For fundraising executives, scaling your acquisition budget can be a major hurdle to growing your fundraising program.
Request more funds, and your board will likely respond politely but firmly, “It isn’t in the budget.”
But what if you could present a simple analogy that could help them see acquisition not as a cost but instead as an investment?
We’re talking about the eighth wonder of the world: compound interest.
And the same principles that apply to wise financial planning can also be used to demonstrate why scaling your acquisition budget isn’t just prudent — it has the power to transform your fundraising program completely.
Reinvesting Dividends: The Key to Making Compound Interest Work
A lot of people actively contribute to a 401(k). So, why do we love our 401(k)s?
It’s simple: compound interest.
Your money goes into the market, and over time, it multiplies. You expect it to grow slowly and steadily over your career, and eventually, you retire with a nice little nest egg.
But what you might not realize is that the key to making compound interest really work for you is reinvesting your dividend earnings.
When companies distribute profits to shareholders, they do so in the form of dividends.
Instead of taking those dividends out as cash, reinvesting them into more shares creates something called DRIP (Dividend Reinvestment Plan).
This strategy — reinvesting dividends rather than withdrawing them — leads to a significant increase in returns over time.
And this is precisely where things start to get interesting for fundraisers.
How Can Compound Interest Help You Grow Your Fundraising?
You may be wondering what this has to do with your fundraising efforts.
You might even be wondering if you’ve accidentally stumbled upon a financial blog.
After all, fundraisers are conditioned to think in terms of budgets.
You’re given a set amount of money, and your goal is to spend up to that limit — maybe even come in under budget to get a pat on the back.
But what if we changed that mindset?
Instead of viewing our budgets as something to spend, we should consider it an investment that can grow exponentially, much like compound interest.
The Power of Reinvestment in Fundraising
Let’s look at a hypothetical example.
Say an organization invests $1.2 million in donor acquisition and media spend. They achieve a 0.7 ROI, which results in $840,000 in revenue and 15,000 new donors.
Traditionally, you might look at that and say OK, those are our results, and now our budget is spent.
But what if instead of “cashing out,” you decided to reinvest that $840,000 back into acquisition?
Let’s say your reinvestment produces 10,000 additional donors and $588,000 more in revenue.
If you reinvest again, that $588,000 becomes the new spend, generating even more returns. And the cycle continues — producing an exponential increase in both donors and revenue over time.
When you compare the two options (cashing out vs. reinvesting), the difference in results is staggering.
By reinvesting the revenue gained from paid acquisition, you will see dramatic growth without the need to significantly increase your original investment.
It’s a compounding return model, just like your 401(k).
What Happens When You Factor in Lifetime Value?
Now, let’s take things a step further.
The results become even more compelling if we bring Lifetime Value (LTV) into the equation. Let’s assume the average LTV of a donor is $300 over 3 to 5 years.
In our example, that initial $1.2 million investment produced 15,000 donors, generating $5 million in LTV.
However, by continually reinvesting, the organization ends up with 50,000 donors and $10 million more in lifetime value. That’s a tripling of donors and an exponential increase in revenue—all by leveraging the power of reinvestment.
How to Maximize the Power of Compound Interest in Your Fundraising
So, how do you apply this in practice?
The key to making this work is maintaining your ROI. As you scale your efforts, if you can keep your ROI steady, the reinvestment will lead to even more donor acquisition, more revenue, and greater LTV.
This isn’t just theory. In fact, we worked with a client who committed to this reinvestment model in 2020.
By applying this strategy, they saw a 229% increase in revenue and proportionate growth in donors and email subscribers. It’s been an absolute game-changer for their organization.
Don’t Pay for Acquisition—Invest in It
Albert Einstein is thought to have said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
Compound interest really is the eighth wonder of the world. But it’s important to remember the second half of the quote: “He who understands it, earns it … He who doesn’t, pays it.”
Don’t pay for acquisition—invest in it.
By reinvesting in your initial returns generated through your acquisition spending right away, you can scale your donor base, multiply how much revenue you generate this year, increase your lifetime value, and ultimately make a bigger impact on your mission.
