In our post-election campaign decision makers survey, respondents ranked “preserving cash on hand” as the third most important factor in making decisions about campaign spending behind earning votes and increasing fundraising.
Goodhart’s law states, “When a measure becomes a target, it ceases to be a good measure.” For campaigns, cash on hand has become such a measure, but entrepreneurs must still navigate around it.
What is Cash on Hand?
Cash on hand (sometimes abbreviated as COH), as the name implies, is a measure of how much money a campaign has in the bank, but in the political context, it refers specifically to the amount reported in periodic (typically quarterly) filings to the Federal Elections Commission (FEC).
These FEC reports also include details about a campaign’s fundraising and spending. Combined, these two topline numbers give a campaign’s burn rate. Cash on hand is one of the key benchmarks operatives, journalists, PACs, and donors use to measure a campaign’s performance.
Traditionally, a higher cash on hand signalled that a campaign would have more resources to wage a campaign in the fall of an election year through TV advertising, direct mail, and other paid voter contact methods. That’s why cash on hand is sometimes referred to as a warchest.
The cash on hand metric is so important to campaigns that some operatives will withhold invoices or delay spending to artificially inflate cash on hand.
The campaign warchest was historically important because it was difficult, if not impossible, for a candidate to overcome a significant deficit in cash because legacy campaign tactics – like paid TV advertising – are resource intensive. The warchest could scare away a potential primary opponent or even a challenger in the general election.
Digital campaigning has diminished the effectiveness of having a warchest. A candidate can use social media to get attention at scale completely for free and convert this enthusiasm into grassroots donations online. Other digital marketing tactics, like email and SEO, allow candidates to scale their campaigns over time in ways previously not possible with paid advertising and direct mail.
In an industry where there are few true apples-to-apples performance metrics, cash on hand remains an important metric for some. Political entrepreneurs must confront this reality when selling their products.
The best way to preserve cash on hand is to scale expenses over time. Most general consultants, for example, work for free or at a very reduced monthly fee in exchange for a percentage of campaign spending on mail or TV advertising later in the campaign.
This model doesn’t translate well for software as a services (SaaS) products that are traditionally priced annually or monthly. As a result, political tech entrepreneurs must adopt pricing strategies that cater to their customers during this transitional time in attitudes towards cash on hand. There are a few options to consider:
Products that have a neutral effect on the overall burn rate of a campaign by either saving costs or generating revenue will sidestep the cash on hand objection during sales negotiations. For software new to the market, this can be difficult to prove, but most campaign spending is publicly available giving you real numbers to work from.
Time Shift Costs
In the final months before an election, the reported cash on hand number is less of a concern as campaigns ramp up their spending. Companies that can shift costs to this later stage of the campaign will help campaigns manage their cash flow.
Price Based on Usage
Another way to scale costs later in the campaign is to charge based on usage. Companies that send messages or process data should take advantage of this pricing strategy as campaigns become more active towards the end of an election.
There’s no doubt that cash on hand was once a valuable metric but it has outlived its usefulness during modern, tech-enabled campaigns. Unfortunately, key decision makers in the industry still rely on it to assess the performance of campaigns and entrepreneurs must accept this reality for now.