 So, thanks for joining us. We are so thrilled you're here for another episode of the nonprofit show. Today, Julie and I have already been nerding out with our amazing guest Kirk Schmidt with us from wisely and Kirk is here to talk to us about the economics of fundraising. So, I'm at Kirk at AFP icon in Vegas a couple of months ago. I think we connected previously on LinkedIn Kirk thanks to your invitation and initiation and a conversation. And then you saw me on the showroom floor as we were broadcasting live from the Bloomerang booth so it's just been a great time, you know not only to get to to meet you in person but now follow you on LinkedIn and all the good stuff that you do so thanks for for being here today and to Julia for joining us as well. Julia is the CEO of the American nonprofit Academy. Because of Julia, we have this amazing platform for these conversations. So I'm honored to serve alongside you Julia each and every day as the co host. And so, your nonprofit nerd CEO of the Raven group, and we continue to be honored and so very grateful to have the support of our presenting sponsors not only investment but just overall, you know camaraderie and collaboration so thank you to Bloomerang, American nonprofit Academy fundraising Academy nonprofit nerd your part time controller staffing boutique and the nonprofit thought leader. We are so amazed to have these companies with us with us each and every day. You know we keep throwing out the 600 number we are coming up soon August will be our 600 episode, and you can find us on so many different streaming channels, including podcasts so if you missed any episodes are you like what you hear today with Kirk which have a feeling you will. You're going to want to check us out again on Roku YouTube Fire TV as well as Bimeo. And then again if you're a podcast listener go ahead and queue us up on your, you know podcasts wherever you stream your podcast and just go ahead and say the nonprofit show and you'll have Julia and myself in your ears so we're excited to provide this to you and we're so thrilled. I'm not sure who is like, I don't know, fanning over you more right now Kirk like, I knew how amazing you are in our and Julia is learning and I can see it already in her eyes and demeanor like we are both just nerding out so welcome and thanks for joining us today. Well thanks for having me. I'm glad to be here. Yeah, we will flatter you for the entire 29 minutes. It's a good way to make me feel uncomfortable. It's a great conversation but tell us a little bit about wisely the company that you're representing today and working with and then we're going to dive into the conversation of economics. This company is a company that builds software for the nonprofit sector, specifically AI Howard software so we have two pieces one that looks at prospecting to trying to figure out what your what your donors are likely to give next. And then we also have a social media product and we use AI to build in some of the storytelling elements into into your social media posts. You know, when I was Julie and I shared this with you when I was at icon I really realized and this is the Association of fundraising professionals, very large their largest annual conference. And I really realized for the first time ever how technology has just, you know, taken over our sector and I would say that most of the the booths, you know, Kirk there on the showroom floor. I would say 90%, if not more we're truly technology based and so fundraising focused technology first. And when I hear AI, first of all, like, I don't naturally know what it is but it's artificial intelligence. And I've been nerding out over this since the conference since we've met and really just looking at you know how AI artificial intelligence can play a bigger role in our sector and it's already there. And it's not that it's not there. We're just really starting to embrace this so let's dive into this and for those of you that might not know this Julia is an economics major. This is not my cup of tea this is not my zone of genius but Julia you're going to shine so I'm going to let you kick us off here. I don't know if I'm going to shine or not because, you know, I'm a lot older than Jared and so we did not even have, I know clutch your pearls. There was no such thing as personal computers or laptops when I was in college so you know it's quite a different thing but one of the first things they talk about in economics is the understanding of, and I should it's more of a finance discussion, but Kirk, you know the knowledge you can't cut your way into success or profitability or stronger cash, you know, reserves. However, in the nonprofit sector, this is one of the very first things we do it's a knee jerk reaction we're just like we got to cut back we got to cut back. And so, I love that this is like the jumping off point. And if you could share with us how you view this. So, of course, you know, March of 2020 was this point in time that we all like to refer to. And it was, it was kind of decision time for a lot of charities in terms of what are we going to do, especially knowing that in person events might not be a thing for, you know, who knows how long. And there certainly was a knee jerk reaction by a lot of charities to cut back expenses because there was this view that, you know, we're going to be down. 30% in revenue. And, and because of that, you know, we, we