Are you spending too much on fundraising? The Fundraising Efficiency Ratio (FER) helps you measure how cost-effective your fundraising efforts really are. Let’s crunch the numbers and see where your nonprofit stands!
Every dollar counts when it comes to supporting your mission, but how do you know if you’re spending the right amount on fundraising?
Fundraising Efficiency Ratio (FER) is a key metric that ensures your nonprofit is using your funds as efficiently as possible to support your mission, ultimately helping you do more good in the world!
In this post, we’ll break down what a FER is, why it matters, and how to calculate it (don’t worry – it’s easier than you think!).
A fundraising efficiency ratio (FER) is a key measurement for nonprofits to understand how well their fundraising efforts are performing.
Unlike regular businesses, nonprofits aren’t just focused on generating profits – they have a mission to advance. So, they need to know whether the money they spend on fundraising is helping them raise funds that directly support their cause.
In simple terms, the FER shows how much of the money raised from your fundraising event or campaign actually goes toward your mission.
For example, if your nonprofit spends $500 on organizing an event and raises $2,000, the FER helps calculate how efficient your event was in terms of cost versus funds raised.
Nonprofits rely heavily on donations and fundraising events to fund their missions, so it’s important that as much of the money as possible goes directly to supporting your cause, rather than being eaten up by fundraising costs. With a FER, you ensure you’re stewarding those donations well!
Why FER matters for your nonprofit:
Finding your Fundraising Efficiency Ratio is simple!
FER formula: Fundraising Expenses/Total Donations Raised = FER
Here’s how to calculate your FER:
You can calculate your FER for each individual fundraising activity or look at the numbers for a longer period, like your fiscal year, to get an overall picture of how efficient your fundraising efforts have been.
Let’s say you hosted a fundraising dinner, and here’s how the numbers break down:
You spent a total of $1,000 on the event, which includes costs like the venue, catering, and marketing materials. This is your fundraising expense.
On the other hand, you raised a total of $4,000 from ticket sales, donations, and a silent auction. These are your total donations.
To calculate the Fundraising Efficiency Ratio (FER), you divide your total expenses by the total donations. So, in this case, you take $1,000 (your expenses) and divide it by $4,000 (your donations). That gives you a FER of 0.25.
This means you spent 25 cents for every dollar you raised. A FER of 0.25 indicates that your fundraising efforts were quite efficient – you raised $4 for every $1 spent on the event.
In other words, for every dollar you invested in fundraising, you brought in four dollars to support your cause!
A good Fundraising Efficiency Ratio depends on your nonprofit’s size and mission, but in general, lower is better.
A common industry benchmark is 5:1, meaning you spend $1 for every $5 raised. However, there’s no magic number that works for every organization.
Your FER depends on factors which we’ll take a look at now!
Larger, high-profile events like galas or auctions often have higher upfront costs but may bring in more donations, leading to a higher gross revenue. Smaller events or campaigns may have lower expenses, which could result in a better FER.
Nonprofits with a large, engaged donor base can often raise more money with fewer resources, leading to a better FER. A smaller donor base might mean higher costs per person to reach a meaningful amount of funding.
Your nonprofit’s ability to engage and retain donors plays a big role. Effective stewardship and engagement can lead to higher returns with the same or lower investment, improving FER.
The Fundraising Efficiency Ratio is an important metric for your nonprofit, but it’s not the only one worth keeping an eye on.
By analyzing FER alongside other key metrics, your nonprofit can develop a more data-driven approach to fundraising.
Let’s see how a FER compares to other common nonprofit financial metrics.
The administrative expense ratio for nonprofits tells you how much of your organization’s total budget goes toward administrative costs – things like executive salaries, office expenses, and general operations.
While FER zooms in on fundraising costs, the administrative expense ratio gives a bigger picture of how your organization is managing its resources.
A lower ratio is better because it means more of your funds are going directly to programs instead of overhead.
A good administrative expense ratio is typically under 25%, meaning that no more than 25% of your nonprofit’s budget goes to administrative costs, leaving at least 75% for programs and fundraising.
Both FER and the administrative expense ratio are important to donors because they indicate how much of their contributions go directly to your cause.
The 80/20 rule in fundraising suggests that 80% of your donations likely come from just 20% of your donors. Though the 80/20 rule isn’t a strict metric like FER, it’s useful in determining how fundraising efforts should be focused.
For many nonprofits, the 80/20 rule means putting extra effort into building relationships with major donors. If a handful of people are responsible for most of your donations, it makes sense to nurture those connections.
That said, every nonprofit is different. If your organization relies on a broad base of small donors rather than a few major ones, your percentage (and your FER) will look different.
Another valuable metric to track is your fundraising event conversion, which measures how many event attendees turn into regular donors.
For example, if 200 people attend your gala and 50 make long-term donations, your conversion rate is 25%.
This metric helps you determine whether your events are engaging and inspiring enough to convert attendees into active supporters.
Your fundraising event conversion and FER work hand in hand to provide valuable insights into both the efficiency of your fundraising efforts and the long-term sustainability of your donor relationships!
Ready to find out if your fundraising dollars are working as hard as you are?
Calculating your FER is a powerful way to make sure your nonprofit is stewarding its resources wisely and maximizing its impact. While a lower FER is generally better, remember every organization is different, and the right balance depends on factors like your size and goals.
By understanding your FER, alongside other key nonprofit metrics, you can refine your fundraising strategies, strengthen your donor relationships, and ultimately increase your impact!
Looking for an easier way to fundraise? Donorbox is a powerful, user-friendly platform designed to help nonprofits like yours raise more with less effort. Sign up today and make every dollar count!
With a background in professional writing, Lydia has over five years in nonprofit communications under her belt. Lydia’s passion for supporting nonprofits sparked during her college internships with global mission organizations, where she gained valuable insights into fundraising marketing strategies. These experiences have continued to fuel her dedication to empowering nonprofits through her writing.
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Lydia Wohlgemuth