Podcast: How to Create a Campaign Budget Your Board Will Support

Season 2, Episode 60

Have you ever wondered where organizations get the money to fund their capital campaign? You may be wondering how they find the money to pay for development staff or for new infrastructure technology.

In this episode, Amy Eisenstein and Andrea Kihlstedt talk about how to create a budget that your board will support.

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Amy Eisenstein:
Have you ever wondered where organizations get the money to fund their capital campaign? You may be wondering how they find the money to pay for development staff, or new infrastructure technology, and that’s what we’re going to talk about, so stick around.

Hi, I’m Amy Eisenstein, and I’m here with my co-founder, Andrea Kihlstedt, and today, we’re going to be talking about how to create a campaign budget that your board will support.

Creating a Budget for Your Capital Campaign

Andrea, how do you think about getting a campaign budget together in the first place, and then, of course, how do we get the board to support it?

Andrea Kihlstedt:
Yeah, no, it’s a great topic, Amy. The image that comes to my mind is the poor development director who gets a proposal from a consultant to do a feasibility study, right, and the price tag on it is huge, right?

Amy Eisenstein:
Yes.

Andrea Kihlstedt:
Maybe it’s $50,000, $100,000, $150,000, and they’re looking at that thinking:

“Wow, where are we going to get the money to fund that and everything else we’re going to need for our capital campaign?”

It often just hits them between the eyes because they haven’t yet thought about it, so I think it’s a super important topic, and I’m so glad we’re discussing it today.

The point about a budget for a campaign, the big point that people need to know and think about is this, that when you’re putting a campaign together, you write up a series of campaign objectives; that is what are you going to spend the money on, right? Why does it matter?

• Is it a new building?
• Is it new programs?
• Is it new equipment?

What are the things that you’re going to spend the money on? One of the things in that list of campaign objectives has to be the cost of your campaign, right?

Amy Eisenstein:
Right.

Andrea Kihlstedt:
The cost of your fundraising, the money that it will take to raise that money, because raising money is not free. You don’t just have a magic wand and wave it around and all of a sudden have money come in the door. No, you have to hire consultants, you have to hire often staff, you have to have events. I mean, there are all kinds of expenses that come with a capital campaign. Even though it is the most efficient and effective way to raise money, it still costs [money].

Ten Percent of Your Campaign Goal Should Go Toward Costs

Amy Eisenstein:
I think that’s such a good point. Unfortunately, often board members and sometimes even executive directors feel that their existing staff and infrastructure are just going to magically raise five times more than they’ve been raising, 10 times more than they’ve been raising, maybe more, and so I think it is important as people start to think about a campaign, really thinking about:

“What will make this happen and how much will it cost?”

We need to think about that. We have a nice round number formula that we like to start off people with, don’t we?

Andrea Kihlstedt:
Yes, we do. The formulaic number we use, mainly because it’s a simple calculation, is that you should plan on at least 10% of your campaign goal to be the amount of money it’s going to cost to actually do that campaign, 10%. If you have a $5 million campaign, you should be budgeting at least a half a million dollars to do your campaign.

Now, you may say, “What? A half a million dollars?” A campaign doesn’t happen in six months or a year, a campaign goes on for three years, maybe four or even five years, so you need to take that budget, and run it out over time.

If you are going to be hiring a staff person, if you’re going to be hiring a consultant, right there, if you play that out over three years, you’ve got a significant investment, significant amount of money. Then you start adding events and PR and swag. I don’t know, there are all kinds of stuff that end up costing money, which you are going to want to accrue to your campaign budget, not to your operating budget. Now, let’s pull that apart for a minute.

Amy Eisenstein:
Yeah, I think that’s a really important thing to pull out because when you think about an additional 500,000 as part of your operating budget, that is a big pill to swallow and probably unmanageable, honestly, for most organizations, so it doesn’t come out of your operating annual budget because that’s not where the money is coming from or going to, so you do create a separate budget that comes out of your campaign revenue. Of course, you do need to spend a little of it often before you’ve started raising money.

