Monday, July 22, 2013

Does Charity Telemarketing Pay in the Long Run?

Any time someone criticizes charities for making use of for-profit fundraisers who keep large amounts of funds raised, their defenders are quick to point out that the value of for-profit fundraisers is more complicated than that.  The story usually goes that these fundraising companies do the hard work of donor acquisition, and though it costs a lot initially, their services pay off with more efficient fundraising in the long run.  More than one fundraising company informed me of this in response to my editorial in the Chronicle of Philanthropy.  Similarly, Dan Pallotta was quick to explain this in response to the 50 worst charities in America list.

I am willing to believe that the value added by charity telemarketers is more complicated than simply looking at the percentage of funds raised that are remitted to the charity.  However, I also believe that the claim that telemarketing pays in the long run needs more evidence for me to buy it.

As an illustrative case, consider the following.  Using the New York state reports on charities’ use of for-profit fundraisers, I chose three charities to examine their fundraising over time, beginning in 2006: American Diabetes Association, ALSAC/St. Jude’s, and MADD.  The three charities were chosen to satisfy three requirements: (i) they raised over $1 million from professional fundraisers; (ii) they each relied on multiple fundraising companies; and (iii) they were well-respected national charities.  Requirement (i) ensures we are looking at substantial fundraising campaigns; (ii) ensures this is not an examination of just one fundraising company but of the industry as a whole; and (iii) ensures were not talking about fraudulent charities, but reputable charities who have decided to use telemarketing companies.

Does telemarketing efficiency increase over time?
The first thing I wanted to consider is whether the percentages of funds remitted to the charities improved over time.  That is, does the claim ring true that telemarketing may be costly at first but gradually improves in efficiency.  The aggregate effects of the three organizations’ telemarketing campaigns is summarized in the next chart.

Note that there is definitely not a trend of improving efficiency – if anything, the efficiency is worsening over time.

Does telemarketing ease other fundraising efforts?
Another possible long-term benefit of professional fundraisers is that they help simplify the organization’s other fundraising efforts (say by expanding the donor base).  If this is the case, one would expect to see organizations that rely on for-profit fundraisers to see improved fundraising efficiency.  The aggregate fundraising efficiency (expressed in terms of cost to raise $1 of contributions) is summarized in the next chart.

Again, there is no sign of improving efficiency – if anything, the cost of raising $1 has increased.

What are we to take from this data?  Not much.  Being only three nonprofits who themselves self-selected into hiring telemarketers, this is far from definitive evidence of anything.  But, it does suggest that the claims of those defending the use of for-profit telemarketers are not self-evident.  This skeptic needs more evidence in order to give them the benefit of the doubt.

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