Packaging Your Budget For Your Donor, Series: #2 – How To Do It

In the last post I wrote about the principles of The Program Support Portfolio (PSP) system – a way to package your budget for easy and effective presentation to your donors.  If you have not read that post, take a look here before reading this post so you can understand the rationale and philosophy behind this approach, which I address here.

Before you get started with implementing PSP in your organization, we suggest you take the following steps:

  1. Make sure your leadership is on board.  Believe it or not, I have seen multiple situations in large and small non-profits where the fundraising “troops” are yearning for more program information to present to donors, however upper management, including the top leader, is totally indifferent to the idea.  This just blows my mind!  The top person actually does not know where the money comes from!  Unbelievable.  You need to get your leaders on board.  I have also seen a situation where the top people wag their heads in agreement to this approach, but do not mandate it down through finance and program.  I know of one situation where a relatively low-level finance person is holding the entire organization hostage by not implementing the program because “I just don’t think it’s worth the effort”.  Goodness. So, get folks on board.
  2. Make sure program understands what you are trying to do.  You may find this hard to believe, but many program people do not know where the money comes from in their organization.  Did I say “DONORS”???  This is another unbelievable dynamic in many non-profits.  The program people are so focused on “doing” program that they cannot give any time or attention to service the donors, the very source of their funding!  Now, there are a lot of program people who have this right.  But I’ve been around this long enough to know you had better make sure the program folks are tracking before you dive into implementing PSP.
  3. Make sure there is a commitment to allocating overhead to program categories.  OK, this is a BIG one. A really big one.  I have attended meetings with intelligent, competent, well placed professionals in some pretty impressive organizations and had them tell me they could not support allocating organizational overhead to individual program categories and projects.  So, in a $50 million dollar organization you could have $10-12 million in overhead that just sits there and can’t be raised without going through all kinds of rather dubious tricks and slight of hand moves to make the ratios turn out fine.  This is another unbelievable situation.  In one case, I asked one of the leaders, “So, do you think, Al (not his real name), that you could run this organization without that $10 million in overhead?”  “Of course not, Richard,” he said, “don’t be silly.  Of course we couldn’t do it.”  “Well,” I replied, “then what you are saying is that you need this overhead to deliver the program, right?  And, to me, it then seems that proportionately allocating the organizational overhead to each of the programs and projects makes sense.  It’s an actual cost of doing the program!”  He would not hear of it.  And I felt like screaming at him. This is just plain stupid!  OK, I just took a deep breath.  So, the point here is that you need to gain a commitment from the “powers” on allocating your overhead to program categories.

Now you are ready to move ahead.

Here are the general steps you need to take to implement the Program Support Portfolio system into your organization.  When you implement PSP there will be a lot of additional detail to your process that I don’t have the space and time to put in this post.  My intention here is to outline the general process:

  1. First, with leadership, program and fundraising folks at the table, come up with a definitive list of program categories.  You might think you already have these because they are on your website and annual report.  Believe me, this doesn’t mean anything.  I have seen websites and annual reports that label program with marketing labels, not program.  I have seen websites and annual reports that list accounting categories instead of program categories.  I have seen annual reports and websites that list program categories that are obviously not thought out and don’t make much sense.  Now is a good time to get everyone in a room and ask the questions:  What do we do? What are the categories? How can we say it in a donor centered way?  What are the sub-categories? , etc.
  2. Next, create definitions (descriptions) for each program category.  This is important so that everyone is on the same page about what the category means.
  3. Divide the entire budget into your list of program categories, including any program expenses that may be sitting in departments/divisions that mostly are overhead cost centers. As you are dividing the budget down pay special attention to types of people served or types of beneficiaries (i.e., for an animal charity it might be grouping costs by types of animals) and location or geography(i.e., where the money is being spent).  Why?  Because donors are interested in the program category AND the type of people served AND where it all happens:  category, beneficiary and location.  So, as you are dividing the budget down, make sure you have a matrix that captures this information for each program category.
  4. Allocate any remaining overhead proportionately to the program categories.  The result of implementing this point will be that, whereas you started with an organizational budget of $50 million which divided down into $12 million of overhead and $38 million of direct program expense, you now have a list of program categories, each one sub-divided into program beneficiaries and location and the whole list totaling $50 million dollars – an actual “shopping list” of programs and projects ready for presentation to donors.
  5. Remember, this exercise is NOT about organizational ratios for watch-dog agencies. That reporting thing still needs to happen as it does now.  This has nothing to do with that.  This is exclusively about packaging your entire budget into program categories for presentation to donors to secure their support.  Conceptually, if all your donors “bought” every single one of your categories, your entire budget would be raised, including the overhead.  That is the objective.