If you’re initially going to do a feasibility study and hire a consultant, some of that money will have to be invested, of course, before you raise some money. But ultimately, it will be paid for by campaign revenue, and so you may ask a couple of early donors to invest early gifts so that you can make these early campaign expenses that you can pay for them.

Andrea Kihlstedt:
Yeah, people often worry about including an item for fundraising in their campaign objectives. They say, “We can’t ask donors to cover the cost of fundraising.” I think, “Why not? Why not?” The cost of fundraising — whether it’s for your annual operating or for the campaign — is a part of running your business. Why should you not include that in the amount of money you raise?

Of course, you do include it. But why people are ouchie about it, or squeamish about it is to me remarkable, so my preference is to say, “Just include it as one of the items in your campaign objectives.” Be ready to answer questions about it, but don’t pretend fundraising doesn’t cost money. Fundraising does cost money.

Operational Costs for a Campaign Get a Bad Rap

Amy Eisenstein:
Well, that’s interesting that you say it that way. I mean, you know exactly why people are squeamish, it’s because operational overhead for nonprofits gets such a bad rap in the media, and there’s so many articles and this and that about the negative aspects of overhead, which of course, we think is totally ridiculous. It does cost money to raise money and pretending it doesn’t help anyone. There’s certainly lots of nonprofits that take that route. They say:

“Oh, a hundred percent of our money goes to directly to programs and services.”

It just makes it more confusing and challenging for the rest of the sector, so to me, that’s such a bad avenue to take. The reality is that if all of your fundraising only costs 10%, that’s an amazing deal. Where else can you go invest in overhead? What business? Go look at any other sector. There’s no other sector on Earth where overhead and operating and research and development and planning only takes 10%. It’s remarkable that actually most campaigns can stick anywhere near that budget.

Andrea Kihlstedt:
Right, but they do. I mean, in this capital campaign business, they really do.

Early on in your campaign planning, you need to be talking to your executive director and your key board members so that they understand that money that will be spent on the campaign can be spent out of a campaign budget and that campaign budget will be part of the money that is raised through the campaign. That’s number one.

Number two is that early on in the process, what we call the campaign planning process, you need to include a campaign budget in your campaign plan, ‘kay? It probably should be a three-year budget, it may be even a five-year budget, but you should run out over time what your campaign is going to cost in a whole bunch of different areas, just like you’re making any other budget.

In Capital Campaign Pro, we have a very good spreadsheet that helps people create a three-year campaign budget, and if you start doing that and include it in your campaign plan, it’s not going to be a surprise to anybody.

Don’t Under-Budget for Your Campaign

When you budget, don’t under-budget. You are going to look a whole lot better if at the end of the campaign you have spent less money than was budgeted than if you overrun your budget, right? That has less to do with your wisdom and it has more to do with your willingness to budget on the high side to begin with and then to mind your pennies as you go through the campaign.

You don’t want to have to go back to your board and ask for more money again and again through the campaign, that’s going to do nothing but cause you trouble, so budget adequately up front, and then keep an eye on the budget so that you underspend it each year.

Amy Eisenstein:
Yeah, but plan. Plan and prepare the best that you can and don’t assume that your existing staff and resources and infrastructure will cover a campaign. We joke around that maybe board members think that you’re sitting in your office twiddling your thumbs instead of out raising as much money as you can every year.

So the idea that you could raise three times, 10 times, 20 times more than you’re currently raising with the exact same staffing, with the exact same infrastructure, with no additional support is crazy, and so you will want to think about amount of support from consultants:

• Do I need, do we need an administrative person, another development person?
• How is my development office going to grow?
• Do I need any tools or resources?

Including Salaries in Your Campaign Budget

Andrea Kihlstedt:
One of the questions that comes up around this subject is the question of whether an organization should account for part of the executive director’s salary or the development director’s salary through the years of the campaign. Your executive director and development director are likely to spend 20, 30, maybe more percent of their time on the campaign during the campaign years and you do have the option of including some percentage of those salaries in your campaign budget and paying for it out of the campaign budget.

Now, that’s worth thinking about because it accurately reflects what’s going on. Some organizations choose to do that. What it does, of course, is that it alleviates the burden on your annual fundraising. All of a sudden, your annual budget is going to look somewhat better, right, because you’re paying that out of your capital budget.

