

In this second example, all costs are reasonable and identical to costs in the first example, except the fund-raising costs for new donor acquisition. These costs are unreasonable, as evidenced by the high percentage of 211.1 percent. However, the summary ratio fails to detect this abuse, since the high fund-raising costs are "sheltered" by the other, quite reasonable levels of fund-raising costs. Thus, one aspect of the fallacy of judging the effectiveness of a fund-raising program through the use of the summary percentage is that high costs can be hidden--inadvertently or deliberately--from disclosure. The organization in Illustration No. 2 appears just as "worthy" as the organization in Illustration No. 1, although in fact inefficiency and high fund-raising outlays took place in the year under evaluation.

Another of the deficiencies of the bottom-line ratio relates to the distortions it produces when applied to the newly created organization. Such an organization cannot, of course, have an established donor base and can, at best, be just beginning a capital campaign or deferred giving and bequest program. Thus, for its fund-raising efforts in its initial months, the new organization will likely be concentrating on the direct mail and special events methods. And, within the direct mail category, the emphasis will have to be on new donor acquisition.

Illustration No. 3 shows the fund-raising activity of a new organization during its first full year of operation.

All of the fund-raising costs for the organization in Illustration No. 3 are reasonable. Yet the bottom-line percentage is 90 percent. It probably is extremely difficult for most people to comprehend a situation where a 90 percent fund-raising cost percentage is regarded as reasonable. It may be assumed that many of the donors to this organization, if they were aware that 90 cents of each of the contributed dollars was devoted to fund-raising in the year reported would have declined to make the gift. Many of the same donors may be encouraged to make the gift if they were aware of the fact that the cost associated with acquiring the same gift in a future year would not exceed 20 cents of their contributed dollar.

Another fallacy of the bottom-line percentage becomes apparent when applied in conjunction with a capital campaign. Illustration No. 4 shows how an organization can have excessive fund-raising costs for a capital project and nonetheless have that fact hidden by the summary ratio (total costs reasonable at 15 percent).

This is, in essence, the same point as was demonstrated in Illustration No.2.

With respect to capital campaigns, however, the problem takes on an additional dimension. As noted, these campaigns are multi-year efforts and the majority of the fund-raising costs are normally incurred in the initial months of the campaign. Consequently, where the bottom-line percentage is constructed on an annual basis, the fund-raising costs for the initial year of the campaign will appear artificially high and in the subsequent years will be misleadingly low. Worse, if the summary (high) percentage for the first year is presented to potential donors, the misunderstanding thereby generated could result in a shortfall of support in the later years, even though the fund-raising costs for the capital campaign in their entirety prove to be reasonable.

These distortions in relation to the use of the bottom- line ratio become even more aggravated when support received from an organization's deferred giving and bequest programs is factored in.

Illustration No.5, demonstrates the same point in this context as do Illustrations Nos. 2 and 4 in the other settings.

Again, there are two aspects of this illustration that demonstrate the fallacy of the summary ratio. Illustration No.5 represents the circumstance where an organization is able to hide excessive fund-raising costs in two or three categories behind a very successful deferred gifts and bequest program and have a bottom-line ratio that would indicate reasonable outlays when in fact the opposite is true. Thirty percent costs for annual donor renewal is not reasonable nor is the 200 percent percent cost for new donor acquisition, and 60 percent is at best high for special events, yet the organization in Illustration No.5 is made by the summary ratio to look as efficient and prudent in its fund-raising expenses as an organization that has a 20 percent cost ratio for each of its fund-raising activities--all because a substantial deferred gift or charitable bequest happened to materialize in the year involved.

Worse, the summary revenue-cost ratio approach is further skewed beyond acceptability where a deferred giving program and/or a charitable bequest program is concerned. This is because there is no correllation between the costs expended in a particular year for either or both of these programs and the support provided by the programs. An institution may expend funds during a year to establish, and disseminate information about, its pooled income fund and/or charitable remainder trust programs and not experience any return from the program(s) until several years later. Likewise, an organization may devote dollars to the formation of a bequest program and succeed in causing individuals to make provision for it in their wills and not receive any money in return for years to come. In either instance, the funds flow to the charity as the result of happenstance (usually an individual's death); the fund-raising costs associated with such programs cannot realistically be related to the receipts generated by the programs.

Therefore, only in the simplest of factual circumstances (usually where only one fund-raising method is being used) can the bottom-line ratio be employed to accurately measure the level and effectiveness of fund-raising costs. A high fund-raising cost percentage, whether expressive of a subcategory of fund-raising costs or total costs, is by no means indicative of inefficient operation or lack of a worthy purpose. Conversely, an organization which is poorly managed and/or expending excessive sums on fund-raising can nonetheless have a low single fund-raising cost percentage.

