Stop putting it off: 8 Steps to Planning your Budget with Confidence

June 11th, 2019

Do you feel it? That sweaty yet chilling sharpness in the air. Your head feels a little woozy. You feel a knot in your stomach. You wonder if it’s allergies. What is it?

It’s budget season!

If your fiscal year ends in June or even September, you are in the midst of that budgeting time of year most dreaded by direct marketers. And next year’s budget is shaping up to be especially challenging.

The trends coming out of year-end have been anything but hopeful and uplifting. Industry benchmarks and online trends have reported softened results. For many, the year-end wasn’t the euphoric season of double-digit revenue increases seen in previous years. And the first quarter of 2019 has been soft. This doesn’t inspire confidence in the fate of next year’s revenue. Regardless, it’s time to set the goals and build the plan for the next year and for the future.

Get a strong cup of coffee (or your caffeinated beverage of choice), take a deep breath and dive in. Follow these steps to build a plan that inspires hope and progress for the year ahead.

Follow these eight steps to take the guesswork out of the process and to build a plan that inspires hope and progress for the year ahead.

  1. Analyze file trends. This often comes in the form of a file audit or file analysis. Start with the macro metrics. These are your key performance indicators (KPIs), such as overall revenue trends, average gift trends, donor value trends and retention trends. The KPI will help you understand the overall health of your file. Are the trends increasing or declining? Is the file growing or shrinking? While these aren’t the figures you will use in creating individual campaign budgets, they will help you understand what’s happening from a 30,000-foot view.
  2. Determine your lifecycle counts. Some of the most important numbers to reference when budgeting are your counts of donors by lifecycle. New donors, multi-year donors and lapsed donors respond very differently. It’s important that you are budgeting by lifecycle group and not by total campaign averages.
  3. Review past campaign results. William Shakespeare’s quote, “what’s past is prologue,” should inspire this next step. (And if you doubt the significance of this statement, consider that it is also carved into the National Archives Building on Pennsylvania Avenue.) Campaigns tend to perform similarly to how they performed in the past. If you aren’t making strategic shifts or changing creative focus and your donor counts are about the same, then budget for similar results. Don’t decide that this is the year your year-end appeal revenue will double just because you want it to.
  4. Expect expenses to rise. Costs for social media ads, postage and paper have all increased this past year and will likely continue to do so. Make sure you are accounting for the increased costs to execute the strategies you are planning.
  5. Budget within the channel. In our omnichannel world, we often analyze direct mail, online campaigns and digital ad spends with an eye toward influencers. For example, a matchback analysis has indicated that 10% of your online revenue was motivated by direct mail. Your digital ads were served to donors who gave $10,000 through the general donation page. The influenced revenue is important in evaluating the value of the influencer for future investment, but be sure to budget the revenue in the channel the gift was received, or you’ll end up double counting this revenue.
  6. Build in a testing budget. You may not know what you want to test now or what great breakthrough awaits, so add in a line item for testing. If you want to know where you are headed next year, you need to test some things this year to point the way. Funds, whether large or small, earmarked for research and development encourage innovation and make you accountable for implementing strategic tests within the year.
  7. Pass the smell test. After you have budgeted all the individual campaigns, your budget should amount to a grand total of revenue, expenses and net. Cross check your totals against previous years’ totals to make sure the figures look about right. What is the percentage of increase/decrease you are projecting overall? Does that square with trends in the industry and your file trends? (Review file audit again!) If not, make adjustments.
  8. Document your planning. Write up a narrative of the strategic calculations you made to arrive at specific projections. Include details about segments you were thinking of adding or excluding from specific efforts. Jot down the new ideas or tests you are planning. Keep notes about the influencer revenue you are projecting based on results of other campaigns, so you know what contributes to those big buckets of mysterious revenue, such as general donation page, white mail, and “other.”

 

And finally, and most importantly, defend it!

After you have put in the work to analyze the trends, evaluate the segments, review the campaign metrics, and the budget you have produced is solid and attainable, sell it to your boss, and your boss’s boss, and their boss’s boss if you have to. Budgeting is a stressful time for all involved. There is never enough revenue to cover all the important program work an organization wants to fund. But our job as fundraisers is not to shoot for the stars and hope for the best. Our job is to set realistic expectations for the funds we believe we can raise. Sure, there should be some discomfort to push us a bit outside our comfortable boundaries, but when organizations set unrealistic revenue goals, the desperation results in harmful fundraising practices that lead to treating donors like ATM machines. And then that wooziness your feeling this year will be nausea next year.

Remember, your budget is an opportunity to plan for new strategies, test new ideas and set a new course. Use the time to plan properly and you’ll be confident in your stronger program.

 

Craig DePole is President of Newport One, a leading, full-service, direct response fundraising agency serving nonprofit organizations for more than 30 years. He also serves as chairman of the Board of Directors for the Association of Direct Response Fundraising Council (ADRFCO). Craig can be reached at cdepole@newportone.com.

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