H.L Mencken famously said, “There is always a well-known solution to every human problem — neat, plausible, and wrong.”
One problem facing nearly every nonprofit organization is a shortage of operating money. And, sure enough, there are well-known solutions that are neat, plausible… and, yes, in most cases, very wrong.
Here are three of my favorites. Or, perhaps I should say, least favorites.
- Just Get a Little Something from Everyone
A nonprofit organization is $100,000 short of meeting its budget. A trustee speaks at the year-end board meeting about the importance of balancing the budget. “This service is so vital. Everyone in the community needs to recognize that. So I think we should start a mini-campaign to raise $100 each from 1,000 people! We can do that!”
Well, no, we can’t.
Some people have told me that I have original insights into the nonprofit sector. I’m flattered if that’s even occasionally true. But it takes no special wisdom to say this: trying to fund a charitable cause by getting $100 from a thousand people – or $1,000 from ten thousand people, or whatever – makes little sense and is doomed to failure.
Nonprofits want broad support, of course, and they want to attract as many gifts as possible. But if you ask each donor for $100… well, that’s exactly what you’ll get, if you get anything at all. For some people – I would say, 80% of the population or more – giving $100 is a stretch, or even a hardship. They won’t respond, or they’ll be resentful, embarrassed, or all three. For many other people, $100 is just right. And for the folks at the top of the socio-economic pile, $100 is way less than they could or should donate if they care about the cause. In other words, if you ask everyone for $100, you will be leaving money on the table from the folks who might otherwise donate $1,000, $5,000, or $10,000, or more.
We have to keep in mind that there’s a dramatically rising wealth inequality in this country. As I’ve written before, nonprofit fundraisers used to reference the “80/20 Rule,” where 80% of the money came from 20% of the donors. That’s now routinely called the 90/10 Rule, and I think we’re actually much closer to 95/5, and on our way to 98/2. Bigger and bigger gifts are coming from fewer and fewer hands. I’m not saying that’s a good thing – in fact, I think it’s terrible, for a host of reasons – but it’s reality. So don’t let your very wealthiest donors off the hook by asking for too little.
Meanwhile, it’s highly unlikely that you’ll round up those 1,000 $100 donors. Soliciting charitable contributions is not like selling $10 raffle tickets. Successfully raising mass contributions at modest levels is rare – and much better suited to a political campaign (where, remember, there are limits on the amount a single person can contribute, and broad interest) than charitable fundraising. So don’t go there. If you need $100,000, look first around the board table and see if people there can start you off with $5,000, $10,000, or $20,000. And go from there.
- Endowing Your Organization to Prosperity
Here’s a common refrain as nonprofit executives and board members stare numbly at challenging budget numbers: “If only we had an endowment of $X million! That would really take the pressure off of our annual campaign!”
Yes, it would. But it’s not going to happen – or, if you focus on building a big endowment when you’re struggling to balance the budget, you’re putting the cart dramatically and illogically before the horse.
Let’s take an organization with a $2 million budget, half of which needs to be raised each year in donations. Certainly, if you had an endowment as part of your income stream, that would be helpful. But it’s unlikely to be transformational. If you were to raise $1 million in endowment, which is a pretty big number for a small organization, that would produce (using the standard draw of 4%) about $40,000 a year – or all of 2% of your budget.
So a modest endowment wouldn’t make much of a difference. And the effort to raise it (unless it came by bequest, rather than by direct appeal to living donors) means that you will be redirecting your donors from giving other, more vital and immediate funds for the operation of your organization. The donor who usually gives you $5,000 a year might instead give you $25,000 for your endowment. In the short-term, that actually increases the pressure on your operating budget. And that $25,000 will then produce only $1,000 a year in income. Again, not transformational, and a redirection from your current needs.
But, someone might say, what if you raised $20 million in endowment, not $1 million?! Well, sure, $20 million would indeed make a difference. That would spin off $800,000 or so a year, which, being some 40% of your budget, would indeed be transformational.
But: You’re highly unlikely to raise $20 million in endowment. Certainly, not right away.
