Opportunity Costs

In economics, opportunity costs are “the loss of potential gain from other alternativeswhen one alternative is chosen.” For nonprofits, this is a very real issue, and one that too few of us consider every time we ask a prospect for support. This is why savvy fundraisers consider the audience carefully and segment rigorously.

If I am working with Matt and Jane for a major gift, I want to make darn sure that my ask for annual support (and I will ask for annual support) is not done in such a way that they can say, “But I’ve already given.” Likewise, if I am asking someone or some organization to sponsor my event, I want to have had numerous conversations to uncover whether this is the best support I can get from them.

Recently, a client of mine asked a loyal donor to pay for what was a relatively small amount so the organization could join an organization. The Executive Director felt proud. I, on the other hand, felt a real sinking in my stomach.

I wish I had been overreacting, but no. When we approached the loyal donor for an increase in his annual gift he looked at us askance.

“I’ve already given this year,” he said, reminding the ED of the payment for the membership. A payment, I must add, that was more than 10 times less than his typical annual gift.

Who won here? Opportunity costs, indeed.

Years ago I worked at an organization where the Special Events Director insisted that all of her events were “free” to the organization and, therefore, whatever was brought in was net revenue. Without getting into indirect costs and all that, it always seemed to me that the opportunity costs were so much higher than she reckoned.

For example, the company that underwrote the swag bags (not what went into them, but the bags themselves) and who had the company name not just on the bag but also in the program, on our website, in our collateral materials, spend around $5K on those bags. Very cheap advertising for him. And what, actually, did the organization get? Bags to put swag in for people attending our gala—who would have attended at the same ticket price without the swag bags—and nothing that helped move our mission forward. Personally, I would have rather gotten half--$2,500 in cash –from the company; a gift that would have helped us serve our community far better.

Everything, my mother used to tell me, has a price. There is no such thing as a free lunch (and yes, my mother was the queen of clichés—a title she bequeathed to me, her youngest daughter).

Too often, nonprofit organizations want to give things to their donors to show appreciation and/or generally make the donor feel good. But truth be told, it’s not the swag bag, or the ability to make a lesser gift that makes your donor happy. Really, truly it is the knowledge that what the donor contributes helps to support your mission and accomplish the things your organization exists to accomplish.

Janet Levine works with nonprofits, helping them to make a difference and increase their fundraising results. Learn more at www.janetlevineconsulting.com  While there, sign up for the monthly newsletter and do contact Janet at janet@janetlevineconsulting.com for your free, 30 minute consultation.