Return on Investment is one of the most commonly used measurements of fundraising performance, and it is often misunderstood. A lower ROI actually raises more money and a higher ROI raises less. Here’s why and how:
ROI is the same as an interest rate. Take a fundraising program that returns an ROI of 500%, meaning for every 20 cents spent, you raise a $1. That is the same as having a bank account that pays a 500% interest rate.
What would you do if a bank offered you a rate like that? You would plow as much money as possible into the account. Let’s say you mortgage your house (at 8% interest) and put $1 million into that account. That would make perfect sense.
What if the bank then said that for the next $1 million you deposit, they will “only” give you a 200% interest rate. Would you mortgage your mother’s house at 8% and put that extra $1 million in too? Of course you would.
In fact, even if the bank only offered you 16% interest, it would make a lot of sense to borrow at 8% and put it into that account earning 16%.
Lower ROI = More Money
ROI does not measure how much total money you raise. It’s just a percentage of profit divided by cost. It’s not a dollar figure at all.
You can have a fundraising program that spends $20 and raises $100, giving you an ROI of 500%, but you only raised $80.
Or, you can have a fundraising program that spends $500 and raises $1,000. Your ROI is lower, five times lower in fact. It’s only 100%. But your net income is $500, instead of $80, which is over five time more money.
So whenever you see ROI being used as a “measurement” of fundraising performance, always ask how much net income did each program raise. A program with a 50% ROI that raises $1 million is far more attractive and worth much more of your time and effort than a program that has a 500% ROI that raises $10,000.