Tuesday, May 7, 2013

The American Cancer Society's Bold Move on Direct Mail

In a surprising and bold move, the American Cancer Society (ACS) recently revealed that it is drastically cutting back on its direct mail activities aimed at soliciting donations.  The full details of this move are excellently described by FundRaising Success Magazine.  My focus here is on the financial aspects leading up to this decision and its possible ramifications.

Generally speaking, direct mail campaigns aimed at getting new donors tend to be effective at generating donations but are often a relatively costly means of doing so due to the limited ability to target recipients efficiently.  A key accounting measure of how efficiently an organization is soliciting contributions is to look at the ratio of fundraising expenses to public contributions, which gives a feel for how much it costs to raise $1 from donors.  In the case of ACS, their audited financial statements from the past five years reveal a growing cost of raising funds.

Though fluctuations are no doubt present here, the overall trend has not been a favorable one, with a compounded annual growth rate of 3.8% over the time frame.  This not the entire story, however.  Direct mail campaigns also tend to mask the true fundraising cost, since the inclusion of educational components permits an organization to allocate a portion of such "joint costs" to program expenses.  In the case of ACS, such latent fundraising costs have also been increasing over the past five years, as a growing proportion of its expenses have been classified as joint costs.

In this case, joint costs (as a percent of expenses) have been increasing at a compounded annual growth rate of 5.0% since 2008.  In other words, not only has ACS experienced less efficient fundraising in recent times, but the efficiency declines may actually be worse than indicated in the financials due to the increased ability to allocate costs away from fundraising.

What does all this mean?  Though I can't speak for ACS and its intentions, I interpret this data as indicating that heavy reliance on direct mail campaigns has slowly reduced the overall efficiency of ACS fundraising.  While direct mail has been a consistent source of revenue, it is also likely to be the source of such efficiency issues.  The recent decision of ACS thus suggests a shift in focus away from generating revenues toward an emphasis on greater stewardship of funds raised.  The move is a brave one, since it is no doubt hard to give up on revenue sources.

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