If you choose to do that, you have to be careful that over time you are pulling the budget back into the annual operating because you don’t want to get to the end of your campaign and all of a sudden find that all of the money you were paying for out of the capital budget for those salaries is now back in the annual column and your organization and it is shocking, right? You’re then operating in a deficit because you had forgotten that you were going to have to pay for that again, so just be aware that you’re going to have to shift it back again by the end, and be sure you do that thoughtfully.

Amy Eisenstein:
Alright, let’s give an example.

An Example of Budgeting Staff Salaries

Let’s pretend you don’t shift any of your executive director or development director’s salary away from your annual operating budget. Let’s pretend you leave it as is, but you are going to hire another staff person to help with the campaign. If the goal is to keep that person at the end of the campaign, you actually want to do the same exact thing, so in year one of your campaign, you’d spend a hundred percent of the new person’s salary in the campaign budget.

In year two, you might pay for two-thirds of that person’s salary out of the campaign budget and one-third out of your annual operating budget with the goal of bringing them in to be part of your regular staff. Then, of course, in year three, you’d pay one-third from the campaign budget, and then two-thirds. You do these gradual transitions over time so that no budget is experiencing too much shock.

But I think that thinking about it that way, whether you include some of your executive director’s salary or development director’s salary or not in the campaign budget, you at least can do that with some of the new expenses that you hope to maintain post-campaign. I think a lot of people do think about hiring a campaign manager that they may or may not need at the end of the campaign, but truly, if that person does a great job, why on Earth would you get rid of them? You’ve grown your development function? Literally, you are building capacity.

That’s the definition of a campaign is that you want to build capacity, and that includes your development office, you’re building capacity of your whole organization, so you want to assume that you will keep that new staffing, the new infrastructure to grow all of your systems, and all of your development functions over the course of the campaign.

Capital Campaign Budgeting DON’TS

Andrea Kihlstedt:
That’s such an important point, Amy. There are a number of don’ts that I’d like to talk about here, just a few of them. Don’t think you can do a capital campaign without a budget. That’s a big don’t, right?

Amy Eisenstein:
Yes.

Andrea Kihlstedt:
You will need a budget, so don’t do that. Don’t pretend that you can just run the capital campaign out of your annual fundraising budget. You’re going to end up not having enough money for your campaign and you’re going to stress your annual fund budget to the point that it’s untenable and everybody’s going to be unhappy, including your board.

Amy Eisenstein:
Yes.

Andrea Kihlstedt:
Don’t put off thinking about the expenses of a campaign until somewhere down the road when all of a sudden you’re up against it, right? Start right up front developing a campaign budget and share that budgeting process with your key board members and key staff members so no one’s surprised, so everyone understands right upfront, right, early in the process that this is going to cost money, it’s a very efficient way to raise money, but it is going to cost money, so bring it up right in the beginning, and get everyone working with you to develop an effective campaign budget.

Amy Eisenstein:
Yeah, as you mentioned early on, inside the Capital Campaign Pro toolkit, of course, for our members, we have templates and samples and walk you exactly through the process of how to think about budgeting. We don’t want you to make this up from scratch. There are tried and true ways to think about it. There’s templates, there’s people with experience to guide you through the process, so you don’t have to wing it, or do it on your own. We’re just getting your thought process rolling.

Then when it comes time, you should reach out and make sure that you have the resources and the expertise so that you actually set up your budget appropriately and that you’re not making it up as you go. There’s no reason to do that. Plenty of people have done it before and there’s good roadmaps available for you, and of course, we want you to come see if our roadmap at Capital Campaign Pro is the right one for your organization.

Key Takeaways

Alright, Andrea, let’s think about key takeaways. I think let’s just highlight:

1. Don’t go into a campaign without a budget.
2. And on the flip side of that same exact coin, don’t just assume all of your campaign expense is in your annual operating budget, you will be unhappy in the end, and plan to budget in advance.

I love it. Alright, Andrea, thanks for sharing your wisdom, as always. It’s a pleasure talking with you.

Andrea Kihlstedt:
As always, Amy. See you next time.