Académique Documents
Professionnel Documents
Culture Documents
Contents
Part one: introduction and getting the board on the right page ........................................................... 3 Introduction ............................................................................................................................................ 3 Who should read this White Paper ......................................................................................................... 4 The role of management and the board................................................................................................. 4 You as a donor ................................................................................................................................ 4 What the board need to know........................................................................................................ 5 The right information ...................................................................................................................... 5 Return on investment / cost of fundraising .................................................................................... 6 Part one: summary.................................................................................................................................. 9 Part two: overview .................................................................................................................................. 9 About Pareto Fundraising: working with boards and management....................................................... 9 Part two: the facts about fundraising ................................................................................................... 10 Where money comes from ................................................................................................................... 10 The effect on bequests ......................................................................................................................... 11 Summary on bequests .................................................................................................................. 13 The effect on appeals and major donors .............................................................................................. 13 The Pareto principle ...................................................................................................................... 13 Warm/house donor appeals tactics and frequency................................................................... 14 Donor acquisition .......................................................................................................................... 15 Major donors ................................................................................................................................ 16 The effect on regular giving .................................................................................................................. 16 The effect on events ............................................................................................................................. 17 The effect on marginal income sources ................................................................................................ 18 Part two summary.............................................................................................................................. 19 Part three: overview ............................................................................................................................. 19 About Pareto Fundraising working with income generation ............................................................. 19 Part three: tsunami suicide, fundraising compared to investments and the ten point plan to managing fundraising in a recession..................................................................................................... 20 Tsunami suicide..................................................................................................................................... 20 Fundraising in an investment portfolio................................................................................................. 21 The ten point plan to managing fundraising in a recession. ................................................................. 22 The board and management need to understand the data and stop unrealistic expectations ........... 22 Apply the Pareto principle internally and externally ............................................................................ 22 Look after your donors ......................................................................................................................... 22 Get more donors ................................................................................................................................... 22 Conclusion ............................................................................................................................................. 23
www.paretofundraising.com
www.paretofundraising.com
The first thing most fundraisers and CEOs will think about is whether people will stop giving. But there could be other effects too, for instance, the value of gifts left in donors wills and the impact on services being key concerns. In this White Paper, I am not going to discuss the impact of a recession on demand for your services, nor how you should plan or budget to provide your services. I am going to stick to my area of expertise: fundraising and management. Consequently, this White Paper will focus on answering the question: What should charities do about their fundraising plan and budget with regard to fear of, or actual, recession?
www.paretofundraising.com
www.paretofundraising.com
Cleary, spend more, make more. (This data is based on Pareto Fundraising benchmarking charities see appendix. They have supplied their whole income databases compared to their declared annual fundraising spend.)
www.paretofundraising.com
more information and writing longer, more professional copy (in other words, by spending more money) it could probably increase the donation income to $100,000. But the pack would then cost about $50,000, giving an ROI of just 2. So the boss says no and the charity continues the old way. Net income, however, is still only about $30,000, whereas the more expensive method would have netted $50,000. Apart from the fact that the charity has $20,000 less to spend on services (or fundraising growth) in the immediate term, the decision is greatly flawed in the long term. Meanwhile, charity B, which decides to go the more expensive route, is set to benefit from a) higher net income, and b) many more donors. This is not just some hypothetical example. The chart below depicts a real Australian charity that decided to look at the long-term picture and not worry about ROI.
The consequence for this charity of the shift in mindset was enormous. You can see that after a number of years ROI is creeping back up again, but, more importantly, the overall amount available for services (i.e. net income) from Tax Appeal 2004 to Xmas Appeal 2007 was $2.08 million. (Charities in Australia usually have two peak times for mailing Christmas and tax as charitable giving is tax deductible, a tax appeal is mailed around April/May to maximise giving before the end of the tax year). If they had kept to the old strategy, and experienced a bit of growth, they could have expected to net about $600,000. I repeat: the organisation could have raised net $600,000, at an average ROI of 7 or net of $2.08 million at an average ROI of 2.8. It is clear which result is going to help its beneficiaries more. They are also in a much stronger position to weather any external factors such as a recession. So how come so many people are led astray by ROI? The answer is simple they are frequently told that this is what is important to donors.
