Tuesday, May 7, 2019

Hey Fletch … Do you have benchmark data that documents total compensation as a percent of total revenue (restricted and unrestricted), not just of the operating budget? I know over the years I have seen references to both. We chose to interpret it as total revenue, and I’d like to see more recent data supporting our interpretation.

DRF—I’m in the camp of looking at total revenue when making comparisons about compensation. Many churches just look at the operating budget. For example, if the operating budget is $1 million (which is typical for a church of 500), and the salaries and benefits were $600,000, then that would mean that 60% of the church’s budget goes to salaries and benefits. That number is high, as the desired number should be below 50%, if possible.

If the church with $1 million in its operating budget also receives $300,000 in missions giving and $200,000 in benevolence giving, then their total income is $1.5 million. With $600,000 in salaries and benefits, 40% of the church’s total income goes to salaries. That is a reasonable number!

Here are the reasons to include total income in such numbers:

  • The business office of the church processes $1.5 million in donations a year. Their wages go to processing this entire amount.
  • The staff oversees the budget of $1 million and the other gifts of $500,000. Staff who oversee missions and benevolence are paid from the operating budget but oversee these extra funds.
  • An external audit looks at total income, not just operational income.

For me, the most important reason is the last one. An external audit looks at total income. This is what the church has received in donations for the year.

This style of analysis is newer for churches in the last decade. Like the advertising for laundry detergent, it is “new and improved.” In this case, it really is better than the former way of understanding church expenses.