don't want to, you know, we don't want to be spending as much. But, you know, that the fallacy in that argument is that, you know, really what's happening when when your revenue goes down like that is basically your cost to raise a dollar just, you know, goes up like that. That's what the difference is you're either you're either not going to just, you're not going to be able to acquire as many donors or retain as many donors, or they're not going to give as much. But you're going to spend the same amount on it. And, and there's kind of a view that if if you cut expenses, suddenly that ratio of expenses and revenue will go down. And, and, you know, you'll be able to make the same amount net, but that's not really what happens what happens is you're just, you're just putting less money in towards a bad ratio to begin with. And you're just ending up with less money overall and we're seeing that in data now that's coming out of the sector going, yes, the charities that cut our suffering, the charities that leaned in for the most part, you know, there's always counter examples but for the most part, the charities that leaned in are are much better off, if not ahead because of pandemic. Right now, absolutely. And I just want to, you know, remind our viewers are listeners so Kirk is joining us from Calgary and this you know has really impacted across the globe and so as we talk about this. I love your representation for us, you know, in, and in our friends up north it's wonderful to have that. And we've talked a lot about you know how this has impacted our sector. You know, I go back to also 2000 and gosh when was our last economic crisis 2008. Yeah, eight, nine, because I was chief development officer for $21 million operating agency at that time. I was a reduction in force my team was a reduction in force. So the organization immediately cut expenses right but they cut the revenue group, and that to me was like, okay, this is alarming and so I kind of you know expected that in March of 2020 that, you know, many organizations would take a look and say okay, what can we immediately cut who can we furlough what services can we get rid of, you know, offices, many people got rid of their offices and now we're working fully remote so there's a lot of impact when it comes to cutting, you know, expenses and, and how that also cuts our revenue. So, let's dig a little deeper into this because this is a really interesting concept that I feel Kirk the for profit world discusses, but the nonprofit sector doesn't. So let's drill down a little bit and have you share this, your view on understanding the expense to revenue ratio within the context of the nonprofit sector. Sure. So, so of course, you know, there, there were these groups, you know, years ago that that basically said, you know, low low expense, high revenue ratio is is a determinant of how efficient a charity is which we all know is crap. You know, and, and there's, there's kind of this view that, you know, if unless you keep your expenses to you know 20% or whatever. You're not an efficient charity and of course you know there's been, there's been a lot of pushback by the by the sector on that over over many years there's been it's been talked about in many different ways. But what's really interesting is is it's actually kind of paradoxical in how it works because let's say you have a relatively efficient fundraising let's say let's say like we're talking about major gift teams. So, you know, 10% ratio if even that there's there's kind of this level of you know if you're, if you're spending $10,000 and you're making 100,000. You know, you're making 90,000 a year you're you're super you're super efficient you shouldn't you know you shouldn't change that. But if you're that good, assuming that you could scale to to a large degree and even if you increase to you know 25 cents on the dollar 30 cents, you know 33 cents on the dollar. If you took that 90,000 that you made, and you put it all back into fundraising, you would end up with more money after that second year, then you would have if you just like continued doing the same thing incremental right and so there's kind of this level of like if you're super efficient at fundraising, you should throw as much money at fundraising as you can because you will raise money quickly, and you will raise more than you ever will have if you simply maintain that ratio every year. And so it's it's this weird situation where it's like well it's it's efficient to not do this but it's like, you know, if, if, if you were able to scale that up and stay at 10 cents on the dollar, you would generate eight times your income in one year from from that extra 90,000 you then you would if if you had just, you know, done the 10,000 every year. So you know Kirk the only the only group that I see that understands this, and they haven't really shared it with anyone else because they do it so wonderfully well is higher university university system, and I will hear other nonprofit leaders and I have throughout my career say what the hell they have you know major gift officer they've got 45 you know in their in their stable. And yeah, they have leaned in and have understood from day one that is the investment to move towards and I don't know why the rest of us don't see this. I mean really I don't know why we can't see it. You're potentially risking your program dollars if you took a bunch of money