www.paretofundraising.com
Perpetuating the myth does help some charities but only the really big ones. A shift in strategy for a small charity striving for growth is likely to reduce its ROI, but exactly the same strategy change for a larger charity could actually improve its ROI. Thats just a mathematical fact. In the above example, a charity raising $500,000 per appeal who followed the same change in strategy would have seen hardly any change in ROI. But we keep hearing, ROI (or COF) is important to donors. But who says so? Well, the media, the public and maybe even common sense. The problem is that this is what people (donors and nondonors) really do think. But its not how they behave. The charity above clearly had no problem. And I have lots of other examples. The charity probably had to explain the strategy to some major donors, and even the government authorities that regulated charitable fundraising, but its economic basis was so solid that those guys were not going to have a problem with it. Normal donors still gave and the charity never hid its COF. As for the public, they may say ROI (or COF) is really important, but that isnt reflected in their giving behaviour. The reason they give is because they were asked properly and they care about the cause. People who harp on about the amount of money that goes on administration are normally non-donors; cost of fundraising is just a good excuse for not giving. I recall being told about an experiment where a group of people were given real money to donate. They were given choices based on photos, stories about beneficiaries, and pie charts of expenditure. Never were the pie charts a significant factor for choosing which charity to support. No fundraiser should allow his/her organisations beneficiaries to suffer because they are bamboozled by the unsubstantiated nonsense that passes for fact when it comes to ROI. Of course, you need to be careful with your funds - I am not suggesting charities go out and take ridiculous risks - just that they plan strategically. Don't believe me? Remember the exercise right at the beginning? Did you write something like this? 1. My favourite charity: The Sumba Foundation. 2. How you support: regular gift from credit card and occasional donation. 3. Why? Their cost of fundraising is really low and I am impressed by their effective admin systems... Of course not. And do you even know their cost of fundraising? Donors care about what you do, the impact that you have. Trust me on this one. If your board, or management, doesnt understand these key things, any attempt to grow your net income, regardless of a recession, going to be very, very challenging. Its up to you to make sure they understand this absolutely critical fundraising principle.
www.paretofundraising.com
www.paretofundraising.com
This data shows that the biggest income source is bequests. By bequest, I mean the money left to charities in peoples wills, also known as legacies in some countries. Cash (mail appeals, individual major donors, etc) comes in at second place. But next comes regular giving. By regular giving I mean people giving automated payments, usually monthly, and usually from their bank account, phone bill, or credit card.
www.paretofundraising.com
10
Regular giving has a rate of growth set to overtake cash in Australia within the next two years. In the UK it already has; in India, Hong Kong, Singapore and Malaysia regular giving is growing at an astronomical rate for those farsighted charities who have tried it, and is probably the most important fundraising mechanism worldwide. Although regular giving is less prevalent in North America, Canada is leading the charge on recruiting regular givers and many charities in the USA are proving its worth there. Doctors Without Borders (MSF in USA), Greenpeace and World Vision are showing up their counterparts, growing significantly through regular giving. Eventually the others will wake up and regular giving will probably overtake cash within the next ten years in the USA too. Event income might look good at first glance, but drilling down we see that about 50 per cent of it comes from one charity that is doing brilliantly from a long-, strategic events program. The second biggest event fundraiser is also the only charity to have not have grown in real terms over the ten year period and their reliance on events is the major cause of this lack of growth. Grants and trusts are next, and although the proportion of income from these is marginal (at 6 per cent) they get a special mention because a) they are easy and very cost effective and b) they are growing substantially. All the other activities are really marginal activities. None of them provide more than five per cent of income. By the way, having studied data from the USA, UK, Canada, Germany and other European states we see that this pattern is remarkably similar in the mature markets. The Giving USA report shows that about 80 per cent of charity fundraised income comes from individuals, as does the UKs Charity Trends report. In newer fundraising countries like Hong Kong, Malaysia and Singapore I have seen data that also follows this trend and I am sure that the lessons from this White Paper will apply in those countries too. So lets look at the key sources of income, and then think about what might happen.
www.paretofundraising.com
11
Although they have only been marketing bequests for five years, The Lost Dogs Home is already receiving significant bequest income from their deceased donors. If the value of a bequest in 2009 is even half what it was back in 2003, you can still see how much better off they will be. Half of 1,300 bequests is a heck of a lot more than half of 93. Bequest income fluctuates a lot across the sector and it is influenced heavily by many factors. House prices and share market being the biggest influences on value; and the effectiveness of charity marketing influencing the number of bequests. The next chart shows the total bequest income from the 23 benchmarked charities mentioned earlier. Contributing about a third of total income, these variances are pretty substantial and probably bigger (already) than any external influences from the recession.
