Sector Report: Fundraising 2009-2010
Late last year, FS asked folks from all across the fundraising spectrum a series of questions focused on fundraising in 2009 and what lies ahead for the sector in 2010.
Lynn Edmonds, president, L.W. Robbins Associates
Loyal donors are being conservative but holding on. Since the spring, we have seen a slight increase in giving in some audiences but not all. And in certain cases, we have been able to reactivate lapsed donors by decreasing the gift asks.
Year-end giving will be very telling, but the economy is certainly not rebounding for individuals yet and can be very local. California, for instance, is reaching into paychecks and "borrowing" money from its working citizens. This is a drastic move. Will this impact the giving among individuals who can no longer count on their monthly take-home pay? Nationwide, people continue to make choices between supporting nonprofit causes and paying their bills.
Some organizations will continue to prosper while many will struggle to meet last year's results. The groups most likely to prosper are those that provide basic services like food and shelter; have kept their cause top-of-mind with donors and the public with smart, consistent marketing efforts; and have maintained or expanded their acquisition and lapsed reactivation programs.
Donor acquisition was the biggest challenge fundraisers faced in 2009. The decrease in response within commercial lists impacted new donor numbers and average gifts across the board, and put more pressure on donor lists. For some clients, we recommended less package testing to attain the highest net revenue and mailing quantities. Maintaining acquisition volumes with the best lists and packages have kept most organizations moving forward.
Between the budget softness and the newness of social media this year, we've seen a lift in terms of the usage of both online messages and social media with a potential lift in brand and awareness.
In 2010, nonprofit fundraisers should build on their wins from 2009 and find new ways to tell their donors how important they are.
Steve MacLaughlin, director of Internet solutions, Blackbaud
I think the climate is one of cautious optimism across the nonprofit sector. The end-of-year fundraising push will certainly influence what happens in 2010. Things are usually never as good as or as bad as people think.
Whether things are looking up really depends on geography and your fundraising mix. With our clients in the United Kingdom, Europe, Asia/Pacific and Canada, there has been more insulation from some of the donor attrition being experienced in the United States. Charities in these countries do substantially more recurring giving in smaller amounts. This means they have not been as impacted by changes in major giving, but they still are being cautious about program expenses.
The barometer to look at would be the Target Analytics Index of National Fundraising Performance (http://www.blackbaud.com/targetanalytics/benchmarking/nationalindex.aspx). The index predicted and indicated when the recession hit the nonprofit sector by showing declines in new donors, lower donor-retention rates and a drop in giving amounts. When we see a few strong quarters, then it probably means the worst is over.
There were a couple of different challenges faced by fundraisers in 2009. One major challenge was the substantial drop in endowments because of stock-market volatility. This increased pressure to raise funds to provide a short-term offset to these losses. An ongoing drop in new donors also has impacted the ability for nonprofits to make up for donor attrition.
This balance between acquisition focus versus retention focus is a major challenge or opportunity for nonprofits. If your organization was too acquisition-focused, then you likely were hit harder by the economy. If your organization was retention-focused, then you were probably less impacted. Our research and customer feedback has indicated that organizations leveraging their CRM tools are seeing donor retention holding steady, but with lower gift amounts than in previous years.
Alexander "Sandy" Macnab, president, Alexander Macnab & Co.
Clients that are focused on gifts from individuals are cautiously optimistic about giving through the end of [2009] and are looking for modest improvement in 2010 because their donors report that they feel things are getting better. There are exceptions. One campaign that initially expected a lot of support from real-estate developers and builders is stalled. However, by reaching out to the area's farm community, it is attracting support from new sources and constituencies.
Those organizations that depend on grants and foundation support reported a decline last year and are planning significant cuts in 2010, particularly from state grants.
Savvy special-event planners are finding they have to work much harder to find sponsors and must plan to replace those that either reduce their level of giving or don't give at all. However, as a possible indicator of an improved economy, those individuals who attend events seem to be spending more freely.
For example, Randi Frank, director of development at The Center for Enriched Living, a Riverwoods, Ill., program providing social-interaction opportunities for children and adults with development disabilities, said, "Overall people seem be more confident and are willing to spend more at our events. Last year, they seemed more cautious." In addition, she reports annual-fund contributions running ahead of last year.