that you would have put to your program and said you know we're going to we're going to borrow against that. You're potentially risking your program. And if you hire the wrong people like there definitely is risk, but the reward is so much bigger if you have a good plan. Well, and I think we're so we're too narrow minded because I know I've heard before, you know, well if we have any extra money we want it all to go to our clients, right. And I get that I totally get that but what you're saying Kirk is, if we can look at this investment if we can see this investment as a greater opportunity to impact our clients. For me that's a no brainer right and, and I get this probably once a month you know and it's typically from smaller organizations that are thinking you know we have to hold on to this so tightly and we have to use every penny to go to our clients and instead of investing into, you know, an even greater opportunity to raise more money to increase the amount of staff to deliver the services and the programs that impact the client. And you have to also remember the expense to revenue ratio like people like to think in terms of like I want 100% of my money to go to the charity. And, and when you have a ratio that's at least you know decent and decent can even be 6070%. Eventually that money that like I give you $100 and and you you take part of it put it to the program immediately take part of it and fundraise with it. Eventually my $100 will end up in the charity it's not a question of if it goes it's a question of when how long are you borrowing my money for to raise more money. And then the next person you know next year gives $100 it'll take them a few years for that money to go to it and that type of thing but it's really a borrow rate more than it is a you know how much ends up going to the charity unless it gets to the point where they're losing money and then that's that's a bad thing. But, but there is this point at, you know, you're just borrowing the money. That's right. So I've never thought of it that way. And I think I ought to be candid with you. I think that would be a hard sell. Absolutely. It's it's not I like the idea, but I think it'd be a hard sell. I mean, tell me what you think I interrupted you tell me what you think about that. I think you're right I think, I think that's not really necessarily something that could be sold to individual donors, but I think it's something that we have to recognize as an industry that that's effectively what we are doing. So that it's not about like, I don't want to publish my meal my cost to raise a dollar because you know I'm worried what donors are going to think it's more like no no no we we are well aware that you know we have a cost to raise a dollar 50 cents 60 cents. And we know what that means, and that that we can be okay with that. Well, what if we change our vernacular right because we talk about donors talk about supporters, but I find when we use the word investors and having someone invest in our mission and the solution to the community problem. That to me sounds a little bit more like you know what we're talking about to where these individuals really understand, we are investing in change and oftentimes systemic change and it's going to take time right it's not an overnight. You know, resolution we didn't get here overnight and so we're not going to you know resolve the community challenge in that you know quick amount of time. So for me, I also question you know as we talk about this in the economics lens is also the words we put to it because I think that changes, you know, the, the dialogue. And, and to, you know, to add to that too and like thinking about the easy sell, we, you know, we like to do things easy and it's really easy to sell things. So, which is why a lot of charities will go like if you give us, you know, $59 that that ends up doing this, this particular thing and it's an easy way to sell it. But it's not, it's not, you know, future focused in its in its methodology and, and I've seen charities nearly go bankrupt having money set aside for particular things that they can't touch because it, you know, I don't know what it is in the US but certainly in Canada. If it's been earmarked for something, especially by the donor, you can't touch that unless it's for that. And there's actually like you might actually have to go to court in order to have that that change. So, so this whole idea of like easy fundraising is almost counterintuitive to what we actually have to achieve. Yeah, yeah those restricted dollars are very restrictive. And when we talk about vernacular and language and how we, you know, create a case for support or statement, you know, of support it's really about providing this broader picture so that we can have less restricted dollars and more unrestricted dollars because that's really, you know, where we need the majority of our money is in that restricted dollars. I had shared with both of you earlier organization that I'm working with and they've gone from 1.2 million to 5 million. A lot of that is restricted. Right. And so it's really not infrastructure capacity building staff, it's program program program now. You know, I'm curious how you can talk to us Kirk about allocating accurately, right, because I've seen too many budgets where there's, you know, there's there's a line item that's in program or a short sorry an admin that really should