Back in 1997, when I moved from corporate America into “Planet Nonprofit,” taking over as the CEO of GLAAD, I learned something about the organization that I found shocking.
It wasn’t just that the organization had only $360 left in the bank and still owed gobs of money to the venue where we had the prior year’s GLAAD Media Awards, our signature special event. Though that was pretty shocking.
It was deeper than that. No exaggeration, this was a critical mistake that put the entire organization at tremendous risk. A mistake that I never expected would be made by the financially savvy members of our board.
And it has something to do with a basic principle of finance.
WHAT DO STOCKS AND MUTUAL FUNDS HAVE TO DO WITH NONPROFITS?
Over the years, Dunkin’ Donuts stock has done very well by me. It’s probably been the best individual stock I’ve owned. Now and then, I think about how much more money I’d have today if I had just invested all of it over the years in DD. Sigh.
But of course, DD stock is only one small part of my portfolio. Mostly, I’m invested in boring mutual funds. And I don’t regret that one bit. Why? Because if I’d put all my money in DD, I’d have been nuts! A first rate portfolio is a diversified one.
I bet if you ask your financially savvy board members, they’ll strongly agree.
So why then do so many nonprofits live or die almost entirely on special events revenue?
THE PROBLEM WITH SPECIAL EVENTS
Don’t get me wrong. Special events are great! They’re fun and sexy, they can generate press, and raise significant money. What’s not to like?
Well, they also have a few big problems.
1. Special events are expensive. Both in time and money. How much of your staff time is spent on special events? I bet a lot. And time = money. If you’re greatly efficient, you might keep 65 cents per dollar raised. (Those centerpieces that were donated last year? Didn’t happen this year. And we HAD to have those centerpieces!)
2. Special event revenue can be completely unpredictable. Just like purchasing an individual stock. Any good financial advisor will tell you not to put money you absolutely need in the short term into the stock market at all. It’s just too risky. And certainly not in any individual stock. That would be insane, right?
So one year, you have an honoree that actually buys a few tables: revenue up. The next year, it snows that day: revenue down. Look, ticket buyers are fickle and event revenue doesn’t necessarily stick year to year.
Expensive and unpredictable. Sounds pretty risky to put all your eggs in that basket, doesn’t it?
And yet, when I joined GLAAD and saw our financial distress, my board told me not to worry. The budget I inherited was simple. $1.1 million raised from special events and a few hundred thousand more from other stuff.
Wait. 70% of the budget from three special events? Oy.
ANOTHER PROBLEM WITH SPECIAL EVENT
So let’s say you have a big annual gala and it makes a ton of money for the organization. Great! But here’s the thing…
Buying a ticket to your event is not the same as making a direct donation.
It’s not even close. But I find when I tell this to board members, I’m often met with skepticism. So let me paint a scenario.
Ask yourself, which of these “asks” produces a deeper, more meaningful relationship with a donor?
A) Hey Bruce. So you know I’m on the board of Food Rescue, right? We’re having an amazing event next month and you don’t want to miss it. We’ll be honoring the guy who played the son of the next-door neighbor of the main character on that show we all loved in 1973. He’s amazing and totally into food rescue. I’ve put together a great table of friends and in fact, I want you to meet one in particular. She could either become the love of your life or your next boss. It’s $500 but it will be a great event and it’s a great cause. How many tickets can I put you down for?
or
B) Hey Bruce. So you know I’m on the board of Food Rescue, right? We just had a panel discussion with heads of food pantries from around the state. They reminded us that, right in my own neighborhood, there are people who go to bed hungry every night. It’s so sad. The E.D. mentioned that currently, we’re only able to serve 15% of the food pantries in our state, but our goal is to get to 25% by next year. I was so moved that I increased my donation this year. It’s really important that we hit the 25% number. Can I ask you if you’d join me in supporting this goal with a $500 donation?
If you chose “B”, you win a gold star. In the “A” scenario, Bruce may give money, but he’s made no emotional investment into that donation. You better come up with another great 70’s sitcom character for next year’s event if you want to ever see more money from him.
But in the “B” scenario, Bruce’s donation comes with an emotional connection to the cause and organization. When Bruce later hears about the organization’s good work, about its growth thanks to his generosity, how much more likely is it Bruce will become a repeat donor? (You are following up with your donors, aren’t you?) In “A,” Bruce bought a ticket for a fun night. In “B,” Bruce made an investment.
CONNECTING THE DOTS
So let’s connect the dots.
Dot #1: Many organizations rely far too heavily on special events, creating a risky revenue portfolio.
Dot #2: Board members believe that selling tickets to events = asking for donations.
