There seems to be this belief that by “benchmarking” an organization to other “peer” organizations that something useful can be learned. Or that insights will emerge that will help your organization…or make it feel bolstered or diminished in some way.
Consultants are often asked to do benchmarking as part of an assessment engagement, but unfortunately, the reporting on federal 990s is so inconsistent, and sometimes downright fraudulent, that very little can be learned from the numbers. Let’s look at some key metrics:
Gross contributed revenue: For the most part these are philanthropic gifts from individuals, businesses, foundations and events. But sometimes grants from government are included, and other times they are on a different line item. Many organizations just post “net” revenue from events and not gross revenue. Some organizations book the face value of deferred gifts and others the net present charitable value. And, there is always the outlier bequest that comes in that make the numbers shine that year.
Fundraising Expenses: How many times do you see organizations posting no expenses or a couple of hundred thousand dollars when they have six or eight employees? Some organizations post the expenses to run an event and others just post net revenue and no expenses at all related to events. And then there are organizations that have people doing stewardship and other fundraising or stewardship work, but have them posted to another cost center in order to reduce the cost of funds ratio. Then there are the costs of rent, overhead, audit, HR and other services provided by the parent organization that do not get factored into the cost of fundraising, but others do include these costs.
So just trying to figure out what it costs organizations to raise $1.00 results in indefensible results.
Philanthropy as a Portion of Organization Net Revenue: We at Copley Raff like to look at what proportion of the organization’s net revenues from operations is coming from philanthropy. This is especially important to understand in healthcare, higher education and cultural organizations that have many ways to earn revenues through fees. This figure helps to show leadership the importance of philanthropy to the organization’s short-term and long-term viability. Unfortunately, the way organizations post net revenue calculations vary widely and are affected by how much money is buried back into capital improvement, depreciation and the like. Combine that with the inconsistency of figuring out gross and net philanthropic revenues…
We, of course, did not even address the maturity of an organization and its advancement operation, or the quality of leadership, both of which are important variables in determining an operation’s effectiveness and potential for the future.
Even if you take the route of calling different advancement operations to get key benchmarking information, know that the same inconsistencies exist, and the odds are slim that you will get someone to respond to you who can really provide you with solid information.
The bottom line for benchmarking is that you need to take the numbers with a grain of salt and a deep breath. It may be a nice curiosity satisfier, but it is little more.
1. Think twice before taking the time to do benchmarking.
2. When volunteers and/or senior leaders ask you to do benchmarking, be sure to share the pitfalls of the available data.
3. If you do a benchmarking study and your organization comes out looking good…enjoy it.
For more information about Copley Raff and its spectrum of not for profit consulting services, please see www.copleyraff.com.