be in program and so kind of to to realign the cost of these things. So just about what you see when it comes to fundraising cost and and really you know like how we're allocating for this because I see a lot of misallocation. Yeah. Yeah, I mean there's a lot of different ways you could go about allocation. I think in the end. I'm less worried about it from a an accounting sense I kind of leave that to the accountants. So at this level of when you are a fundraiser you need to be well aware of the costs going into things, including staff. And the other thing that that we typically don't allocate properly is the discounts provided to us because we are a charity. We don't think of that in terms of cost. And so if you've got one company providing us providing you a discount, and they're horrible to work with. And you need to move companies. Now you haven't allocated the true cost of there so when you look at the next company is like well they're twice the price. Well, yes, but you were getting you know a big discount from this group and and you're not thinking about it in that way and like I've seen, I've seen organizations use gift cards to buy items for auction and it's like, so they don't get allocated allocated in the budgets, because they never touched the budgets. But at the same time it is a cost of putting on that event that you have not allocated for so it's more about just recognizing that there are costs and you do have to keep them in mind when when you're looking at the individual programs and whether or not they are efficient against each other and whether or not that you know they're useful against each other. You know I've never thought of that when it comes to like the fundraising galas and I see that all the time and you're right it never hits the budget it never it's just, it just crosses over, you know. It's really an interesting thing and it kind of makes me ask the question, you know, where are we getting this information and this guidance from, you know, are we getting it from our internal accounting staff are external accounting I mean our finance and accounting committees. You know the treasure and there's a lot of voices here that seem to me that aren't stepping up to help our nonprofits understand this because we don't discuss this we talk about programming mission vision and values we don't talk about operations. Well, this is where words matter right if if if your executive is putting down the, you know, and I saw this that, you know, the organization is going we're going to be down money so we need to, we need to like raise as much as we can. We need to save as much money as we can like everybody feels this level of like, oh, I could use this thing and then it won't cost us as much. And it's a really like it's a genuine approach from people that like really good intentioned that like, oh, we could do this one thing and it's going to raise an extra 5000, even though it might you know ruin things two years down the road three years down the road there's kind of that short term like, we need to do this now. And so, so it's really easy for people with good intentions to go, okay, that's no longer on the books because now we've used this thing, not realizing that, you know, in a long term budgeting planning scenario. That can be very detrimental and can hold the charity back long term. Yeah. You know, one of the things that I know we've seen over the last three years is, you know, instead of creating a budget for the year we've created budgets for six months and we will review them quarterly. And I'm curious how the impact of COVID-19 and other pandemics plural because Julie and I like to bring that up right. How this will continue to impact the economics of nonprofits how we look at budgeting how we look at, you know, creating a forecast for this. So many organizations are starting off their new fiscal year this month right like you know June is the end right now July one is the new fiscal. And even you know so many organizations that I'm involved with, they don't have their annual budget, they have like three months. Yeah, so that you know that is something that I think is really being part and parcel and impact through the over the last three years. Talk to us about what you're seeing in that and how we can maybe get ahead because this isn't a short game like I really feel we need to be in this for that true investment language for the long run right we always talk about it's a marathon not a sprint. But this is a really long marathon so how do we get to that place with our constituents. That's a really good question I'm not even sure I have an answer for that I think I think in the end there there there's an acceptance that there's a lot of fundraising that is far larger than a year or even several years right major gift fundraising you're talking about 12 to 18 months to secure a gift planned giving you're talking you know 10 years out or more. And even annual giving you know we did a we did a project internally at stars that the last organization I was at where we, I was able to convince executive to, to give me another half million dollars for acquisition. We looked at it from a five year standpoint going look we're going to lose half of this in year one. But by year three we're going to start making money and by year five, we're going to be 40 cent or like 40% ROI. So, so being able to look at things that way is really important