Ever thought about what ROI really means? Allan Freeman suggests that your return on investment should play a more important role in your charity’s strategic decision-making.

I’ve a question and a challenge: how well does your charity optimise ROI?

It is not always something we want to ask, the numbers often don’t excite or enthral, but look beneath the surface and it raises a fundamental question around how charities work internally and interact with supporters. Simply put, as we all know, ROI is a fundamental measure of fundraising efficiency.

But there’s little consistency across the sector and often even within charities. In calculating ROI some charities include staff costs, others include gift aid, some include external agency development fees.

Often, even within individual organisations there’s no consistent approach. There are charities that analyse their performance in some channels using four-year ROI while in others channels it’s one year.

Without consistency we have to ask ourselves, how can an organisation make the best decisions as to where to effectively spend the limited fundraising budget?

In every charity activities are being planned and decisions are being made on a daily basis. Of course the big strategic issues, such as decisions to invest significant amounts of money into fundraising for long-term benefit, will be agreed at a senior level.

But how good are we at shifting fundraising budget from one opportunity to another? How simple is it to take money out of direct marketing and shift it to an event because the ROI will be better?

Many organisations still work in silos and only look at these questions at budget and planning time. This gets even more difficult if the changes in fundraising activity might impact on staff; if moving money out of one area might imply there is too much resource.

To tackle this issue, charities need to look toward a robust process and system to enable proactive shifting of budgets and activities. This requires the information to be consistent and easily accessible.

Alongside this do we or should we worry what the supporter thinks?

We know that typically the public perceive that (at least) 70 to 80 per cent of any money raised should go to the cause. Is this relevant?

A charity that I worked with had an issue. Its flagship event generated significant net income – over £1m – and it knew that those who took part felt more inspired.

But, bluntly, the ROI was not great – in the region of 50p for every pound spent. Despite many attempts to improve ROI there were no obvious significant changes that worked.

So, what next? At what point is ROI so low that the event needs to be restructured or stopped entirely?

This charity felt that if supporters realised that 50 per cent of their sponsorship money was contributing to the cost of the event they would feel let down, and this was unacceptable. They decided to stop the event. Although scrapping the event made a sizeable dent in their fundraising income, and as a consequence what they could deliver for their mission, the charity felt that supporter trust was more important.

The key question they asked was ‘how would we feel about this if we were a supporter?’

None of this is straightforward. ROI alone should not be the key measure for success, it’s just one element of your measurement toolkit. But by using ROI strategically, doing less of the poorer performing fundraising and switching focus to more successful areas, I bet for almost every charity there are improvements that could be made. What’s more by doing this it shows your trustees that fundraising is not always just about asking for more money.

Allan Freeman is the managing director of Freestyle Marketing