As I said earlier, this is all more complex in practice than I have outlined here. But I wanted to share with you the underlying and foundational operating principles of how this works.

I think you can see that, performed correctly, this new source of information will revolutionize fundraising.  And MGO’s and even direct marketers, for the first time, will have an organizational budget that actually translates into a list of programs and projects that donors can support.

In my next post, I will address HOW to use this information.  I hope you are having fun with this!  I am.



About Jeff Schreifels and Richard Perry

Jeff Schreifels and Richard Perry have over 55 years of experience fundraising for non-profits. Richard Perry was co-owner of Domain Group until 2005. Jeff Schreifels was a Senior Strategist for Domain Group for 12 years. They came together a few years ago to start Veritus Group, a full-service major gift fundraising agency. Veritus Group has a unique, data-driven approach unlike any agency focused on major gifts. Jeff and Richard are passionate about their work, passionate about life and hopes this blog will provide you with insights and tangible benefits for you and your work. Thank you for reading!
This entry was posted in Development Directors, Donor-Centered, Marketing Plans, Non-Profits, Philanthopy and tagged , , , . Bookmark the permalink.

3 Responses to Packaging Your Budget For Your Donor, Series: #2 – How To Do It

  1. Rich Foss says:

    Richard, I love this series. I can envision the portfolio as a catalog like Heifer International does. After my initial excitement, a couple of questions have bubbled up. One, do you advocate tracking gifts through the accounting system so that you can assure donors that their funds actually benefited the program they donated to? (I can hear howls from the accounting dept.)

    Two, many of the community nonprofits I work with receive government funding for some or all of their programs but some programs and funded more and some less. I’ve always felt uneasy about raising funds for programs already fully funded by the government even if they have great appeal to donors. I suppose some of those programs are not fully funded when you add in the overhead. How do you suggest addressing this issue?

  2. Hi, Rich. Nice to hear from you. Thanks for writing.

    On the first point: If the gift is large enough, tracking through the system makes sense. But, perhaps the better idea is to simply track designations and make sure that the total amount given does not go over the budget + overhead for that project. I think that is more practical.

    Secondly, I would never advocate raising money for a project that is already funded either by government or another donor. And your lack of comfort about the idea is, essentially, telling you that. But, most of those programs are NOT fully funded, as you have said, because the overhead is NOT in there.

    I had a situation just like that where the budget for the program was $3.8 million, the government funded $3 million, and the other $800k was overhead. In this situation we still needed another $800k to fully fund the program.

    You should have seen the trouble I had with the MGO on this one. She refused to present this case to a donor who wanted to give $100,000 because it was overhead. I argued that she could have presented it as follows: “of the $3.8 million we need to do this program we have received $3 million. We still need to find $800,000. Your gift will help close the gap.” She would not budge – thought it was an issue of honesty and integrity.

    Goodness! It is amazing to me how folks think! As if we could even DO the program without the $800,000. Frustrating.

  3. Ramsey Ellis says:

    Do you have an example of an organization who has really done PSP well?
    Thank you,
    Ramsey Ellis

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