Founder of the analytics group donorcast
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Here was my recent answer on Quora.
It costs money to raise money. Say two charities were providing food to the homeless. One spends $100,000/year and raises $1,000,000. The other spends $300,000 and raises $2,000,000. The first has better efficiency ($0.10 cost to raise a dollar), the second ($0.15 per dollar) provides $800,000 more food to the homeless. What is the ultimate goal, more food for the homeless or more efficiently acquired food for the homeless?
The largest efficiency factor tends to be donor acquisition. The cost to bring in a new donor far exceeds renewing an existing donor. Major gifts from the few greatest supporters provide the most “efficient” dollars. However, to build a base and develop the loyalty for these future high-producers depends on investment. The most effective charities in terms of impact and long term sustainability may even acquire donors at a loss. But, the larger the engaged base, the increased likelihood of major donors, thus paying down the inefficiency of acquisition.
For my personal giving, I look for the evidence of a major gifts operation (high touch) in addition to base development activities (mailing, events, phonathons, online appeals). If an organization has “major gift officers,” “major donor reps,” or “development officers,” and there is evidence of staffed prospect research/prospect development, the likelihood of a sustainable, impactful program is greater. Generally, these nonprofits invest base development dollars in participation returns and major gift development dollars in financial returns. The balance tends to be a consistent factor for overall production and resulting impact.