John Braune, president and CEO, The Heritage Co.
Donor confidence is at an all-time low, and [donors] are taking refuge in a security cave as opposed to being out and active. They are in hibernation as unemployment, foreclosures, corporate failures, bailouts, and unexpected government growth and increased taxes drive them to hidden places like never before. As our agency collects information on rebuttals from hundreds of thousands of comments and white mail, the recurring rebuttals from potential donors are 1) "Not at this time as I just cannot afford it"; 2) "I just lost my job"; and 3) "I have had a recent cut in salary."
Fundraisers that have been successful have increased communication with their donors and continued to tell their positive and inspirational stories. The opportunity today is to lift donors up with the news of the wonderful things that nonprofits do to change lives, as everyone surely needs a bit of good news these days.
The first opportunity that exists is one that we believe must be embraced, as your organization's very existence depends on it. It must start at the executive-management level with realistic goals. Ignoring these trends is the first step to complete breakdown. The second is to forget the long-term plan that existed prior to August 2008 and adjust accordingly. We have never run organizations in this atmosphere or climate, so we must be wiling to approach each day, week, month with a willingness to adjust and change accordingly. Finally, one must communicate by phone, mail and Web to your donors as never before — passionately, positively and personally — so that you inspire them in these very challenging times to allow you to continue doing your mission. Donors are more valuable than ever before. An organization must continue to prospect and make every effort to keep lapsed donors in your support systems.
Clinton O'Brien, vice president of business development, Care2
Gloomy economic talk in 2009 did not stop most of Care2's largest and most sophisticated nonprofit clients from buying even more online donor-lead acquisition campaigns from us than they had in 2008. For some of them, this was because they continued to get a strong ROI from the leads they acquired, even in a tough economy. (That's a testament in part to their fundraising prowess.) For others, the acquisition activity this year was more of a defiant bet on the future, by fundraising professionals who know that, when the recession ends and donors become more generous again, those nonprofits that have large e-mail lists of loyal supporters will be much better positioned to harvest the recovery.
What will 2010 look like? Certainly much depends on how nonprofits' current end-of-year 2009 fundraising campaigns go. If nonprofits raise good sums of money from online donors during the October to January time frame, then they will be emboldened to keep investing in online donor acquisition and cultivation in 2010. But if the end-of-year fundraising goes poorly, then some nonprofits may fearfully pare back spending in the new year. While that's just human nature, it actually would be a dubious strategy, since decreasing investment would make it much harder for an organization to start growing again as donors recover. For that matter, even in good times, an organization's e-mail list experiences a natural "churn rate" of about 30 percent, meaning that about a third of the list turns inactive (with or without the users unsubscribing) every year. So just to offset this natural churn, you need to attract an additional 30 percent to your e-mail list every year — and more if you want to grow the list.
This is called the "Red Queen Principle" because, in the story of "Alice Through the Looking Glass," the Red Queen character keeps having to run as fast as she can, just to keep from falling behind. It's like that with nonprofit fundraisers who want to just maintain — never mind grow! — the donations they receive from individual donors.
Vinay Bhagat, founder and chief strategy officer, Convio
I am hopeful that things will get better, though I'm not expecting a rapid recovery. I am at core an optimist, but more importantly the discussions I've had with my economist friends who work at the World Bank/IMF suggest that we are in a recovery, albeit a slow one. GDP will grow even factoring out heavy government stimuli, and philanthropy has historically correlated well with GDP. I am concerned about the impact of long-term unemployment on giving at large.
The biggest challenge was hitting revenue plans generally driven by smaller average gifts and a lack of large/midsize gifts. A second major challenge was new-donor acquisition — there was a stark decline in new-donor acquisition rates/dollars.
Most charities faced the situation by cutting costs. A few chose to invest strategically in areas like online marketing to help grow out of the recession, and to respond to changing donor preferences/channels. Those investments encompassed technology, key people and investment in new-donor acquisition, e.g., online list development.
Nonprofits will not see a rapid recovery in giving to previous levels and will continue to need to work harder to acquire new donors and retain those they have. My first piece of advice is to focus on excelling at the basics. A lot of organizations are attracted to the cool, new thing, e.g., social media, before they've done the basics correctly, like optimizing their Web site for conversion, sending e-mails that people want and crafting compelling, multistep appeals.
