The extent of excessive or insufficient fundraising among US arts organizations and the effect of organizational efficiency on donations to US arts organizations

• We estimate, for each nonprofit organization (NPO) in a sample of 606 US arts NPOs, whether the NPO's level of fundraising is ‘excessive,’ ‘insufficient,’ or neither, relative to the level that maximizes net donations. We find that the effect of a 1% increase in fundraising on net donations varies widely across the arts NPOs in our sample—from an increase in net donations of 8.91% of gross donations to a decrease of 3.82% of gross donations. Of the 100 NPOs in our sample with the highest donations, the estimated effect of a 1% increase in fundraising on net donations varies more narrowly—from an increase in net donations of 0.27% of gross donations to a decrease of 0.32% of gross donations. Of these 100 NPOs, we estimate that only 3 engaged in ‘excessive’ fundraising, but 83 engaged in ‘insufficient’ fundraising, and 14 did not engage in ‘excessive’ or ‘insufficient’ fundraising.We also provide evidence that reported organizational efficiency does not affect donations to arts NPOs. This finding may be useful to managers and directors of US arts NPOs who believe that organizational efficiency does impact donations and who, therefore, incorporate the effect on efficiency in their decisions to allocate resources across fundraising, administration, and program objectives.

Copyright © 2007 John Wiley & Sons, Ltd.     

Initial evidence on whether use of professional fundraising services increases fundraising effectiveness

• We provide initial evidence on whether use of professional fundraising services by US nonprofit organizations (NPOs) increases the effectiveness of NPOs' fundraising efforts. To a well-tested model of organization-level donations, we add an interaction term that captures the impact that professional fundraising fees an NPO incurs has on the effectiveness of an NPOs' spending on fundraising in raising donations. We find that professional fundraising fees has a significant positive impact on the effectiveness of fundraising efforts in raising donations for NPOs in the full, education, and health samples, but no impact for NPOs in the arts and human services samples. For NPOs in the full sample and NPOs in the education sample, one quarter of the effect of fundraising on donations stems from the positive impact of professional fundraising services on the effectiveness of fundraising in raising donations. For NPOs in the health sample, one half of the effect of fundraising on donations stems from the positive impact of professional fundraising services on the effectiveness of fundraising in raising donations. These results suggest that professional fundraising services significantly enhance the effectiveness of fundraising for these types of NPOs. While the results of this study seem to confirm the decisions of managers of education and health NPOs to utilize professional fundraising services, the results also suggest that managers of arts and human services NPOs may want to reconsider using professional fundraising services, at least the types of services they currently purchase and the way they currently utilize such services.

Copyright © 2009 John Wiley & Sons, Ltd.     

THE COMBINED EFFECT OF DONATION PRICE AND ADMINISTRATIVE INEFFICIENCY ON DONATIONS TO US NONPROFIT ORGANIZATIONS

We examine the effects that two accounting measures of nonprofit organization (NPO) inefficiency, administrative inefficiency and donation price, have on donations to US NPOs using a better-specified model and industry-specific samples. Although numerous studies examine the effect that donation price has on donations (e.g., Marudas and Jacobs, 2006 ; Marudas, 2004 ; Khanna and Sandler, 2000 ; and Tinkelman, 1999 ), only three studies examine the effect of administrative inefficiency on donations ( Tinkelman and Mankaney, 2007 ; Frumkin and Kim, 2001 ; and Greenlee and Brown, 1999 ). However, none of these studies tests donation price and administrative inefficiency in one model and only two test industry-specific samples of NPOs. We find that misspecifying the model by including only one of these two inefficiency measures creates substantial bias and the effect of administrative inefficiency on donations varies substantially across industries. Administrative inefficiency has a significantly negative effect on donations to NPOs in the full sample and the philanthropy sample, but no significant effect on donations to NPOs in the arts, education, health, or human services samples. Furthermore, donation price has a significantly negative effect on donations to NPOs in the full sample and the education, health and human services samples, but not in the arts or philanthropy samples. Results are also reported for the other variables in the model – government support, program service revenue, fundraising and organizational age, wealth and size.     

Excessive,optimal, and insufficient fundraising among the Nonprofit Times 100

• Using a six-factor model of donations, we estimate the effect on net donations; i.e., donations less fundraising expenditures, of a one percent marginal increase in fundraising expenditures, for each sample nonprofit organization (NPO) from the Nonprofit Times 100 from 2000 to 2002. No prior study of U.S. NPOs estimates the effect of fundraising expense on net donations. We then use these estimates and what we argue is the correct benchmark, the ratio of fundraising expense to donations, to provide evidence, for each NPO, on whether the NPO's level of fundraising is ‘excessive,’ ‘optimal,’ or ‘insufficient,’ relative to the level that maximizes net donations. All prior studies using log-log models use what we suggest is an incorrect benchmark for evaluating NPO fundraising behavior.
• The estimated effect of a 1% increase in fundraising on net donations varies widely across NPOs in our sample—from an increase in net donations of 0.18% of gross donations to a decrease of 0.66% of gross donations. Of the 76 Nonprofit Times 100 NPOs with usable data in 2002, we estimate that 24 engaged in ‘excessive’ fundraising, 18 engaged in ‘insufficient’ fundraising, and 34 did not engage in ‘excessive’ or ‘insufficient’ fundraising; i.e., we could not reject the null hypothesis of ‘optimal’ levels of fundraising.

Copyright © 2006 John Wiley & Sons, Ltd.