Dot #3: Board members find it easier to sell a ticket than to ask an individual to donate directly (PLEASE PLEASE PLEASE GET OVER THAT).
When you connect the dots, what you have is existential risk.
HOW TO FIX IT
First, change your mindset! Special events are great, but they should only make up a relatively small percentage of your overall income. Probably no more than 33%.
Second, share this article with your entire board. Spend 30 minutes talking about it at your next meeting. Have them think like the financial stewards they are. And let them, through that conversation, reach the conclusion that they might need some training to make direct asks.
And with all due speed, get them the training they need. That your clients need.
Start today. The dynamics won’t change overnight. But they do need to change.
And finally, make sure you and your board subscribes to my newsletter so I can send you more nonprofit advice like this.
Excellent point. I can’t wait for chapters 2 and 3: “How did I convince my board?” and “What was my diversification plan?”
Thanks Rick for providing me with material for upcoming articles 🙂
You only gave us the bad. There’s still, I presume, the ugly, then the good.
I think the approach to NPO events is antiquated. The usual notion of “We need donations, lets have an event.” was never strategic. Events should come only after intentional audience/ donor engagement. People need to buy into the initiative and/or mission. Only then will the event make sense. Otherwise it will continue to be hit or miss. This title is a bit misleading, it should lend itself to encourage nonprofits to diversify their financial strategy and layout a framework on how to understand the actual “Business” of running a 501 C 3 organization. But I completely agree. By the time I am brought in to consult for organization events, the amount of hope and pressure to decrease the deficit based on an annual gala or event is no doubt a huge task, but I stay realistic with clients and walk them through a journey of strategic event integration.
Monique.
You are absolutely right. Events are not ‘ends’ in and of themselves. They are part of an overall donor engagement strategy. Sounds like you are a smart consultant and that people need to retain you sooner in the process 🙂
would you say this strategy still holds for arts organizations where the purpose of the group IS the special event? any other advice for this situation?
Lauren. Tell me more. The purpose of the group IS the event? Not sure I am understanding. You don’t raise money EXCEPT for at this event?
we’re a community choir. the reason we exist is to put on concerts. should most of our revenue be from ticket sales or should we diversify as you recommended above? we do have donors and some grant money, but the budget is mostly based on ticket sales.
Think of the concerts as programs. Your ticket sales is probably not covering the cost of the concert – let alone making a profit. But yes, you need to diversify your income and not totally rely on ticket sales (what happens if there is a big conflict and you don’t sell many?).
Sarah is spot on, Lauren. Lack of revenue diversity is one of the key factors in organization destabilization.
I’ve never joined a discussion like this but I need to. I was recently hired for a foundation and am so thrilled to be a part of it. My role is to be the main contact/reach out to facilities to host events to benefit the foundation. I literally had a realization today on the phone with a potential host that our main focus is on the event itself rather the peer to peer fundraising prior to. Also to incorporate stories of people these funds are benefiting. I want to know what I am giving to and what it is doing rather than just hear research. Any thoughts on peer to peer fundraising? It is essentially donations.
A topic not enough people talk about. While we all know someone who will spend $700 for a ride on the Goodyear blimp at an auction but would not give $100 to your annual campaign, too many forsake the good, hard work of building relationships with a donor for a few dollars. The big question after a special event should be, “What are you doing to develop relationships with those special event participants that will turn them from ticket buyers to donors?”
There are many ways to keep event expenses under 10%. I think that would be a good topic to focus on. We were required to have this benchmark at my most recent event non-profit job. And we made it happen through volunteerism and in-kind donations .
Your post showed up in my Facebook feed as a “suggested post” — very timely indeed! I am the fundraising chair at my preschool. We have an annual auction that we depend on to raise 75% of our “fundraising income” for the year. Aside from all the valid points you make above, there is also the issue of burnout for the people planning the event! There is a lot of pressure on a few volunteers to put the whole evening together and raise the expected amount of money… It is hard to get people to volunteer for this role year after year, because of the immense responsibility and time commitment.
I agree with Rick. More articles regarding a diversification plan would be wonderful!! Especially for nonprofits with 2-4 staff members and limited time and reources. Thank you!
Nicole, that’s a good benchmark as long you’re not ignoring the hidden cost of volunteers and in-kind donations. Another benchmark could be to calculate your bottom line after including as an expense any theoretical labor costs of the volunteer time and any actual staff time it takes to put on the event. It can be a sad realization but can also lead to better decision-making.
stay tuned for upcoming article!!!!
Excellent point, especially with the role of board members. However I must share this Special Events Companion for those still feel an event is necessary.
burnout is HUGE