Those with more resources certainly can deploy more advanced strategies and tactics, but let's all get the basics right first!
Chris Ragusapresident and CEO, Estee Marketing Group
2009 was a challenging year for many nonprofits, yet quite a few did as well or better than the year before — not everyone was talking gloom and doom. Soft response rates seemed to be the biggest challenge to those with affected acquisition programs. Most nonprofits addressed this by tightening up mail plans, negotiating better list prices, and shifting mail volume to more successful packages and more welcoming times of the year (seasonality). 2010 looks positive so far, with most of our mailers looking at the year as a time for growth.
Tony Elischer, managing director, Think Consulting Solutions
The official news in the United Kingdom is that voluntary fundraising is down 11 percent in the last year, but most charities are seeing static voluntary income overall and donor acquisition pretty much drying up. Legacies are a key income in the United Kingdom, and their value has dropped, dramatically affecting overall income figures.
Charities need to brace themselves for the next 18 months, as things won't be getting any better despite media coverage saying the recession is coming to an end! 2010 will be a year of stewardship and focusing on your existing donors.
Corporate fundraising will continue to be a challenge as many industry sectors will continue to suspend their support but will still want to continue their CSR programs. Charities need to be more imaginative in their proposals to companies, using them as a route to market and using their resources to support communication and brand activities.
Public funding cuts over the next few years will dramatically impact the U.K. not-for-profit sector. Even if fundraising holds up, which it will, there will be increased funding pressure that will be difficult, if not impossible, to meet. So things could genuinely get worse. The recession, and the resulting situation, runs deep and will impact for at least the next five years; this is not a time to be a timid or fainthearted fundraiser.
[Fundraisers overcame the challenges of 2009 by] standing their ground and being brave enough to continue investing and marketing. 2009 was not the year to cut fundraising; smart organizations realized this and cut elsewhere.
[For 2010], continue investing, focus on relationships, use donor insight and data smarter — and continue investing.
Sarah Durham, founder and principal, Big Duck
In 2009, the fundraisers I spoke with seemed to struggle with variations of the same issues. First, how to distinguish their organizations in an increasingly competitive giving climate. The ones that managed their communications proactively and with agility seemed to fare better than the ones that maintained business as usual, from what I've seen — and this is what prompted me to write "Brandraising," a book about the importance of effective communications on fundraising.
The other challenge was tackling social media and new communications pipelines for fundraising. In 2008, many fundraisers felt they could treat these tools as secondary or ignore them entirely. As we closed 2009, attitudes have shifted, and fundraisers are scrambling to make sense of these tools and their value, which is still not totally clear.
As we move into 2010, nonprofits seem to be optimistic that there's a turnaround happening that will positively impact donations. While many are wary of the potential for decreased giving in year-end 2009, most of the folks I speak with feel 2010 giving will be on the upswing, and that we've seen the worst of it. At the very least, there's a sense of living in a new reality that's permeated the community now, as opposed to the sense of shock and fear that struck in 2008.
Scott Swedenburg, president, Mail Enterprises
Almost all of our clients have had a good year. Their total number of gifts is up from previous years, but the average gift amounts are down. This tells me that donors still care deeply about the nonprofits they support, but are not able to send as much as they have in the past. I believe this trend will continue until the economy comes back.
Farra Trompeter, vice president, client relations and strategy, Big Duck
As we get into 2010, I think integration is still the name of the game. All the new channels and tools that nonprofits have for communicating their great work — and asking for money — are exciting. But, it is important that nonprofits remember not to abandon old tricks in favor of new ones. Raising money via Twitter or texting might work for some, but sending out a series of messages via e-mail/direct mail with a consistent and compelling theme still brings in the bucks. Connect those messages to your Web site, your donation landing pages, your Facebook status updates, etc. The point is: Don't think in a vacuum. Donors are looking to hear about you in many places — some may just want to communicate in one channel; others will connect with you in several. The messaging and visual story of all these channels should reflect one another, while also taking into account the unique aspects of that channel and how people use it.
Marc A. Pitman, director, Inland Foundation, Eastern Maine Healthcare Systems; founder and principal, fundraisingcoach.com
I think one of the biggest challenges fundraisers had to face in 2009 was sticking to the basics. I think we got sloppy in the preceding years … particularly in the area of stewardship. I think many were shocked to realize that what they'd considered "stewardship" wasn't seen as that by donors. I suspect that organizations that chose to ramp up their communications efforts during this past year will fare better as our economy recovers.
