Do Auctions and Galas Hurt or Help?

Auctions. Galas. Raffles. Car washes. Bake sales. Walk-a-thons.  If you are doing them to raise money, you may be missing a number of critical considerations:  First: how much time and money does it take to raise the money? All the expense and elbow grease that goes into these events: do you measure it and compare it to the amount of money that you raise and how it the event brings participants closer to your mission?

Second: are you aware of other fundraising methodologies that may provide far greater results for all that time and money, all in a way that promotes your organization’s values and culture?

Let’s look carefully at these two considerations. Charitable fundraising events are so ubiquitous, how can they be a bad thing? First: they offer high costs and low returns. In business terms, they offer low return-on-investment. This is measured by counting up all the staff time and dollars that go into an event and dividing it by gross revenue: the result will be a ratio, what is known as “Cost Per Dollar.” (See this post for more detail on this essential organizational performance indicator.)

With very few exceptions, fundraising events offer poor ROI, typically earning only a few dollars for every $1 it costs to run them. In other words, they offer a cost-per-dollar between $0.40 and $0.70. Expressed another way, this means low profit margin. (If you calculate this figure, remember that you need to include the cost of your staff time, not just the event budget.)

But other proven, widely practiced revenue strategies return at least $10 for each $1 they cost. This superior return-on-investment comes when the organization hosts events not for soliciting donations, but for attracting people to the mission, educating them about the organiation’s worth, and thanking current supporters for their involvement. Then, the organization uses volunteers and staff to follow up with attendees and engage in long-term relationship building toward the goal of making a major investment in the organization, not providing a small hand-out at a fundraising event.

We are all in favor of charitable fundraising events, but only if they aim for attracting and educating people as part of a relationship building process. When events treat people like ATMs, they fail.

So, properly conceived and executed, fundraising events should instead be friend raising events. Strategically, events are very good for donor acquisition, cultivation, and stewardship. Solicitations are best left 1-1 or small groups, after extensive work developing the relationship– not a 1-shot pitch delivered en mass over loudspeakers.

So why do so many organizations still run expensive auctions and under-invest in their ability to build relationships? Perhaps it is a failure to analyze performance. Perhaps it is because transaction-based fund rasing events the norm. and likely because, while the process is a grind, non-profits trust that there will be money at the end. “We raised $200,000 at our auction!”

But what is not discussed is 1) the high cost, and 2) the opportunity cost. Organizational leaders will purse a high-cost, low-return transactional fundraising events because they simply don’t trust that there are other, far more effective means of generating mission-critical investment and partnerships.

What’s better? Consider the phrase investment and partnership. People give small gifts and handouts to worthy organizations all the time. But they reserve their major investments– much larger sums of money– for organizations they are truly close to. No matter if an individual is making a private charitable contribution; directing their foundation to make a grant; overseeing a corporate partnership or agency grant; or making a contract decision, individuals don’t make these decisions lightly. They need to have trust that the organization will do what it says it will do. And trust only comes from taking the time to build relationships.

Relationship-based fund raising is precisely how top universities and hospitals raise billions. It’s a strategy that organizations of any size can implement.  Not only is it far less expensive and more effective, we believe it’s more ethical. You educate your audience, strengthen your community, and have more fun.

So save your events for identifying, engaging, and thanking donors– which, if you are truly on the ball, you call investors.  If you are going to ask for money at the event, make sure it’s a small addendum to a much larger education on what you are doing to change the world.  Consider those small gifts opportunities to say thank you in powerful, creative ways.  Make it the start of a long, personal relationship with your supporters.

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