$90m
$80m
$70m
$60m
$50m
$40m
$30m
$20m
$10m
$m 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08
The other key factor here is the type of bequest. The main two types of bequests specified amounts or percentage of estate are both viewed as not that much different by donors, but have a huge difference in value to the charity. For example, I am 38 and lets pretend my estate is worth about $250,000 if I died now. (I dont own any property.) If I decide to leave $25,000 in my will to my favourite charity, and then promptly die they will receive $25,000. Equally if I decide to give them 10 per cent instead they will still get $25,000. However, according to the Australian Bureau of Statistics, I am not due to die soon and, in fact, should croak it on 14 September 2049. If I had put $25,000 in my will back in 2008, the charity will get $25,000 which of course will buy much less in 2049. Also, hopefully, I will have increased the value of my estate by then lets say (hope) it is worth $5m by then, so if I had written 10 per cent instead, which is no different to me now, the charity could end up receiving $500,000, which should still be worth quite a lot. But whatever way you look at it itll be 20 times more than $25,000. Of course many people who leave you a bequest will die before 2049 but the principle still holds. One tiny wording change is worth a considerable amount more than any effect of a recession.
www.paretofundraising.com
12
Summary on bequests
A recession may or may not influence bequest values by a degree greater than the normal vagaries of bequest values. And there is nothing you can do about that right now. But just two things will have a much greater impact in the future: 1) Increasing the number of people who include your charity in their will. 2) Ensuring they do it in the way that works best for both parties i.e. residuary/ percentage of estates.
www.paretofundraising.com
13
Outside of the actual appeal, tactics that increase income from the entire appeals program include well-thought-out thank-you letters, email updates, email appeal sandwiches (emailing before and after a mail appeal), donor care and genuine donor surveys. Years of data shows that getting these tactics right increases the amount donors give annually and it increases their retention. Appeals using these kinds of tactics are actually at the heart of any good supporter relationship management strategy. It is amazing, but getting people to give more often is the best attrition busting tactic for donors who give to your appeals. Lets now look at frequency of appeals. If you ask your donors for money twice a year, the easiest way to (nearly) double the income is to send four appeals. To double the income again you would need to appeal to them another five or so times. Some of our clients with the best donor retention mail their donors more than a dozen times a year. We recommend you balance your appeals program with 20 per cent of the major communications being primarily donor care communications, such as the surveys, or thank-you letters that just update the donor about what you have been up to. All but the largest, most sophisticated direct marketing charities send a number of appeals to their donors where the number of appeals per year is determined not by maximising return, but by their internal resources. This is obviously the wrong focus. The restriction on resources can only be caused by one of two things: 1) Staff are too busy doing other things. 2) There is a genuine lack of investment in staff. In terms of prioritising, activities that maximise ROI are the top priority this is where ROI is useful. But anything that gets an ROI better than 1.0 should be considered as well. Starting with the highest ROI activities and working down makes sense. If the determinant for the number of appeals you send is that your staff are too busy doing other things, and these activities achieve a better ROI than another appeal or two then, by default, the problem is actually number two a lack of investment in staff.
www.paretofundraising.com
14
But if it is that staff are too busy doing things that are less productive then you have a management issue. Often this is because that mailing appeals is pretty boring, laborious and not as much fun or glamorous as events or other activities. A fantastic (anonymous, for reasons that will become apparent) case study of this is charity X. Charity X changed its appeal tactics to include those mentioned above. The first such mailing, which went to the warm donor file only, raised just short of five times their best ever. This was comparable to other charities that use the tactics earlier. But one charity, charity Y, did their first appeal at almost exactly the same time and achieved exactly the same level of increase. They make a great comparison. Charity X and charity Y probably worked twice as many hours than on a normal appeal, and definitely spent much more on the agency fees and print, but compared to the lift in income these extra staff costs were insignificant. But doing this was a massive pain in the butt. It was a much more challenging, frustrating and downright harder process that really pushed all the staff involved the CEO with the copy, the data team on selections, the direct marketing manager on project management and quality control. Charity Y accepted that making 5 times more money from mailing exactly the same people requires harder work. A year later, charity X has never repeated the exercise. Charity Y has continued to achieve ridiculously great results. Their most disappointing mailing over the year only raised about 2.2 times their previous best ever. Charity X staff went back to their comfort zones; they had a series of events and promotions to work on. The amount that they raised from all of these events is significant, but nowhere near what they would have raised by just mailing three more appeals. The bottom line: they missed out on the opportunity to increase their net income by about 50 per cent in one year recession proofing at its best. The lesson: be really, really focused on bottom line, even if it means tough management battles with staff.