Another great challenge I see for nonprofits is the temptation to cut their fundraising efforts or staff. While a downturn can be a convenient time, a handy excuse, to make cuts that are long overdue, marketing and fundraising efforts still need to be robust. The return will come. The ROI will be there, although it might not be in the fiscal year.
Todd Baker, vice president and senior strategist, Grizzard
The charities that are growing in today's environment are those that are positioned well and clearly defined in their category. They have continued to strengthen their relevancy with donors by providing timely information about themselves in relation to current events. These organizations are harnessing the power of donor behavior to acquire and inspire them to do more and be more through a brand experience. They consistently communicate a vision of the donor standing side by side with the organization, which positions the donor as part of the solution, and by doing so, the donor finds meaning and purpose — for few things in life are more important, or more powerful, than leading people to such remarkable moments of self-discovery.
Our sector desperately needs strategy — collectively we need to infuse a new way of thinking about fundraising. Many charities are simply copying each other's tactics without an understanding of how it may help or hurt their positioning in the hearts and minds of their constituents.
Richard Pordes, president, Richard M Pordes LLC
Perhaps I'm a hopeless optimist, but like home prices and GNP growth, we must never forget that the last five years before 2008 saw unprecedented growth in charitable giving. Let's stop talking about a recession and talk about a correction! Whatever goes up so quickly in just a few years must inevitably pause to take a breath. The charities that have seen dramatic growth since 2002 are seeing the biggest declines, and they are still way ahead of where they were in that very same year. 2010 will see a resumption of the upward trend we've seen since 2002, just starting at a slightly lower, "corrected" level!
Mikaela King, director of online marketing, CDR Fundraising Group
I think we're through the worst, and 2010 will continue the recovery trend. Most nonprofits that resisted the urge to dramatically cut acquisition have made it through 2009 not too worse for wear, and that was the biggest challenge this year — to not have a knee-jerk reaction to the bad economic news, but rather to strategically focus on your business and limit your exposure. It's not directly related to the economy, but I think the challenge for 2010 and beyond will be to find a way to monetize social networking.
Pamela Grow, president, GrowConsultingPA
My particular niche lies in smaller nonprofit organizations, and I can tell you that I have been truly astounded by the utter fear that I'm finding within these organizations. The fear has taken them to a point of paralysis!
In many organizations, the first area that they cut is development. And I tend to think that, yes, things will get worse — until nonprofit organizations learn that they need to have the same focus and passion for fundraising/development as they have for their missions.
I once took on an interim development director position with a small nonprofit organization, which had had five development directors in the preceding two years. We all know that development is all about developing consistent systems and relationships. How do you build any kind of continuity with that kind of record?
Thomas W. Hurley, principal and president, Non-Profit Group, DMW Worldwide
In fall 2009, I surveyed clients via e-mail and asked them to compare what their anticipated 2010 performance will stack up against actual 2009 figures. Most of the respondents fell into the "somewhat optimistic" group.
For those nonprofits whose fiscal year starts on July 1, much of the planning and execution of programs occurred before the economy turned down in early fall. Results were mixed over the winter and spring, with acquisition down and donor appeals generally staying flat.
Since then, I see much more of an emphasis on cutting fundraising expenses over increasing net revenue. The mood is extremely cautious; perhaps as revenue declines, fundraisers are being asked to cut their budgets more than the programming side of the nonprofits with whom we work.
Frankly, those clients who had an annual plan and stuck to the strategy fared much better than those who reacted out of fear of the future and the headlines of the day.
Heather Mansfield, owner, DIOSA|Communications
Mobile technology is the next frontier in nonprofit communications. Those that have built communities on social-networking sites over the last few years will reap the most benefits initially because social media is leading the way on the mobile Web.
The good news is that as more mobile technology vendors (group texting, text-to-give, mobile Web site design, iPhone app developers, etc.) flood the market, decreasing costs, these new technologies will be attainable by most nonprofits. Most important, now is the time for early adoption and leadership. If you came late to social media, don't make the same mistake with mobile technology.
