It would be unrealistic to expect charities not to incur any costs when raising funds, or to assume that all charities have the same cost ratios.
Charities generate income in a variety of ways. Voluntary income is the charity sector’s largest income source, totalling over £25bn in 2019-20, according to the UK Civil Society Almanac 2022. Income from fundraising activities, such as charity shop sales, contributed over £6bn and, together with voluntary income, this accounted for 55% of the sector’s income in that year.
Although there is almost no direct correlation between what a charity’s accounts show as income in a year, and the cost of raising that income, this is one of the statistics often cited by charities to demonstrate their fundraising effectiveness. However, this often results in flawed statistics and analysis.
The UK Civil Society Almanac shows that for every £1 spent on fundraising, on average a charity receives over £4 in return. This allows charities to quadruple money available for the causes they work on, and to maximise impact from public donations.
Not all types of fundraising offer the same return on investment and many successful fundraising strategies include different types of activities to optimise the overall return. Face-to-face, direct mail and other forms of public fundraising can require a significant amount of upfront investment where the return will come a year or more later. Legacy fundraising, for example, may require years or even decades of investment in the relationship with supporters before bequests are received, but the high financial returns make this investment worthwhile.
Other forms of fundraising can be undertaken at little cost. For example, charities that attract high-profile trustees with networks of contacts, who can be approached for donations, may have a much lower cost ratio.
Fundraising costs may also include costs of running trading subsidiaries, which are established to raise funds for the charity, or investment management fees for charities holding endowments or large investment funds.
Developing and explaining a fundraising strategy to justify expenditure will show how the charity expects to fund its work. Trustees and senior managers should think clearly about what level of investment will be needed and where it will come from.
The cost of living crisis and inflation are likely to impact the value and volume of donations, according to Pro Bono Economics’ 2022/23 Economic Outlook Briefing. It also estimates that total staff expenditure in the sector would need to grow to £2bn in 2024, a 9% increase from 2021, amid rising costs. Fundraising strategies will have to consider such economic realities.
Furthermore, investment in ethical fundraising practices and data protection is critical to foster long-lasting relationships with supporters. If charities are maintaining supporter details, such as on a fundraising database, data protection compliance should be an overarching principle of the charity’s fundraising and stewardship strategies.
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