Donor acquisition
Would a recession effect donor acquisition? If it did, it could only do this in one of three ways: 1) Change the cost of services needed to acquire donors. 2) Change the response/sign-up rates. 3) Change the average donation amounts. Costs of services could be affected, but depending on the supplier this could be either way. For example, professional service companies (such as printers) to whom charities are a minority customer might become more aggressive in their marketing/sales to charities, which could lead to cheaper prices. On the other hand, those that already discount for charities may find that the squeeze from losing commercial clients forces them to pass the squeeze on to you therefore increasing prices. For the sake of argument, let us assume there is a net increase in costs of services. I think it unlikely that a recession on its own will significantly decrease the response, sign-up rates, or average donations. However, we have examples of a well-designed cold mail pack that achieves an ROI of 0.8 in 12 months, compared to another that achieves just 0.4.
www.paretofundraising.com
15
This tells me that the difference in the strategy and tactics has an effect of 100 per cent, i.e. good strategy/tactics work twice as well. It is unlikely that a recession will halve the response rates or average donations. So getting strategy and tactics right is the key here. (Acquisition is an area where long-term ROI is a great measure because you have a limited amount that you can spend on acquisition you need to spend it on the highest ROI areas). Nearly all charities have seen declining response rates for years now, with costs rising, so, to some extent, this is a bit of business as usual. Acquisition is bloody hard and expensive and will continue to be. However, you only acquire donors so that you can continue to communicate with them to make more money, so if you can improve the income generated from a donor say by doubling it using the tactics described above you can afford to spend more on acquisition. And this does not even include the major donor and bequest potential of your new donors.
Major donors
The group least likely to be affected by a recession is also the group for which most charities have the least developed programs. Many universities, arts institutions and hospitals especially in the USA lead the way with in major donor fundraising. Their programs are shining examples that, put bluntly, traditional charities should plagiarise. I think there are four types of major donor fundraising activities: capital fundraising, high value direct marketing, revenue stewardship (we call this major donors: next year) and the starter, just get on with it approach for charities that are not doing (or succeeding at) any of the other three. We call this starter approach Major Donors: Next Week because it doesnt work unless you do it next week. Major donor revenue fundraising is the quickest and cheapest way to boost your cash, provided: you need the money you can demonstrate why you need the money you already have over 500 donors
If you have no program, or your program has not generated any income for the last six months, or your major donor fundraiser has not made a direct ask in the past six months, then it is time to ask your best donors for help, right now. If you have no idea how much to ask, my experience with many donors is to start at ten times their previous largest gift.
www.paretofundraising.com
16
The British experience during previous recessions was again a slight decline in growth rather than a decline in real income. This is promising but we must not be complacent those recessions also coincided with massive investment, growth and creativity in the area of regular giving and it is impossible to tell whether the underlying trend was negative. If so, it proves that charities can pay their way out of trouble i.e. recruit more donors to negate those that are lost through increased attrition. However, when we look at the data, we know that some people will cancel some of their regular donations. We also know that most regular givers give to more than one charity. So you need to make sure that it isnt yours they cancel. This is not a bad rule to follow regardless of a recession since keeping donors is usually much cheaper than acquiring donors. Interestingly, another wonderful way of increasing retention is upgrading your regular giving donors. And the best way to do this is by using the phone. If you dont do this, then I would recommend switching some of your acquisition budget to this immediately. As well as the fact that upgraded donors (obviously) give more per month, they are also more likely to stay with you, upgrade again and, in an amazing blessing, those you speak with and ask to upgrade, but refuse, are more likely to stay with you than those you didnt ask. There are two main groups of regular givers. The first is those recruited by direct dialogue, also known as face to face i.e. the process of stopping strangers on the street, at events and door to door to ask for a regular gift. The second is all the others recruited by direct response television (DRTV), mail, phone, online, SMS, etc. We know that face-to-face (F2F) donors are younger and less mail responsive, but they do upgrade their gifts. For all types of regular donors I recommend a strong supporter relationship management (SRM) program that includes an annual survey and upgrade phone calls, as well as updates and donor care by mail, phone and email. However, sending mail or email appeals/ upgrades to F2F donors is usually a waste of time and money. As a recession looms, make sure that you put a supporter relationship management program in place. Communicate well with your donors, find out about them, talk to them, look after them and, therefore, keep them.