This year will be the fundraising season where we will start tosee whether building communities on social-networking sites produces results in terms of dollars raised. I know my end-of-year donations are allotted for those nonprofits that engaged me best on Twitter and Facebook throughout 2009.
Bad Economy or Bad Strategy?
Don't let one camouflage the other.
By Tom Harrison
Looking for an excuse for declining fundraising income? How about the bad economy?
These days, it's easy to blame the economy to justify poor results — few are going to argue with that, as we've all felt the impact of the recession. However, even though the economy is a factor, the reality is that bad strategy has as much (or even more) of a role in poor fundraising results.
Many nonprofits — the ones that have stayed committed to smart strategy — are holding steady on income, and some are actually growing. Their secret is to avoid four deadly mistakes of fundraising.
Mistake No. 1: Investing in silver bullets instead of strategy.
Some nonprofits resisted change for so long that they are now making desperate choices in their efforts to catch up. Digital is a key place where this is evident. Nonprofits that were slow to develop inviting and informative Web sites with easy online giving are desperate not to repeat that mistake. So, they're jumping into social media with no clear strategies or performance measurements, betting that if they throw enough at this, they're bound to succeed, right? Wrong. There isn't any silver bullet out there.
When testing social media (or other new channels), smart fundraisers don't check their brains at the door. They keep their focus on ROI to spend wisely and to optimize real opportunities. The answer might not be the shiniest thing out there, but in the long run, it's what consistently brings in net dollars.
Mistake No. 2: Cutting back on acquisition.
Acquisition is an easy place to look for cost savings. After all, acquisition often costs more than it brings in. And yes, the pundits are saying that "retention is the new acquisition." Baby boomers are living longer than their predecessors, and they are staying in the workplace longer, giving them more discretionary income to give to the charities they support.
But acquisition continues to be critical for your organization's long-term health. Normal attrition will drain your donor file on an ongoing basis unless you infuse it with new donors. If you acquire donors at an acceptable average gift level, your acquisition costs will be paid back in 12 to 18 months — and the long-term donor value will make acquisition even more profitable.
One caveat: Don't settle for acquiring lots of donors at low dollar levels. While the infusion of donors might give you momentary euphoria, the cost to maintain and try to secure a second gift from a low-end donor will drain any long-term gain. If this is your strategy, have a clear plan for how often you will mail to these new donors, what offers you will make to them and if you will recoup your cost of acquiring through list rental.
Mistake No. 3: Letting program experts dictate the fundraising message.
Good programs might or might not make good fundraising offers. Donors need to be able to visualize what you're doing and believe it is meeting an urgent, basic need. The reality is that the funding of some programs is best left to one-on-one solicitation.
It's natural to want to trumpet our most sophisticated programs, but more often than not, donors want to give to meet the most basic needs. Let's not bite the hand that feeds us. The simplest offer is often the engine that drives direct-response fundraising. For example, food banks provide education, advocate on hunger issues and help low-income families enroll in government programs. These are all important programs. But they aren't going to tug the heartstrings like telling someone that for a dollar you can provide a meal to a hungry person.
If your income is down in this environment, look at your offers. Have you been faithful to the basic offer that is proven in your fundraising — or have you been capitulating to the program staff and trying to educate while you fundraise?
Mistake No. 4: Expecting branding efforts to generate income.
Branding is increasingly important to nonprofit organizations. People can't give to you if they don't know you're there. And people won't give to you until they're convinced of the importance of your work. Effective branding will actually engage donors and prospective donors with your organization.
Count on this: Great branding creates an environment where your fundraising works better. But great branding doesn't actually raise any dollars.
So you do need great branding, but you need to couple it with great fundraising or you'll end up feeling good about your messaging and image, and wondering why your income has plummeted.
Please, invest in branding — and combine it with smart fundraising by tying it to your core offer. And don't forget to make the ask.
The economy has affected every one of us — personally and professionally — in some way or another. But poor strategy has had an even worse impact on our fundraising results. Strategy is never luxury; it's survival.
Are you setting aside time for strategic planning? Are you using your consultants to help shape strategy and not to simply execute?
There's still time. Take a strong stand, and put a stop to the deadly mistakes of any fundraising program. Those who respond today with smart strategy and courage will capture market share and be on a growth curve as the economy improves.