and it doesn't mean that three months six months budgets are bad. But it means that you also need to be, you also need to have some level of budgeting one year three or five year down the road, even if it's super high level, just to go this is what we expect to happen this is why we're doing these things now, because it will affect these things in three years. Yeah. It's the difference between you know looking at cash flow and looking at, you know, financial strength. It's a huge concept conceptually it's different. And you might have somebody within your organization that is contracted or actually somebody sitting in a cubicle. If you're working on your books, if they don't get this, it is a slog. I mean it's a real slog and so it kind of filters down to the foundational aspect of what your talent is, and what they're willing to discuss and think about and try and then articulate back to all the folks, you know at the table. That's not easy. You know in this, we could talk forever and I know we're coming to a close but you know this scarcity mindset that is something that I just want to like squash you know I just, I want us to get past that I wanted to look into the future. I don't know how best to do that I know that we have so many amazing thought leaders across the globe that are you know waving that flag and standing on the soapbox. You know, I would say all three of us included we stand on our soapbox often and share that as well. You know, but for us to really change the language the vernaculars we say, you know, to move into this long term investment. It's needed and it might not be, it might not win the popularity contest, but I think it's going to win the community and I think it's going to win, you know, the true mission purpose, and that's what that's what we need to do so I appreciate you bringing this conversation, you know, to, I don't know just stepping it up to the, you know, to be more front and center it's so important. I also want to give a shout out Kirk because your LinkedIn is just off the charts I love it I love following you there. You've got a lot of great thoughts and conversations that you start on your LinkedIn so it's just been a pleasure you know when we talk about artificial intelligence we talk about economics. There's just so much and we barely scratch the surface today. As we talk about, you know, the economics kind of one on one so thank you. Thanks for having me again. Check out wisely. It's a very, very interesting organization, the things that they're talking about their information that they give out freely. As you say Kirk, it really allowed me to think about our sector in a different way. The way that I think is the future as well so it's very. It's very cutting edge, it shouldn't be but it is for our sector. And so I think it's really an interesting portal into the mind of where we can be going. And I loved what you said when we first started is that you see organizations that have leaned in and made these investments and thought about this. They've been really on a trajectory moving up. And those that haven't. Not so much. Julia, I love that you brought out the higher education component because you're right that is a great sub sector, you know, of our audience that is demonstrating this at a high, high achieving efficiency rate and that's, that's a big aha for me as well that I'm going to take away you know it's really the higher ed higher ed spaces, they're doing this they're leaning in and you're right they have prospect researchers they have grant reported they have so many as you said maybe 45 or so. So they're definitely leaning into this space and see the value of that investment. Yeah, it's really an interesting thing. Well Kirk, we're going to have to get you back on because there's so many things that you said. And that we've been peppering you with weird questions but I really am super intrigued by this. I also think too that you're on the leading edge of something that you're going to be seeing a lot of change and so it'll be fun to get you back here and then kind of walk us through this lens that you have what you're seeing and maybe help some of our smaller nonprofits understand that they can get engaged as well because from what I'm taking it away. It's not just for the super institutionalized size organizations that correct. We're requiring less and less data to be able to do some interesting predictions right and that I mean the big thing is we want to be able to help the smaller nonprofits because the big the big ones can invest the money in into crazy technology right. You are so right I love that. It's so true. Oh my gosh. Well Kirk Schmidt product manager from wisely check them out. Again, our friends to the north coming to us from Calgary. We are just so delighted Kirk that you would spend your energy and share your wisdom with us. Again, I'm Julia Patrick I've been joined today by the nonprofit nerd herself. Jared Ransom CEO the Raven group gave me want to thank our profound gratitude extend our profound gratitude to our presenting sponsors. Blumerang American nonprofit Academy your part time controller, the nonprofit nerd fundraising Academy staffing boutique and nonprofit thought leaders. These are the folks that join us day in and day out. And as we end this episode we want to remind everyone including ourselves to stay well so you can do well we'll see you back here tomorrow everyone.