Cost-effectiveness in Fundraising: How to do a Cost-Benefit Analysis and Why it’s Important

How to do a cost-benefit analysis for fundraising? 

Before you jump in, let’s get crystal clear: Why are you fundraising? Is it for quick cash, building relationships with donors, or shouting your mission from the rooftops? And is this a one-time thing or part of a bigger master plan? 

1. Define your objective 

Start by clarifying what you’re analyzing—say, a fundraising event, a digital campaign, or a donor outreach program. The goal is usually to raise money, but it could also include building awareness or growing your donor base. 

2. Identify costs 

List every expense involved. Be thorough.  

For example: 

• Direct costs: Venue rental, staff salaries, marketing materials, ads, software subscriptions (e.g., CRM tools). 
• Indirect costs: Volunteer time (assign a monetary value, like minimum wage), utilities, or overhead. 
• Opportunity costs: What else could you have done with that time/money? (This is trickier but worth considering.) What you’re giving up by focusing here instead of, say, major donor outreach? 

3. Quantify benefits  

Estimate the return on investment (ROI) or a total fundraising net. This is usually the total funds raised (gross raised minus expenses), but don’t stop there—measure also dependency risks (over-reliance on one event). 

Include: 

1. Tangible benefits: Cash donations, ticket sales, sponsorships.
2. Intangible benefits: New donors acquired (calculate their potential lifetime value), brand exposure, or community goodwill (assign reasonable dollar estimates if possible).
3. Add “network amplification”—if attendees share your cause on social media, calculate reach using average impressions (e.g., 500 per post) and cost-per-impression from ad platforms ($0.01-$0.05). 

4. Calculate the net benefit 

Use this formula: Net Benefit = Total Benefits – Total Costs.

If it’s positive, you’re in the green; if negative, you’re losing money. 

Then, determine the cost-benefit ratio: divide benefits by costs (Benefits ÷ Costs).  

A ratio above 1 means you’re earning more than you’re spending. For fundraising, nonprofits often aim for ratios like 3:1 or higher (e.g., $3 raised per $1 spent), though this varies by campaign type. 

5. Adjust for time and uncertainty 

Not all money is the same—when it comes in or goes out matters a lot. Let’s look at two big ideas: Upfront costs and recurring benefits. 

Upfront costs

These are the expenses you pay right now to get your fundraiser off the ground. They can feel like a punch to the wallet, but they’re essential to make things happen. Examples include: 

• Venue deposits (if you’re hosting an event). 
• Marketing blitzes (like ads, social media campaigns, or flyers). 
• Buying swag or materials (t-shirts, banners, etc.). 

Think of it as an investment to kickstart your fundraiser. 

Recurring benefits 

These are the rewards that come in over time, not all at once. They’re like the slow-and-steady wins of fundraising. Examples include: 

• Recurring donations (monthly or yearly contributions from loyal donors). 
• Long-term sponsorships (companies or individuals who commit to supporting you for months or years). 
• Donor cultivation (building relationships that pay off in future donations). 

Money in the future isn’t worth as much as money today. Why? Because of inflation, opportunity costs, and the fact that you could invest that money elsewhere. To account for this, use a discount rate (like 3-5%) to calculate the present value of future benefits. This helps you compare apples to apples: today’s costs vs. tomorrow’s rewards. 

Why this matters?

• Upfront costs are immediate and can strain your budget, but they’re often necessary to launch your fundraiser.
• Recurring benefits are awesome, but they take time to materialize. Use a discount rate to understand their true value today. 

In short: Today’s funds are valuable, but don’t ignore the long-term payoffs. A good CBA helps you balance both! 

Example to tie it all together

Imagine you’re hosting a fundraising event: 

• Upfront costs: You spend $5,000 on a venue, $2,000 on marketing, and $1,000 on swag. Total: $8,000.
• Recurring benefits: Over the next year, you gain 10 new monthly donors who give $50 each. That’s $6,000 over 12 months. 

But wait! $6,000 in the future isn’t the same as $6,000 today. Using a 5% discount rate, the present value of those future donations might be closer to $5,700. Now you can compare: $8,000 upfront vs. $5,700 in recurring benefits. 

Test your assumptions

Let’s play the “What if?” game—it’s like a fire drill for your fundraiser!  

• What if attendance is 20% lower? Will you still break even?
• What if ad costs spike? Can you pivot to cheaper marketing channels? 
• What if the economy tanks or it rains at your outdoor event?  

Run these scenarios to see how fragile your plan is. Fundraising is sensitive to external shocks, so stress-test your plan with a 10-20% drop in expected benefits. If it still holds up, you’re golden. If not, it’s time to tweak! 

Build a buffer (your safety net)

Here’s the pro move: build in a cushion. Add a 10-15% buffer to your costs and shave 10-15% off your expected benefits. This way, you’re ready for surprises without breaking a sweat. 

6. Compare alternatives 

1. Run the CBA on different fundraising options (e.g., gala vs. crowdfunding; hybrid vs. online vs. live event).
2. Don’t judge one tactic in isolation.  
3. Pick the one with the best net benefit or ratio, given your goals and constraints.  

Example:

Imagine a charity gala: 

• Costs: $10,000 (venue, catering, ads). 
• Benefits: $35,000 (ticket sales, donations). 
• Net benefit: $35,000 – $10,000 = $25,000.
• Ratio: $35,000 ÷ $10,000 = 3.5:1. 

Looks solid—$3.50 raised per $1 spent. But if ads flop and you only raise $15,000, the ratio drops to 1.5:1, barely breaking even after effort.