Editors’ note: This article, first published in print during Jul/Aug 2003, has been republished for Nonprofit Quarterly with minor updates.
Shortly after September 11, 2001, I wrote an article called “Fundraising in Uncertain Times,” which appeared in the Journal for January/February 2002. Now, I think we have achieved some certainty about the times. They are hard, and we are fundraising in hard times. In fact, I believe these are crisis times, and not just because of the poor economy or the war on terrorism. Much in the political, economic, and nonprofit world has led up to the current crisis situation and most nonprofits are going to have to reframe their fundraising significantly in order to survive. In this article, I discuss the nature of the crisis and the way organizations can begin to retool their fundraising to survive and grow during this difficult time. Future articles will look at specific fundraising strategies and how different organizations are coping with these changing times.
The biggest crisis we are in right now is the state of the American economy. But we cannot overlook two others — the war on terrorism, and the erosion of public trust in the nonprofit sector brought on by scandals and perceptions of mismanagement.
Let’s look at the economy. We have a battered stock market. The end of 2002 marked the third straight yearly decline in the indexes represented by the Dow Jones Average and the S&P (Standard and Poors) 500. This is the first time the Dow has stayed down for three years in a row since 1941 and the first time the S&P 500 has stayed down this long since 1932.
The condition of the financial markets has a very direct effect on the funding of nonprofits. Foundations have to give away 5 percent of their assets every year. Most foundations determine that amount based on what’s called a five-year average. This means that each year, the 5 percent is figured on the average amount of assets over the previous five years. When there are two or three bad years in the five-year average, foundation giving takes a while to recover. For many organizations that have relied on foundation income for the majority of their funding, this is really bad news.
And not only foundations are affected; wealthy individual donors, who tend to give stock and whose incomes are primarily derived from investments, are no longer able to make gifts of the size they were made during the boom years in the late 1990s. Many have had to renegotiate multi-year pledges, some have had to cancel gifts, and not nearly as many are in a position to take on making new or increased charitable gifts.
Organizations that derive income from endowments are also hard hit by this downturn, as they watch their endowments lose 30 percent to 50 percent of their value, shrinking the income stream created by interest.
High unemployment is another factor affecting non-profits. People who are unemployed obviously tend to give away less money than those who are employed. Employee donations, especially matching gift programs, have declined as there are fewer employees. Because unemployed people cannot spend money going out as much as they once did, organizations that rely on ticket income are particularly affected, such as museums, zoos, and theaters. Attendance at fundraising events also suffers. The New York Times reports that large, venerable organizations such as the Metropolitan Museum of Art and the Brooklyn Academy of Music are coping with multi-year, multi-million-dollar deficits. Smaller institutions fare even worse.
Corporate giving overall is holding steady, but in areas where unemployment is high, corporate giving is declining also. Finally, the government, at both the federal and state levels, is cutting funding. Many organizations that have been able to count on significant government sup-port now find themselves having to raise money from individuals. This situation brings more competition for donations from individual donors, as groups from the public sector enter the private sector to raise money.
The second factor affecting nonprofits is the war on terrorism, and of course, the aftermath of the wars on Afghanistan and Iraq. The economic impact of these wars together with government cutbacks in services and fund-ing means that many organizations are overrun with people needing their services. The end of 2002 marked the first time in their history that many food banks did not have enough food to meet the demand, both because donations of food had declined and because of the numbers of people needing to be fed.
Some organizations also face big legal problems because of the so-called war on terrorism. Organizations working with immigrants face a host of new issues since 9/11. Some social service providers have been told to verify the citizenship of people seeking services and deny service to anyone without proper identification. Aside from the moral issues here, in many cases this is a ludicrous request, as homeless people, women going into labor, or hungry children may not be traveling with passports and birth certificates.
Equally frightening are the chilling effects of various laws that have gone into effect since 9/11. The most devastating is the USA PATRIOT Act (which stands for Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism). Unknown to many people is the extent to which the Act can be used against nonprofits. The organization OMB Watch reports that the USA Patriot Act “gives the government broad powers to investigate people and organizations for intelligence purposes, without requiring probable cause that a crime is involved. The Attorney General or Secretary of State could designate a group as a terrorist organization and there are no procedural safeguards to protect against a wrongful designation.”
