Studying Early Pandemic Data: Less Fundraising Expenses Led to Higher Returns for Arts and Cultural Organizations
Posted May 6, 2022
In 2020, nonprofit arts and culture organizations were more efficient, on average, in their fundraising efforts compared to pre-pandemic years, showing us that the interplay of an organization’s contributed revenue and fundraising expenses are key to understanding their position beyond just raw dollar amounts. This becomes even clearer when studying BIPOC organizations that may have become more efficient in fundraising efforts than non-BIPOC organizations, but at what cost?
To explore this topic, SMU DataArts looks at a metric called Return on Fundraising, which determines the amount of contributed revenue arts and culture organizations raise for every $1 spent on fundraising, and follows this formula:
Fundraising expenses include all expenses related to fundraising, including fundraising personnel salaries and fringe as employee efforts are part of the greater investment in fundraising. Total Contributed Revenue in this analysis includes both unrestricted and restricted revenues as we cannot separate fundraising expenses by the types of funds raised.
Figure 1 shows that return on fundraising did increase early in the pandemic. Whereas fundraising efforts in 2019 raised $6.22 for every fundraising dollar spent, return on fundraising increased to $7.35 in 2020, driven mostly by fundraising expense reduction. Leading into the pandemic, fundraising efficiency was generally consistent, with slight shifts each year.
What caused the early-pandemic spike in fundraising efficiency: more money raised by a consistent level of fundraising spend, a lower amount of fundraising expenditures yielding similar or higher levels of contributions, or a combination thereof? Table 1 shows that over the trend period, total contributed revenue steadily increased every year with a resultant 6% inflation-adjusted increase in 2020 over 2017.
Table 1: Return on Fundraising, 2017-2020
| 2017 | 2018 | 2019 | 2020 | Nominal change 2017 - 20 | Inflation Change 2017 - 20 (6%) | Inflation Change 2019 - 20 (2%) | |
|---|---|---|---|---|---|---|---|
| Return on Fundraising | $6.16 | $5.94 | $6.22 | $7.35 | 19% | 13% | 16% |
| Total Contributed Revenue | $1,762,882 | $1,777,270 | $1,894,197 | $1,955,138 | 11% | 5% | 1% |
| Total Fundraising Expenses | $286,288 | $299,450 | $304,494 | $265,832 | -7% | -12% | -14% |
However, fundraising expenses bumped up annually through 2019 and then dropped by 14% in 2020. This pattern is consistent with findings from our previous two blog posts, which showed total expense growth from 2017 to 2019, dropping 13% from 2019 to 2020. The story appears to be that organizations maintained steady growth in contributed revenue early in the pandemic, and they managed to do so while spending less on fundraising, thereby increasing their efficiency.
Organizations whose missions are rooted in a particular racial or cultural voice (noted here as “BIPOC”) saw similar trends (see Figure 2) but were even more efficient than their non-BIPOC peers, on average, even though their fundraising budgets were comparatively about 1/3 lower, as shown in Table 2.
Table 2: Return on Fundraising by Mission Voice, 2017-2020
| 2017 | 2018 | 2019 | 2020 | Nominal change 2017 - 20 | Inflation Change 2017 - 20 (6%) | Inflation Change 2019 - 20 (2%) | |
|---|---|---|---|---|---|---|---|
| BIPOC | $7.27 | $6.42 | $6.37 | $7.83 | 8% | 2% | 21% |
| Total Contributed Revenue/ | $672,188 | $587,941 | $677,285 | $700,389 | 4% | -2% | 1% |
| Total Expenses (before depreciation) | $92,422 | $91,619 | $106,368 | $89,435 | -3% | -9% | -18% |
| Non-BIPOC | $5.80 | $5.51 | $5.84 | $6.85 | 18% | 11% | 15% |
| Total Contributed Revenue | $1,774,144 | $1,770,314 | $1,908,065 | $1,961,574 | 11% | 4% | 1% |
| Total Fundraising Expenses | $305,645 | $321,117 | $326,775 | $286,405 | -6% | -12% | -14% |
BIPOC organizations recognized the same total contributed revenue percentage increase of 1% early in the pandemic compared to non-BIPOC organizations, but fundraising expenses for BIPOC organizations were cut by a higher percentage. As a result, in 2020, the average BIPOC organizations’ return on fundraising was nearly $1 higher than that of the average non-BIPOC organization.
We saw in our exploration of contributed revenue sources that early in the pandemic, contributed revenue from corporate and trustee sources declined in 2020 over 2019. Additionally, foundation and individual giving generally stayed consistent into 2020. This perhaps points to consolidation of fundraising efforts around early-pandemic government funding, which had a focus on workforce retention.
This poses many potential questions for the sector moving forward: Will the sunsetting of government relief programs shift contributed revenue in a downward trajectory overall? Will non-government sources of revenue increase to fill in the gaps? Will employment (and fundraising personnel specifically) return to pre-pandemic levels to support more philanthropic outreach? What are the short and longer-term impacts of sharp cuts to fundraising expenses for BIPOC organizations that were already facing significant stress?
As soon as data for 2021 is available, we will dive back into these topics to continue our exploration.
Our three-part exploration of contributed revenue in the nonprofit arts and culture sector has shown that even with disruptions from COVID-19, organizations were able to sustain or improve their philanthropic standing on average, driven primarily by government support. You can view a summary slideshow of this analysis here.
While we wait for additional data, we will continue our exploration of early pandemic impacts and share additional findings with a focus on bottom line metrics related unrestricted and operating surpluses to give more detail about the financial position of nonprofit arts and culture organizations. Stay tuned!
Diana Osborne
Operations & Grants Manager,
“Now, after two years of growth, we've had to look at our budget and make sure that the emergency funding we received will be replaced by other supporters.”