Yes, you should absolutely explain how your donors can leave you money through their wills and trusts. Work to encourage legacy giving. If large bequests come in, it may make sense to invest them as a permanent endowment. Over time, you can build up that endowment. It might even eventually be large enough to help underwrite your operations in a noticeable way. But it won’t happen overnight. You’re much, much better off focusing on raising major gifts for your current needs than asking those same people to put their gifts into endowment funds.
- Funding Your Budget Through Special Events
Other board leaders and executives take note of successful fundraising events put on by other organizations and assume that replicating that model would work for their organization. “I know an auction that my prep school does,” says one board member. “It raised $3 million in one night! We can do that, too!”
Well, maybe you could if you had the same donor list as the prep school. In that case, you’d probably have auction items like a week’s stay in a villa on an Aegean island, and audience members willing to pay $100,000 for the experience. More likely, if you’re a small, local nonprofit, you’ll have silent auction items like $25 gift certificates to the local pizza place. A gala at Lincoln Center raises a lot of money. A gala for a youth services organization in Millinocket, Maine, doesn’t.
Event envy is a rampant disease in the charitable world. Yes, the Jimmy Fund raises tens of millions for cancer research though a two-day bike event called the Pan-Mass Challenge. But that doesn’t mean that if you start a bike event, you’ll raise tens of millions of dollars. Why? Because you’re not the Jimmy Fund, and you haven’t been doing this for decades.
One of the reasons special events are attractive to board members is that people generally have a much easier time asking friends to buy a ticket for a gala, concert, art auction, or to support a bike ride than simply to write a check to the organization. And sometimes special events are worth the time and effort and distraction they demand. But usually, not. If you need more money, ask for it. Directly.
* * * * * * *
I’d love to get your reactions to my three examples of bad ideas, and I welcome your own nominations for seemingly good ideas that aren’t. Number Four for me would be a Kickstarter campaign What do you think?
Copyright Alan Cantor 2018. All rights reserved.
Spot on! Love these. Will circulate! ???
I agree completely. But like a man driving a car, with his wife trying to persuade him that he is going in the wrong direction, his response will be to ignore her and simply drive faster.
Oh, you are so right, Dan! It’s funny how nonprofits agree in principle — but then, well, they just CAN’T stop doing these events!
I completely agree with all of these, including the fourth. Thank you for dispelling these myths.
Yes! I agree.
Events are actually my #1. Strategic, small events can be very helpful in developing relationships as well as securing gifts. I support these types of events and others that help reach specific goals. However, in line with what you’ve said, I would add that very few organizations seem to include employee salary expense when calculating net revenue from events.
I would add: Asking for major gifts (whatever that threshold is for an organization) by mail without having first developed a relationship with someone. Sure someone might have given $250 or even a $500 gift–maybe even several at that level. That doesn’t mean you should ask for more in the next appeal letter. It means you should pick up the phone and get to know that person! Then, figure out the depth of their interest and the right amount to ask.
Always happy to have a conversation about this topic!
Thanks, Doreen —
It really does come down to building relationships, doesn’t it?
I would add that not only should organizations calculate the staff time/salary involved in special events, but the volunteer time, and — trickiest of all, but perhaps most importantly — the opportunity cost. What would these people be doing to help the organization if they weren’t putting together gift bags for the golf tournament, or asking (starving) artists for the donation of a painting for the art auction? Would that time be better spent connecting with major donors?
I so agree with you!
Also worth mentioning that in many non-profits the term “endowment” has become dissuasive to philanthropists. Worth building a new asset compound with a different name that actually has an impact on the non-profit’s constituency….like the “Fund to End Homelessness” with a defined annual spend down that goes directly to the mission. After all, the money still inures to the benefit of the non-profit but is better defined by its direct connection to mission than to subsistence.
Hi, Bill — Yes, I agree. I’ve spoken, written, and worked with clients about creating “Impact Investment Funds” — a name I think I coined, but maybe not. They operate just as you describe. I think they not only win over donors who are not excited about traditional endowments, but they really have impact over the course of a few years in critical areas. If you’re talking about nearly any charitable purpose that matters — fighting climate change, helping immigrant families, feeding the hungry — there are steps that need to be taken sooner, not later.
