This article was originally published in Nonprofit Hub Magazine
Here’s the biggest truth bomb that nobody is exclusively talking about when it comes to nonprofit finances: there’s no way for us to tell you exactly how your nonprofit’s budget should be spent. It would be easy to say “spend X amount of dollars on marketing, funnel X amount into your staff salaries, etc.” But the reality is that those numbers won’t be consistent for every organization.
You’re all working toward different goals. You have different processes in place. You’re ultimately all working for the greater good, but the way you’re doing it is vastly different.
Luckily, there are still some best practices that apply when thinking about your budgeting and the year ahead. Let’s explore when you should splurge, when you should save and when you’ll need to make that call on your own.
Your finances aren’t exactly a secret. After all, you disclose certain info on your 990 every year. (Friendly reminder: tax season is upon us!) Here’s a quick list of key information you’ll need to include on your Form 990 that should help you with budgeting moving forward:
How does this relate to your budget? Your mission should always be the motivating factor behind determining where to spend and where to save. At the end of the day, it’s the guiding force of your organization.
This section is primarily included to ensure you aren’t overcompensating your upper-level employees.
So, how much did you bring in this year? Take a minute to reflect on your accomplishments and give yourself a pat on the back (literally or figuratively). Then consider your biggest revenue sources. We’re talking top donors, biggest grants, etc. What steps are you going to take to make sure those happen again this year?
You have to spend money to make money, as they say. Line up your expenses and take time to evaluate the unnecessary—or less necessary—ones for the coming year.
Contrary to popular belief, you DON’T have to break even. Keep in mind, board members and constituents will look for red flags, but if you’re operating your 501(c)3 as a business, you know you need some money to sustain programs and plan for the future. Your board and constituents will understand that, too.
Multi-channel marketing is important, but it’s also important not to waste money in places where your audience isn’t responding or simply isn’t there. Identify the target demographic and track the results of each individual campaign.
Depending on the marketing method(s) you choose, there are different ways to track results. How will you measure success? The ultimate goal for most organizations is funding dollars coming through the door. You’ll need to prove a correlation between your marketing efforts and fundraising dollars, and that’s tricky; it often takes multiple touchpoints to convert an impression into a donation. Somebody may see your email campaign but go your website to donate. Remember to investigate all touchpoints you had with that donor before drawing any conclusions.
VERDICT: SAVE IN CERTAIN AREAS. SPEND WHERE IT’S WORKING.
Spending $500 to get $1,000,000 would be worth it, right? Obviously that’s probably not going to be the case (unless you buy 500 lottery tickets and hit the jackpot). However, the extreme helps you understand that in order to make money, sometimes you need to spend it. Determine what you would need to earn as a net profit in order to proceed with a fundraising campaign or event.
For example, a lavish fundraising event doesn’t make sense for an organization whose average donors contribute smaller, incremental amounts. However, if your fundraising dollars are mostly comprised of lump donations, an event where large amounts can be donated at once makes sense. Whatever you decide, make sure your goal is reasonable and the opportunity cost is worth it.
VERDICT: Weigh Opportunity Cost
Just because you’re in the nonprofit field doesn’t mean you or your employees shouldn’t be fairly compensated for your work.
Things that are acceptable when it comes to your staff:
Things that are NOT acceptable when it comes to your staff:
You should think of your staff as an extension of your organization. Just because they’re working toward a selfless cause doesn’t mean they don’t deserve good wages and working conditions. Instead, make smart investments and don’t hire the first person who walks through the door. You have full permission to turn people away and direct them to volunteer positions where they might be a better fit. Take the time to find somebody worth paying to do a great job.
VERDICT: SPEND (Invest in the right people)
Legitimacy is real in 2018. Websites that don’t function to better serve your constituents are useless. Think about it: what’s the first thing you do when you want to know more about a business? Google it. Need to know if a restaurant is good? Google it. Want to know the best child care provider? Google it. The list goes on and on.
When somebody gets to your website and sees that the design is outdated or your content doesn’t provide any value, how likely are they to hit that donate button? (Answer: not likely).
As you’ve noticed by now, this entire article is about opportunity cost. It can’t always be about the short-term cost. Instead, consider the long-term benefit and the sustainability of your investment, especially when it comes to your website.
Each organization is unique, and that’s what makes our jobs so special! Remember to save and spend where it makes sense for your organization. Whatever you do, consider each transaction an investment in the future of your organization.