The Importance of Limiting Exposure to Highly Inflationary Costs
In a recent post, we shared initial thoughts on the impending economic contraction/recession (depending on your view), and focused on some key strategies that can be taken to help manage through the months ahead. We have additional context to share about the potential impact on giving – and we will do so in an upcoming post.
Much airtime has been given to ‘predicting’ how giving may be impacted by a looming economic downturn, but in our opinion, far less time has been spent talking about ways nonprofits can further minimize their risk by limiting exposure to inflation.
According to data from the Bureau of Labor Statistics and Federal Economic Data, year over year cost increases have hit certain sectors particularly hard. For example:
Household paper products: 12.4%
Medical services: 6.5%
Motor fuels (diesel): 49.0%
Postage: 3.0%
Postage delivery services: 16.4%
Transportation services: 14.6%
Wages: 4.9%
Framing this in the context of fundraising, some direct costs inherently experience a larger increase then others. For example, direct mail production costs (highly influenced by paper, fuel and postage prices) will experience a greater increase as compared to other channels like canvassing (face to face marketing) which is more directly linked to wages.
This data is meaningful as it provides actionable insight to help direct expense allocation, especially for organizations with robust multi-channel programs who may be looking for a way to shift investment in a way that will maximize net return without hurting the program for the future. For instance, we might remove marginal segments from more costly channels and redirect those ‘saved’ investments to another channel whose relative costs have been less impacted but may drive more valuable donors (especially monthly!) for the long term.
And it’s not just our investment strategy that may need some tweaking in response to inflation. This is a good time to evaluate your messaging and ensure you are fully explaining to your donors how increasing costs are impacting organizations’ abilities to deliver programs and services.
The reality is, organizations will need to raise more revenue to net the same amount, thereby requiring us to be even more innovative with strategies, messaging and creative to engage more donors to give, and prompt existing donors to give greater amounts.
One last thought (for today) on the issue of revenue. We understand there are some organizations that are more gross revenue or net revenue focused, and there are many valid reasons for both. Yet, given the current environment, a real-time pulse on net revenue is one way to understand the true power of the money being raised.
Until next time, happy fundraising!
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