www.paretofundraising.com
17
But they are great fun, motivating for staff, and when an event is held it is usually because that charity has traditionally done fundraising events. This, of course, is not the point of charities. We want to have fun, and many a session at fundraising conferences talks about putting the fun back into fundraising; but the mantra should be put the raising back into fundraising. That is how we help our beneficiaries. Often, events rely upon corporate sponsorship to turn a profit, part of the circle of death that traps many charities into doing events to have something to sell to corporates, and doing corporate fundraising to help support events. As you will see below, corporate fundraising is an area that has already declined possibly because of the recession over the past few months. Many fundraisers (and CEOs and boards) will point to the fact that events generate awareness and interest in the charity, and they hope that this will turn into more income. Well, there simply isnt room for any tactic or strategy that relies on hope when there are so many proved strategies that are based on fact. For most charities, a good, long hard look at how much is actually raised (net of direct and staff costs) usually drives them to the conclusion to drop the events and reallocate resources. If you are one of those rare charities that makes lots of net income from events, then be prepared to spend a little more to protect them your cost per acquisition may well increase but dont drop your successful events in fear of the recession.
www.paretofundraising.com
18
The key problem is the lack of data; many schemes dont allow the charity to build a relationship with the donor, forcing a separate third party communications program (i.e. through the company), which is not likely to be better than a charitys own program. This could lead to higher attrition, prevent upgrading and cross selling, and generally takes control of the relationship away from the donor/charity. Even when the donor data is provided, we know that attrition tends to be higher than credit card or bank account debits. Overall, the marginal income sources corporate, merchandise, community and in memoriam are marginal for a reason. Unless you are a very small charity, or one of the charities where these income sources are not marginal, just drop them. Regardless of a recession, there are easier ways to turn a buck.
www.paretofundraising.com
19
Part three: tsunami suicide, fundraising compared to investments and the ten point plan to managing fundraising in a recession
Tsunami suicide
When the Indian Ocean tsunami hit in December 2004 it created an amazing response from many communities. A big question for charities not directly connected to the tsunami was How much will it affect my fundraising? Some charities cancelled events and postponed or cancelled mailings, fearing that they would not do as well. Others cut acquisition budgets. But most carried on as normal most of the charities I was working with mentioned the tsunami in their communications. The outcome? Those that cancelled/postponed/cut acquisition budgets did worse than those that didnt. Those that feared the tsunami would dramatically affect their fundraising so they should cut expenditure were right. Those that didnt cut, figuring they would still make more money for their cause were right too. Basically the charities that lost out because of the tsunami did it to themselves. This is tsunami suicide. It was repeated this year. Some of our Chinese (Hong Kong) clients decided to cancel activities because of the earthquake in China. Not surprisingly they made no money. Even my own colleagues were reluctant to encourage charities to continue as normal their common sense was screaming to them, Hong Kongers just gave more than ever before surely they dont have enough to give again? The charities that carried on did fine. Those that didnt, didnt.
www.paretofundraising.com
20
2007/08
$120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $0 Charity 1 Charity 2 Charity 3 Charity 4 Charity 5 Charity 6 Charity 7 Charity 8 Charity 9 Charity 10 Charity 11 Charity 12 Charity 13 Charity 14 Charity 15 Charity 16 Charity 17 Charity 18 Charity 19 10% invest return 8.5% invest return 5% invest return Charity 20
www.paretofundraising.com
21
www.paretofundraising.com
22
Conclusion
Despite the 9,604 words in this White Paper, the original question, what should charities do about their fundraising budget with regard to fear of or actual recession? is almost irrelevant. I began quite a bit of research in parallel to looking at strategy. I also wanted to look at what happened to charities during the recessions in USA, Australia, Canada and UK in the 80s, 90s and 00s. I noticed that charities still grew but there seemed to be a decline in the rate of growth across the board, and some charities accelerated growth (NSPCC being a great example). Because I was doing this research in parallel I stopped drilling down when I realised I was wasting my time it was irrelevant. The strategies to weather a recession are simply the best strategies to grow a charity at any time. Things may be a little bit more expensive (though I couldnt find any evidence to back that theory). I figured: If there is going to be a recession, and it does affect fundraised income, then charities should adopt the ten point plan above, aware that their return may not be quite as high as they are used to, but still (logically) much better than investing any surplus in bank or share portfolio. If there is a recession, and it doesnt affect fundraised income, then charities should adopt the ten point plan above, aware that their return will be what it would have been without a recession. If there is no recession, then charities should adopt the ten point plan above as it has proved time and time again to offer the best returns.
www.paretofundraising.com
23
www.paretofundraising.com
24
www.paretofundraising.com
25
www.paretofundraising.com
26