More frightening, if possible, than the USA Patriot Act are the proposed additions to it, one of which is called the Domestic Security Enhancement Act. In an interview with Chip Lewis of the Center for Public Integrity, Bill Moyers described some provisions of the act, including “giving unchecked power to the Attorney General to deport any foreigner, including lawful permanent resident aliens [sic],…to keep certain arrests secret…and to bypass courts and grand juries in order to conduct surveillance without a judge’s permission.” Moyers noted that this is the first time in American history that we would permit secret arrests.
From the point of view of nonprofits, consider this proposed provision, as described by Moyers: “The government could actually strip citizenship from someone if — for example, if you were found…making what you thought was a legitimate contribution to some nonprofit organization or foundation. And months from then, that foundation [or organization] were deemed by the govern-ment…to have been in some way supporting terrorists, you could lose your citizenship because of your contribution, even if you didn’t know.”
Some of these proposed laws will not be passed and, if passed, maybe only sporadically enforced, but they can scare donors away nonetheless.
The third major factor in the current crisis for non-profits is the erosion of public trust in nonprofits brought on by some well-publicized scandals as well as by some misperceptions by the public about how nonprofits are to use their money. Lester Salamon and others have reported that public trust in nonprofits is at an all-time low. Still, far more people give away money than vote, so people have more confidence in nonprofits than in the electoral system and it will simply take some time and education to win back the trust that has been lost.
To cap it all off, the nonprofit sector has grown enormously. Today, there are nearly 1.5 million registered nonprofits in the United States compared to 300,000 in 1983 and 750,000 in 1993. If the non-profit sector were a single industry, it would be our nation’s largest industry. It employs 7 percent of the work-force, making employment in nonprofits three times that of agriculture and 50 percent greater than construction, finance, insurance or real estate.
The net effect of all this is summarized by researchers Bradford Gray and Mark Schlesinger in an essay in Lester Salomon’s new book, The State of Nonprofit America. Gray and Schlesinger say that a better balance needs to be struck between the nonprofit sector’s “distinctiveness imperative” — the things that make nonprofits special —and the sector’s “survival imperative”— the things non-profits must do in order to survive. These two imperatives do not need to be in conflict, but there is an inherent tension between them; many fundraising professionals are increasingly worried that the survival imperative is gaining the upper hand. Nonprofits have been so busy coping with powerful economic forces (in both good times and bad) that they have allowed the market definitions of value to dominate both public perception and their own program planning.
For example, in the mid- to late-1990s, organizations were encouraged by foundations to “think big.” Grants of$50,000 and $100,000 were common, and grants of $5,000 or $10,000 were considered very small. As a result, many nonprofits grew at a phenomenal rate. Staff often took the place of volunteer effort. The skillset developed for fundraising was focused on getting foundation grants: proposal writing, foundation research, and building relationships with funders. Certainly, these are valuable skills, but grassroots fundraising, creating and maintaining a broad base of individual donors, and developing a diversity of sources of income were not skills that were developed in staff and volunteer activists in any systematic way through the ’90s.
Now many young nonprofits and their staffs have no ability to live in this new, much colder, world. Dozens of groups have gone out of business in the last year, and many more are on very shaky financial ground. Even foundations and organizations that should have known better were caught up in the “glory days.” The advice to “think big” was not wrong, but now we must work for new definitions of “thinking big” and thinking long term — definitions that do not require money as their main variable.
On the other hand, organizations that have created income streams such as fees for service and products for sale, have been kept afloat by this income. The danger here is that services become skewed toward those who can pay. Again, keeping the balance between survival and mission so that survival does not dominate is very important.
Even though the news is not good, I believe it is possible to continue to raise money during these times. To do so, your fundraising must be built around two concepts —diversity and flexibility. Beyond those, you will need to pay more attention to your donors and develop a highly functioning fund-raising team.
For decades, the most successful fundraising programs have been built around the concept of having a diversified income base. In a recession or an internal fund-ing crisis, groups need to return to this concept and really put it to work. Everyone gives lip service to it, but few actually implement it.
Diversity means that you have the money you need coming from as many sources as you can manage, raised by as many people as you can coordinate. Most organizations get into trouble because they have only two or three sources of funding, or because they have only two or three people really involved in raising money. If anyone of the sources or any of the people go away, the organization is in trouble.