Thus, the severe limitation on the use of and reliance on the summary ratio to measure and evaluate fund-raising costs is that philanthropic organizations with reasonable fund-raising costs by any fair standard can be portrayed as having unreasonable costs, while organizations with one or more categories of excessive costs can be characterized as having reasonable fund-raising costs on an overall basis. The summary bottom-line percentage figure in most instances fails to accurately measure fund-raising cost levels and effectiveness, can be misleading, is subject to manipulation, is not a reliable guide to the efficiency or worthiness of an organization, and is likely to be counterproductive to the general need for effective public understanding of the practices of fund-raising for charity.

Regulation of Charitable Fund-Raising

More than thirty states and the District of Columbia have a law requiring a charitable organization soliciting contributions within the jurisdiction to register and report to a governmental authority, usually the attorney general or secretary of state.

Compliance with these laws is difficult because their terms and requirements (and those of accompanying regulations) vary from state to state. In many states, separate regulation in this area is imposed by the ordinances of counties and cities. These statutes and ordinances involve a bewildering myriad of differing registration and reporting forms, due dates, and accounting standards, making a full compliance effort quite time-consuming, expensive and confusing.

These statutes normally require the organization subject thereto, which intends to solicit contributions in the state by any means whatsoever, to first secure permission from the appropriate authority to undertake the solicitation. Many states require that such permission be sought thirty days in advance of the solicitation. The applicant organization must submit extensive information about its purposes, directors, officers, finances, and fund-raising methods, and may be investigated by state officials.

Where the solicitation is permitted, the organization is issued a registration card or a license. In some jurisdictions, a fee must be paid to obtain the permit. Under the usual statute, the permit expires one year after the date of issuance. Renewal of the permit is made by filing the necessary supporting information prior to its expiration date. An earlier supplemental filing may be required where there is a material change in the information submitted with the original application.

The usual state charitable solicitation act will also require the licensed organization to file an annual report. This report must include a financial statement covering the preceding accounting period, prepared in conformance with appropriate accounting principles, and otherwise contain other information and data as the particular statute and regulations require. The annual report is due at varying times, sometime between thirty days and six months after the close of the accounting period or solicitation effort.

Once an organization is licensed or registered under a state's charitable solicitation statute, the documents it files with the enforcement agency (including the initial application and subsequent reports) are normally required to be open to public inspection. The organization is usually also obligated to maintain accurate and detailed books and records, which are open to inspection during business hours by representatives of the enforcement agency. Frequently, the organization is also required to keep or file copies of any contracts between it and professional fund-raisers and/or professional solicitors.

About one-third of the charitable solicitation acts impose a lid on the expenses charitable organizations may incur for fund-raising. These restrictions are stated as a percentage of the funds collected, usually 15,20 or 25 percent. In some circumstances, such as where an organization is seeking to build a donor base for the first time or is just commencing a solicitation program, these restrictions will be quite onerous and can prevent an organization from raising funds in the state.

Most of the charitable solicitation acts exempt from their purview organizations which confine their appeals for financial support to their bona fide members. These statutes also normally exempt solicitations by churches and other religious organizations, and sometimes exempt schools, colleges, universities, hospitals. museums and similar institutions.

For the most part, a violation of a state charitable solicitation act constitutes a misdemeanor. Such a violation (usually punishable only by a fine) most frequently occurs where an organization solicits contributions from the public in a state without first securing a permit to do so or where an organization fails to make a required filing. Where a solicitation is out of compliance with the legal requirements, the state authorities will normally issue a notice or reminder and the matter will end if the deficiency is resolved.The violations occur where the offense is repeated or is willful and, in some instances, the offense is elevated in seriousness to a felony (involving imprisonment).

However, the several state charitable solicitation acts may not be the only statutory requirements a charitable organization must face when soliciting gift support.

Virtually every state has a nonprofit corporation act which imposes registration and annual reporting requirements for corporations that "transact business" within the state. Although the practice is not widespread, the contention may be reasonably made that the process of soliciting contributions within a state provides a sufficient nexus between the organization and the state to bring the "doing business" requirements into play. If the solicitation of contributions is a business transaction in the states, the compliance obligations will be enormous, particularly in those jurisdictions which have both categories of laws.

An organization that has a "deferred giving" program, in that it maintains contributions programs involving a pooled income fund and/or charitable remainder trusts, must satisfy the requirements of the securities laws in the states that regard interests in such gift vehicles as "securities." An organization that writes charitable gift annuity contracts may have to obtain a permit to do so in accordance with a state's insurance law and subsequently file annual statements. Also, a state's law prohibiting fraudulent practices may invest the state's officials with plenary investigative power over charitable groups.

NICE's Role in Encouraging Meaningful Disclosure

Government oversight of the fund-raising practices of philanthropic organizations, particularly at the state level, is unavoidable and appears to be increasing. It is essential, therefore, that legislators and regulators understand the realities of fund-raising for charity. One constructive approach is the utilization of advisory commissions, particularly where there is adequate representation of the fund-raising profession.

Government agencies and advisory commissions, along with contributors, grantors and organizations' governing boards, are going to require sufficient financial and other information on charitable support and fund-raising costs in order to responsibly evaluate charitable groups and to make informed decisions and take effective action where necessary.

