Werth-It Fundraising Blog

I remember this conversation with my father: 

“OK, Kath-, in fundraising, you send a letter and people send you…. ?” 

I replied, “They send a check, Dad.” 

And he said, “And you send them…. ?” 

“I send a thank-you note, Dad.” 

And he said, “And you also send them…. ?” 

“No, Dad, that’s it, I just send a thank-you.” 

Then my dad quite gruffly said, “What’s your average Unit of Sale?”  (A ‘unit of sale’ is a business term, meaning what is the average amount that I sell?  If I sell one product more than any other, how much does it sell for?) 

I said, “My average GIFT is $80 from prospects (first-time donors) and over $100 from repeat donors, and this compares very favorably to industry averages.”

Dad replied, “Well, my average unit of sale is $83, but I have to send them a hygrometer.  I think you make more PROFIT than I do.”

Under my breath I mumbled “There is no profit.  It’s a NON-PROFIT organization.”

I mention all this to bring up a point: What is your income model?  What is it that you’re going to do that will draw in a sufficient income to pay you?

For example, in a non-profit organization, let’s say that I have to pay someone to provide a service.  Maybe it’s to pay a drug counselor to counsel drug addicts.  Let’s say a salary for this would be $40,000.  To pay $40,000, I need to raise $60,000.  Part of the additional $20,000 goes to benefits (salary multiplied by 22% or so, which in this case would be $8,800), and part goes to a computer, a phone line, office space, office support (copier, part of the receptionist’s salary perhaps, part of the cost of the audit) and supervision.

(Don’t try to go cheap on this.  You have to attract and retain personnel in order to thrive.  And if you are cheap in paying yourself, you’ll burn out.  Also, morally, I think nonprofits should pay benefits, to lead the for-profit world in showing that employees deserve full benefits, including retirement and health care.)

As a non-profit, raising money for this employee is not “income” per se, but I do have to raise it, so we can call it revenue.  It means, what money will I bring in to pay for this?

So, for example, if I need $60,000, then I could:

Get three foundation grants for $20,000 each

Get 60 donors to give $1,000 each

Or get 600 donors to give $100 each.

In reality, it’s a mix of all of these.  I might get one grant for $20,000, one for $10,000 and two for $5,000.  That’s $40,000.  Then I might get five donors at $1,000 each, and the final $15,000 might come from 150 donors at $100 each. 

If you’re just starting out, that might seem impossible.  However, relying on more donors for fewer dollars each actually provides more stability.  After all, one $60,000 donor might lose interest and stop funding you, but a mix of donors will be stable, because some might leave but others might increase their gift and get others to give.

Your income model should be diverse.  Now, in fundraising, what you sell isn’t tangible to the buyer, usually.  Unless you are selling some kind of cultural or perhaps academic experience, or a health benefit (the cure to Alzheimer’s), the donor doesn’t usually benefit.  You have to ’sell’ them the idea that someone else will benefit.

In our business model for the original question that started this ‘Business Fundraising’ sequence of blogs, the www.topfive.com website, we have to ask: What’s the Income Model?”  I don’t mean “How can you get someone to invest?” because investors want to see a profit.  I mean, how do you make enough of a profit to make a living at this?

I would suggest that greater stability comes from a variety of sources, just like a nonprofit.  You might have a lot of donors/website sponsors at $100, but you should also add in MP3 purchasers at $20 each, CD purchasers at $30 each, book purchasers at $10 net each, and Google Ads at pennies each.

As my dad would have said, “What’s your Average Unit of Sale?”  Really, what is it that you’re selling, and how much will people pay for that?  And will it be enough to support yourself?

I’ll post Part Two of the Income Model on Monday: I want to specifically address home-based businesses and Multi-Level Marketing, although the principles apply to nonprofits as well.  Then I’ll return to my usual fundraising and board development topics for nonprofits: it’s the holiday fundraising season and there’s lots to talk about.

Happy Halloween!