Analyze your sources of funding through this lens by asking the following questions:
- Do they have the capacity to grow?
- Can the same number of people, working the same amount of time, raise more money next year?
- Does anyone person or source account for more than 20 percent of our total funding?
- Are at least some of our sources recession-proof?In other words, how important are external circum-stances to the safety of each funding source?
- Do we have a strong team of people, with most of them being volunteers, helping to raise our money?
- Does that team have a built-in transition plan so that as one member leaves, another is seamlessly brought on?
When you examine your funding sources using these questions, you see that foundation funding is not a strong source of funding. Foundations will give money for a few years, but their grants tend to shrink rather than grow and there are a limited number of foundations, particularly those that are interested in your work — no matter what your work is. When foundation assets shrink, their giving shrinks.
You also see that government funding is not a strong source of funding. It is deeply affected by recessions —and also by elections.
Ideally, not more than 20 to 30 percent of your fund-ing would ever come from foundations and government sources. Some organizations are even electing to seek a smaller percentage — 10 to 15 percent from these sources so that they become useful for special programs and expansion but do not have a role in core program and operating income.
There are two sources of income that lend themselves to growth and expansion, that can be volunteer-driven, and through which income can grow predictably. They are individual donors and earned income. Inside of
these income streams are an enormous
variety of options, which I will touch on later in this article.
What you need to do now is to look at your sources of funding and see which ones can be expanded using mostly volunteer energy or with little front money. You need to think about what strategies you want to add to your fundraising plan. You might as well add them now. The temptation is to wait until you have more money or things settle down or you get new board members, but no time is ever exactly right to start a new strategy. Start now.
There may be strategies that you need to find out more about, particularly earned income. Who can you ask? Make a plan to find out what you need to know.
The key to staying out of a crisis is to have plans that are flexible. You want plans that can easily be changed if external circumstances require it. For example, a small town that has just learned that one of its most beloved young people has been killed in the
war on Iraq is unlikely to turn out for a gala event the same day as the funeral — or even for a while afterward. The event will need to be rescheduled. Or the chair of your fall Membership Drive calls to say that he is volunteering his nursing skills at a hospital in Afghanistan — can the membership drive be moved up so he can fulfill his responsibility to it before he leaves?
We have always tried to plan around snow and rain; now we must plan around war and terrorism as well.
Here’s another thing to keep in mind: Our attention span right now is exceptionally short. Volunteers would rather put in long hours for a very short time than dedicate a few hours over several months. Asking someone to volunteer for two or three weeks is far more likely to be successful than asking them to volunteer for a campaign that runs over six months. So structure your annual fundraising into modules that last one to twelve weeks. Nothing in your annual campaign, except perhaps your signature event, ever takes more than twelve weeks from beginning to end. Instead of having one major donor campaign a year, for example, you might have two short ones — one to renew current major donors and one to bring in new donors. Or you may decide to do a marathon five-week Major Donor Drive, with something going on every day.
Because of all the uncertainty we have described, donors are thinking more about their giving than they may have in the past. Some are adding organizations that are addressing current pressing issues: organizations work-ing for civil liberties are gaining members, as are peace organizations. International relief groups are raising more money (probably not enough to do the enormous job they have) as people are moved by the plight of Afghanis or Iraqis. For many donors, adding an organization means taking away an organization. You don’t want yours to be that group.
People are also looking more closely at organizations: they want to know their money is appreciated and well spent. They are not as interested in personal recognition and premiums (which may seem wasteful) as they are ineffective programs. How can they find that out? You will have to tell them, and tell them as personally as possible.
Let’s be more specific. There are three types of tasks you are working on in an annual campaign, whether you are in crisis or not: 1) recruiting new donors, 2) renewing the donors you have, and 3) getting some donors to give you large gifts. Every strategy that you use should be chosen because it does one or more of these things, and your fundraising plan should be divided into strategies to get new donors, to renew existing donors, and to upgrade some existing donors. Each goal will specify a number of donors as well as a dollar amount sought.
Many organizations are in a crisis right now because they don’t have enough donors. Some don’t have any donors. These groups’ fundraising plans will be built around getting people to give for the first time. Rather than using mass direct mail programs, think about using a more labor-intensive strategy that has a much higher response rate —a houseparty program or a mailing of personal letters from board members and key volunteers inviting friends and colleagues to join your organization.