Thus, it is inevitable that, to satisfy this need for information, charitable organizations will have to provide reasonably detailed descriptive and financial data concerning their fund-raising operations. The National Society of Fund Raisers, Inc. Institute of Continuing Education (NICE) is developing a model reporting format for disclosure of the revenue and expense data necessary for meaningful evaluation of fund-raising costs. In this process, NICE is receiving volunteer technical assistance from a wide range of national charitable organizations and independent evaluation groups, and from representatives of the accounting, legal and fund-raising professions.

This model reporting format will contain guidelines for functional classification of fund-raising revenue and expense, reporting requirements for each function, and illustrative financial statements. It is hoped that the development of these guidelines will facilitate reporting of fund-raising and related activities of charitable organizations which will satisfy the needs of all persons who require this information. Ultimately, this project can lead to a system of measurement techniques whereby the cost effectiveness of an organization's fund-raising program can be evaluated. This effort is proceeding in the belief that the future of philanthropy is dependent upon meaningful and balanced disclosure of the fund-raising process.

Fund-Raising Cost Effectiveness Analysis
For the year ended December 31, 19XX
  Revenue Expenses Net Percentage
of Expense
to Revenue
New Donor Acquisition 116,000 135,000 (19,000) 116.4%
Donor Renewal 3,650,000 359,000 3,291,000 10.0
Special Events 104,000 18,000 86,000 17.3
Capital Programs 692,000 78,000 614,000 11.3
Deferred Gifts and Bequests 481,000 56,000 425,000 11.6
Indirect Campaigns 275,000 8,000 267,000 2.9
Total 5,318,000 654,000 4,664,000 12.3%
  These fund-raising activities figures are illustrative and not based on actual data. The percentage figures should not be construed as representing industry standards or norms for reasonable fund-raising costs.
2.9% to 116.4%

Fund-Raising Cost Effectiveness Analysis
For the year ended December 31, 19XX
  Revenue Expenses Net Percentage
of Expense
to Revenue
New Donor Acquisition (Direct Mail) 116,000 245,000 (129,000) 211.2%
Donor Renewal (Direct Mail) 3,650,000 249,000 3,401,000 6.9
Special Events 104,000 18,000 86,000 17.3
Capital Programs 692,000 78,000 614,000 11.3
Deferred Gifts and Bequests 481,000 56,000 425,000 11.6
Indirect Campaigns 275,000 8,000 267,000 2.9l
Total 5,318,000 654,000 4,664,000 12.3%
  These fund-raising activities and figures are illustrative and are notbased on actual data. The percentage figures should not be construed as representing industry standards or norms for reasonable fund-raising costs.
LOW AT 12%

Fund-Raising Cost Effectiveness Analysis
For the year ended December 31, 19XX
  Revenue Expenses Net Percentage
of Expense
to Revenue
New Donor Acquistion (Direct Mail) 250,000 245,000 5,000 98.0%
Donor Renewal (Direct Mail) 47,000 9,000 38,000 19.2
Special Events 18,000 13,000 5,000 72.2
Capital Programs - - - -
Deferred Gifts and Bequests - 15,000 (15,000) NA
Indirect Campaigns - - - -
Total 315,000 282,000 33,000 90.0%
  These fund-raising activities and figures are illustrative and are not based on actual data. The percentage figures should not be construed as representing industry standards or norms for reasonable fund-raising costs.

Fund-Raising Cost Effectiveness Analysis
For the year ended December 31, 1981
  Revenue Expenses Net Percentage
of Expenses
to Revenue
New Donor Acquistion
(Direct Mail)
150,000 160,000 (10,000) 106.7%
Donor Renewal (Direct Mail) 1,678,000 178,000 1,500,000 10.6
Special Events 85,000 22,000 63,000 25.9
Capital Programs 12,350,000 1,791,000 10,559,000 14.5
Deferred Gifts and Bequests 780,000 32,000 748,000 4.1
Indirect Campaigns - - - -
Total 15,043,000 2,183,000 12,860,000 15.0%
  These fund-raising activities and figures are illustrative and are not based on actual data. The percentage figures should not be construed as representing industry standards or norms for reasonable fund-raising costs.

Fund-Raising Cost Effectiveness Analysis
For the year ended December 31, 1981
  Revenue Expenses Net Percentage
of Expenses to Revenue
New Donor Acquistion (Direct Mail) 115,000 230,000 (115,000) 200.0%
Donor Renewal (Direct Mail) 650,000 195,000 455,000 30.0
Special Events 225,000 135,000 90,000 60.0
Capital Programs - - - -
Deferred Gifts and Bequests 1,850,000 6,400 1,843,000 0.3
Indirect Campaigns - - - -
Total 2,840,000 566,400 2,273,600 19.94%
  These fund-raising activities and figures are illustrative and are not based on actual data. The percenrage figures should not be construed asrepresenting industry standards or norms for reasonable fund-raising costs.

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