Al. Ramblings here: 1) Agree that the 80/20 rule is now completely archaic .2) Donor cultivation is critically important. With the fundamental day in and day out blocking and tackling involved serendipity often times kicks in with unexpected generosity 3) special events require an inordinant amount of labor and outside expense. Go cautiously here 4) a plan for planned giving should be well developed and suitably promoted. Proceeds should be automatically placed in an endowment fund for operations. Amen!
Good stuff, Al. Thanks.
Per endowments: I often ask clients, “Are you trying to solve a problem and go out of business?” Possible examples: domestic violence shelter, anti-racism organization, anti-hunger group, etc.
If your goal is impermanence, then creating an endowment — in effect, a permanent fund — sends a terrible message to both donors and the broader community. Intentionally or not, you’re saying, “We will never solve this problem, so we need a permanent source of funding to chip away at it… forever…”
Al, I always appreciate your thinking and I agree with your three. Andy, I can say the same about you – your teaching and writing have always inspired. However, on the issue of endowments, I’ll disagree just a bit. Nonprofits are never going to solve domestic violence, racism, and hunger. I’m not sure that society ever will regardless of how much money we throw at solving them. So, yes, nonprofits addressing these, and many other issues, need to look at permanence. That said, my issue with endowments is that it locks up money that can be used now to address these problems. I’ve encountered many donors who won’t give to an endowment, even a legacy gift, as they want their money at work solving the problem now.
I agree, Michael, with your nuanced view of endowments. Essentially, a charitable gift is an investment. If that dollar goes into an endowment, it’s invested, literally, in the stock and bond market, with 4% or so spilled out every year for mission. But if that same dollar is invested in people and the planet — into feeding a child, or training a veteran, or counseling a victim of violence, or preserving an endangered species — then there is an instant and important return on the charitable gift. There is mission return in terms of healthier people, an improved environment, whatever. I find too often that boards of directors — and particularly investment committees — find themselves thinking obsessively about growing the endowment, rather than using the funds, strategically and appropriately, to meet the mission now.
Spot on, Al!
You asked for nominations for other ideas which sound good but in practice are bad. My idea would be for a charity to identify every donation arising from a donor advised fund. For those which are not anonymous, call the individuals to thank them and ask if they would double the donation next year. Since the average DAF account is worth 250k (?), wouldn’t most of the people you are calling be able to significantly increase their donation? Bad idea?
Since I started my DAF six years ago and starting making donations to 5 charities that I had no history with, only 1 of them has ever contacted me back and that was a brief thank you note.
Love your blog.
Thanks, Roy. I appreciate your readership and kind words.
As Ruth notes below, sometimes it’s not transparent to the recipient organization who the donor is, or whether they can or should reach out directly. I can tell you from experience that sometimes DAF donors prefer NOT to be contacted directly by the charity.
I’m certain that many charities don’t handle this well, and clearly, in your case, they’re missing a good opportunity. Some charities, too, send the wrong thank-you to DAF advisors, saying that the gift is deductible on their income taxes, when, of course, it’s not. (The deduction came when they put funds INTO the DAFs.) But it’s not always so clear to the recipients, and at the very least it adds a step to the acknowledgement process.
Thanks again for weighing in! Be well — and keep giving those funds away! 🙂
I’m in total agreement Al. Also, with regard to the comment on DAFs and not receiving anything except a brief thank you from one of the non-profits. Most often, the donor information is not available to the non profit as the donation comes from the financial institution. Hard to track the origin of the donation unless the donor lets the charity know.
Yep. You’re right, Ruth. See my comment, above, responding to Roy.
Thanks — and hope you are well!
Thanks Al and Ruth,
Different DAF do it differently I guess. Unless I specify I want it anonymous, my donation automatically goes out with the name associated with my account. My address and phone aren’t given out but it would take 1 second on google to find them.
As a statistician, it would be interesting to analyze the DAF donations. What % are anonymous, what % are non-identifiable, e.g. “Evergreen Family Trust”, and what % are identifiable. Some DAF’s might be open to electronic communication from charities to back to account owners.
Thanks, Al! Needed this today! Just shared with Staff and Board…Hope you are well—MB3
I’m 100% agree with all of these, including the Endowing Your Organization to Prosperity and Funding Your Budget Through Special Events. Great news! Google just launched a new portal for Non-Profits. This is a great tool for charities to use in their education, marketing and technical efforts.