How much money do you need to accomplish the mission of your nonprofit? Secondly, how much money will it cost your organization to raise that amount of money?

Imagine that you are the head of a nonprofit that does cancer research. You are on the verge of a cure but need $10,000,000 to complete your studies. Then suppose you determine that for every dollar you raise, it will cost you fifty cents to raise that dollar. That means you need to raise $15,000,000 to get the $10,000,000 you need to cure cancer. Therefore, your fundraising percentage will be fifty percent.

In evaluating the worthiness of your nonprofit, many nonprofit and financial experts would say that your organization is a bad investment because your fundraising expenses are too high. If your donors followed their collective view concerning fundraising percentages, you would not be able to finish your research and cure cancer. In other words, some arbitrary percentage number would limit how much working capital you have to complete your work and fulfill your mission to eradicate the scourge of cancer from the face of the earth. How many lives would be wasted because you lacked the funds to finish your work?

This example shows that the main criterion for evaluating a nonprofit organization’s value is not fundraising or administrative expense percentages. Instead, it is about the problem it is trying to solve and whether or not its programming successfully eliminates or substantially impacts its negative effect on individuals or the community. Before determining how much money you need, you must know precisely what you are trying to accomplish. If you don’t know what outcome you are trying to achieve, your organization will never have enough money.

Without a clear understanding of your mission and what success looks like, you will waste a lot of money trying to meet a barrage of needs that will constantly confront your organization. You must be mission-driven and not needs-driven. You will never be able to meet every need that engages your organization. Of course, your mission is the product of a need you seek to fill. Don’t dilute your efforts by trying to be everything to everyone.

Here are the steps you should take to determine how much money your organization requires to accomplish its mission:

Spell out the problem your organization is trying to solve.

Without a thorough understanding of the problem, you cannot propose a solution with any real value or meaning. Your definition of the problem must be concise and to the point. A concept like “world peace” is too vague to have much significance. As you study the problem, refine and “niche” it down to the point where you can find a solution that your organization can achieve. However, do not propose a solution to a problem you don’t understand clearly.

Now that you have defined the problem, propose a solution your organization can implement.

Your definition of the problem will chart the course your solution will take. Some problems, like famines, require multiple steps to solve. The first step in a famine is to provide emergency relief to save lives. If your organization exists to provide relief for emergencies or disasters, then your organization will provide material support until other organizations take your place. That’s your mission. If you stay too long, you will become part of the problem.

If you plan to provide emergency relief, plus help with the rebuilding process, then you must have a plan to transition from relief operations to the development phase. Many organizations continue in the emergency phase for too long, thus hindering the reconstruction of the community and its return to functionality. Unfortunately, too many nonprofits confuse these two phases and cannot solve the problem that is the primary driver of their organizational mission.

Your solution to the problem you are trying to eradicate or significantly impact will become your organization’s mission. You may find that to fulfill your mission, you will also have to solve a subset of problems that impede your progress as you go on mission. Only seek to solve problems that interfere with your mission. Otherwise, you will fail.

Now that you have your solution, spell out your plan.

Your plan should include the following:

• A program funnel for your clients that will lead them to the desired results*
• A list of property, supplies, and personnel necessary for the construction of the program funnel
• A series of markers that help quantity the progress of each of your clients
• Your definition of success and how to measure it
• A budget for your program

Once you arrive at the implementation stage, be prepared to modify your plan based on new information, changing conditions, and unrealized expectations. People don’t always react the way you think they should. Do not be afraid to experiment. You should always continue to improve your program funnel to help your clients achieve more significant results. Never stop learning. Also, test all your assumptions and make adjustments based on your testing results.

Develop a support and fundraising budget to meet your operational needs.

Before calculating the cost of raising income for your organization, you must answer some basic questions about your funding base and organizational operations.

• Is your funding base sufficient to fund your program and support operations?
• What is the best way to fully utilize your current funding base to help you fulfill your mission?
• Do you need to acquire additional donors?
• What is the most cost-effective way to acquire new donors to fund your expenses and capital needs?
• What employees, property, and supplies do you need to support the needs of your program funnel?
• Should you hire outside consultants and fundraising firms to help you meet your budget?

Once you have the answers to these questions, you should compute the total expense for your fundraising and administrative functions. When calculating costs, you should be brutal, uncompromising in your efforts to get the most bang for your buck. You should be as efficient as possible in the utilization of your funds. During the budgeting process and implementation phase, if you find less expensive ways to raise funds and achieve your goals, then by all means, make the necessary changes.

Conclusion

Don’t spend your life on issues that don’t matter in the grand scheme. But suppose your organization is dedicated to solving problems that matter–changing lives and lifting up men, women, and children living in desperate conditions and need. In that case, you should not be ashamed of spending whatever it takes to make your solution a reality.

The actual valuation of a nonprofit is not how much money is spent on fundraising. Any percentage you settle on is subjective at best. No, its value is determined by how well it accomplishes its mission and the difference it makes in the world. Percentages only matter when the nonprofit is not doing anything of significant worth. In that case, even program expenses waste valuable community resources.

Several years ago, I went to a nonprofit convention. One of the main topics that we discussed was programming for men and women suffering from addiction. The conversation turned to program length. I was advocating for a minimum of one year, preferably longer, for the residential component of the program.

One CEO of a large nonprofit took me aside to have a private conversation with me. He told me he knew I was right concerning my advocacy for a more extended program, but the demand for his organization’s services was so great that they had to turn people away. This upset his donors. They were more interested in numbers than results. Because of donor demand, their program was only six months long, resulting in an excessively high relapse rate. But the money kept flowing as long as they could report to their donors that they were graduating many men and women.

Although he was honest with me, he was not entirely candid with his donors. They assumed graduation equaled success. But anyone with even a limited experience in the addiction field knows that success is measured over the years and not months. If his mission was to raise funds, they were wildly successful. But if his mission was helping addicts escape the trap of addiction and live meaningful lives, they failed. Their failure to achieve the mission they were created for significantly reduced the valuation of their organization. For them, fundraising percentages were an evasion, something to distract the donor from the organization’s failure to accomplish its mission.

I am not trying to say that this CEO was purposely deceptive. I’m sure he believed he was doing something good by providing temporary relief for the residents of his program. Perhaps they were planting seeds that someone else would harvest? But if his or any other organization cannot accomplish its purpose, another highly disruptive organization will. It’s only a matter of time.

Be smart with your organization’s money, but focus on your mission. Everything else is just a tool to help your nonprofit succeed at making a difference in your community. The lives your organization helps change are the objective markers for your nonprofit’s valuation. If you increase your effectiveness, you increase your value. Now go and change the world!