One organization that used to send 20,000 pieces of direct mail a year, and that received an excellent 1.5 percent response (300 new donors) from this program has cut back to 5,000 pieces of mail and combined it with other strategies. They have focused their mail program on the most likely prospects, boosting their response to 2 percent (or 100 new donors). A phone canvass of names generated by board members, other donors, and including long lapsed donors has gotten a 10 percent response, bringing in 100 donors from 1,000 names. Three long-time volunteers have held house parties and brought in another 25 donors each. For much less money spent, this group has gotten 275 donors in one year, and they are getting bigger gifts from these donors. Where their median gift from direct mail used to be $40, their median gift from all these strategies is$60. Using personal notes on their renewal letters has also upped their retention rate by almost 8 percent.
Organizations that have donors but have not paid much attention to them will need to mount a significant renewal campaign, including, as in the example above, more focus on keeping donors and bringing back lapsed donors. Groups that have done a good job of keeping donors but have not spent much time asking those donors to give more will need to focus on major gifts. Most groups will need to do some of each.
One thing that changes during a recession is who you will focus your major donor efforts on. In economic boom times, it makes sense to focus your major donor time on people who can give gifts of appreciated assets. But now you need to focus on donors who are giving out of income. For those people, the recession has not taken a heavy toll. For most of them, this year is the same as last year and the year before. They have the same amount of income and a secure job. Anyone in that position, which even today comprises the majority of employed adults, can give this year what they gave last year and the year before. If they are not giving to their capacity, they can be asked for more.
You should particularly focus your major donor efforts on people who give $100 – $1,500. This is about the most neglected group of donors in America. It is easy to understand this.
If someone gives $35 to an organization, they expect a thank-you note, a newsletter, and an invitation to renew their gift at some point. By and large, they get what they expect. If someone gives $5,000 to a group, they get not only a thank-you note but also probably a call from a board member or the executive director. They receive the newsletter as well as occasional other pieces of information. They may get an invitation to a special reception, and they will probably be visited by staff or board. They expect that kind of treatment. If they don’t want to be dealt with more personally in this way, they will give anonymously.
The person who gives $500, however, when that is a lot of money to them, may also expect a little more special treatment, but they usually don’t get it. The organization will probably send them a nice thank-you note. They may get invited to something special but they will probably not be visited or called personally unless the organization has a very good donor program in place. This group of donors— those who can give $100–$1,500 — if treated a little more personally, would likely give more if asked.
Few people who give $250 a year will have had the experience of being approached more personally. They may be a little cautious at first, but most of them will be pleased with the attention, even if they do not increase their giving.
Putting all this in place will require having more than two or three people involved in fundraising. The board of directors needs to play a role, and now is a good time to get the board on board. There are many, many ways for board members to participate in fundraising, from writing thank-you notes to making thank-you calls; from writing personal letters asking for upgrades to hosting house parties and asking for large amounts of money in person.
There is no time for the excuse, “I don’t like fundraising.” What is it that they don’t like? Phone calls? Fine, then this board member won’t be asked to make calls. Face-to-face asking? Fine, then that board member won’t be asked to call on people in person. But the range of tasks is too vast for someone to truly claim, “I cannot do anything with regard to fundraising.”
Many organizations have such serious board problems that they cannot wait for the board to get its act together before they start raising money. If your organization is in that position, form a team of five or six people, including one or two from the board and the rest committed volunteers, program staff, or community people who believe in your organization. They will take on the fundraising tasks that have been described or alluded to here. They will also take on the task of recruiting more people to the fundraising team.
If you are in a financial crisis, focus on how much money you need for the next quarter, or even just for the next month. Break everything down in manageable, time-limited tasks and assign them to a bigger team.
Organizations that use this time of crisis to really make the course corrections in their fundraising that they need to make, and make creating a fundraising team a priority, along with building and maintaining a broad base of individual donors — things we should all have been doing all along — will be able to look back on this time and call it “fundraising in times of blessing.”
You will be well prepared for whatever comes down the road because your organization will have a wide range of sources of money that can be raised with flexible, malleable strategies in place being used by a wide range of committed staff and volunteers.