Why you should worry less about reducing overhead and more about delivering value

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Greg Warner is CEO and Founder of MarketSmart, a revolutionary marketing software and services firm that helps nonprofits raise more for less. In 2012 Greg coined the phrase “Engagement Fundraising” to encapsulate his breakthrough fundraising formula for achieving extraordinary results. Using their own innovative strategies and technologies, MarketSmart helps fundraisers around the world zero in on the donors most ready to support their organizations and institutions with major and legacy gifts.

Fundraisers and donors are in a pickle.
They have been unfairly subjected to a broken system for decades. It isn’t their fault, but it is their problem.

Charities are saddled with extra pressure to meet formulas for how much they should spend to raise money. This policing of business practices stifles the actual mission.

Critics often preach that charities need to act more like businesses, but then they refuse to let them. In an effort to “expose fraud,” critics and watchdogs impose rules regarding what amount of overhead is considered allowable. The heightened scrutiny squelches innovation in fundraising strategies, because the innovation might fail and would then be viewed as a waste of donor funds.

Together we CAN change the paradigm with a focus on value.
I know, everyone else wants you to focus on overhead! You’ll hear that mostly among fickle low dollar donors, the media and the charity policing sites.

But when it comes to raising massive amounts of money, overhead doesn’t really matter so much. No! What matters is value (especially among major donors).

Think about it this way.
Do you drive the car that cost the least thanks to the manufacturer’s purchase of the cheapest materials? How about your vacation. Do you always choose the lowest priced hotel? And restaurants? Do you go to the restaurant that buys the cheapest ingredients? Of course not!

Why? You want value! You make your decisions by weighing the value you get for your money.

Your donors are no different.
And, the more they give, the less likely they are to care about your overhead in relation to how much they care about what they will get in return for their giving.

For goodness sake! It’s about making people feel good, not cutting overhead!! Make your donors feel good and they’ll care less about overhead. Trust me on this.

If a donor wants their name on a building, they’ll weigh the ‘cost’ against the value using an internal fulcrum.

If they want to find a way to satisfy their desire to find meaning in their life, who knows what they’ll pay to get it!

So stop worrying so much about overhead.
Of course you should aim to be fair and be a good steward of your donors’ dollars. But focusing too much on overhead (especially to satisfy the 80% of your donors that deliver less than 20% of your donations, the media, and the charity police) can actually harm your revenue goals and yield diminishing returns.

 

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4 responses to “Why you should worry less about reducing overhead and more about delivering value”

  1. Nancy Preston says:

    I agree 100%, Greg. But how do you respond to a comment about a proposal being written to a funder that specifically says they will not fund overhead? I recognize the opportunity we have to educate the nonprofit about effective messaging to (individual) donors, but what about an organization that relies heavily (for better or worse) on funding from corporations and foundations? A nonprofit justifiably may feel they have little control over making the case to these types of funders. Obviously there is the opportunity for systemic change at this level, but that will take a concerted effort, and time. I look forward to your insight!

    • Greg Warner says:

      Hi Nancy. You won’t want to fight the good fight with that particular funder. They want what they want and they won’t be convinced otherwise. You’ll have to go with their request in your proposal to make the money restricted as per their demands.

      However, other funders DO understand why overhead is necessary. And according to Dr. James research, most individual donors ‘say’ they care about overhead but their actions say otherwise. In the end, sending individual donors information about that sort of thing does nothing to improve results.

      So, at a very high level (while admittedly I don’t know anything about this nonprofit organization) I believe the focus should be put on raising money from individuals. Funders like the one you describe are fickle. You want to raise money from people with emotion. That’s a more sustainable path because it involves true relationship building for partnerships… not just a quid pro quo that is only good for the funder and not so great for the organization.

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