State of the Sector

Editor’s Note: What’s changed in the fundraising landscape over the past year, and what’s ahead for fundraisers in 2008? To find out, we hosted a virtual roundtable with four fundraising professionals whose names you probably know. Below, you’ll find highlights of our e-chat. If you’d like to suggest a topic for future e-chats, please let us know by e-mailing mbattistelli@napco.com.

Margaret: Can each of you give me three words that you feel describe “where we are” in fundraising in the U.S. right now?

Kurt: Internet, Internet, Internet.

Roger: Shifting … growing … donor-centric.

Polly: Challenging, fragmented, moving fast!

Jo: Must. Make. Changes.

Margaret: Great … a lot of diversity in those answers. Roger … how do you define that growth?

Roger: Fewer donors, but larger gifts from donors. More net money.

Roger: This year was the first year that we’ve seen a decline in the number of donors in the U.S. But the net income to nonprofits rose.

Kurt: The world is operating at Web speed, and our sector isn’t. The ’net has been there, but have we caught up to it? Do we know the impact of Facebook on our potential growth? I’m not seeing it with my clients.

Polly: Loyal donors are getting fewer, but they are giving more. Organizations need to take care of these donors and perhaps invest more money to build on those relationships.

Roger: Partly this is due to the Internet and the so-called user-generated activity of the social networks.

Roger: And partly due to the generational change where the baby boomers are far more selective and therefore give more to fewer causes.

Margaret: Doesn’t this fly in the face of what seemed to be the predominant thinking not that long ago … more donors, more donors, more donors?

Roger: That thinking, I hope, went out long ago, but perhaps not.

Margaret: It seems some … organizations still struggle with it.

Roger: This drop in the number of donors and the need to focus on retention and upgrading of those who remain has been part or most of our sermons for years.

Roger: I think the ones who struggle most are those who can’t accept change and figure out what to do about it.

Roger: The younger, newer organizations may be more capable of adaptation, survival and growth than the behemoths.

Kurt: Not sure I agree. I think we have to worry about both — more donors and getting more from existing donors. Problem is competition. With 3,000 charities chartered every month in the U.S., competition is fierce — or should I say fiercer?

Roger: True, and the Internet makes competition even easier.

Margaret: I think I see something of a contradiction here. You’ve said the emphasis is on fewer, more dedicated donors, yet there is a rise in the use of social-networking strategies.

Roger: Yes, they’re not mutually exclusive.

Margaret: Don't the social-networking efforts reach out to more people, more superficially? At first, at least?

Roger: For example, a 30-year-old who gathers 100 friends to support his/her cause becomes a type of mid-level donor.

Roger: His/her friends aren’t necessarily donors, but through social networking he/she has the ability to deliver substantial money to the charity. That’s part of the whole “user generated” fund phenomenon.

Kurt: And it doesn’t matter. Today’s young person is tomorrow’s donor, and they don’t care that we don’t like their communication tools; it’s how they get their information.

Roger: The organizations that will thrive and survive are the ones that will successfully work the multichannels that now exist.

Roger: Legacy marketing for the older donors … upgrading for mid-level, long-time donors … social networking for the younger donors.

Roger: And ALL have to worry not just about acquisition, but especially about retention.

Polly: And those that can successfully convert non-direct marketing donors (event participants, etc.) to direct marketing donors.

Margaret: Kurt, you mention that you’re not seeing a lot of success raising money online among your clients … do you all see that changing in the next, say, year? Five years?

Kurt: It’s going to have to change, Margaret. We aren’t going to have any choice if we want to survive.

Roger: Kurt’s absolutely correct. Right now, online giving accounts for less than 3 percent of funds contributed.

Roger: BUT … online communication is key to holding on to donors through effective communication, involvement, etc.

Kurt: How many clients do any of us have that have a 23-year-old working in donor development or acquisition in other than [an administrative assistant] position?

Margaret: Kurt, you’re saying that nonprofits have to hire younger folks in development?

Kurt: Or begin listening to them.

Jo: Definitely.

Jo: [This] is what we’ve been talking about at the ASPCA for a long time … expanding channels and ensuring no matter HOW the donor wants to reach you, you are there. In their space … on their terms.

Jo: We are very high risk in opening new channels, but we support that with investment in customer service. Kurt’s right.

Jo: If you don’t listen and aren’t able to respond, you lose their interest pretty quickly!

Roger: Absolutely right, Jo.

Kurt: Think how the topics we’re discussing run counter to each other — older, good donors that give more and new donors that don’t want to hear from us the way we communicate. Talk about a disconnect.

Margaret: In our webinars, we’ve had people ask how they “try the new stuff” while still maintaining the “old stuff” — I assume “new stuff” refers to the Internet, while the “old stuff” is direct mail?

Roger: Not only the Internet, but lots of stuff. Few groups are seriously marketing legacies using direct response …

Roger: … few are seriously experimenting with [text messaging] …

Roger: … few are seriously exploring cause-related marketing …

Roger: … few are, sadly, doing anything but copying over last year’s plans. Everyone talks about integration and multichannel marketing, but few understand or are willing to take the risks.

Polly: Our clients — over the past year — have been much more willing to test online marketing with direct mail — with great results. But this is “traditional” online marketing — e-mail, SEO, etc.

Margaret: What do you all suggest for, say, a smaller nonprofit on a limited budget when it comes to expanding its strategies?

Kurt: A profile on Facebook costs … ? Nada. Text message blasts cost … ? Little.

Jo: I have to say … I don’t get that!!! The risk part …

Jo: Most of this is NOT that expensive. I mean … setting up a MySpace page. What’s the cost of that?!?!?

Roger: The first thing is to change the financial mind-set. Change involves risks.

Roger: Most fundraisers have to hit their numbers and, in my experience, are unwilling to risk the bottom line when it comes to testing and other essential exploration.

Roger: If GE, for example, were to cut its [research and development] budget, investors would head for the exits.

Roger: But in our world there doesn’t seem to be much of a penalty for not pushing the envelope.

Margaret: So they need buy-in from the top. How do they convince their CEOs that the risk is worth taking?

Roger: And their boards.

Kurt: Let the board do the convincing. Every company is doing it, and the people on boards are pushing it for their companies. At Boys & Girls Clubs, we always got the board to push the envelope first.

Jo: We took an entire Web 2.0 plan to the board and presented it.

Kurt: Board members running companies are taking risks every single day. Our job as nonprofits is to get them to behave the same way in our board rooms as they do in theirs.

Roger: How did it go, Jo?

Jo: Got their buy-in … signed some of them up for text messaging and then showed them how people were responding — like some of the profiles who linked to us, that kind of thing.

Kurt: There you go, Jo … exactly what I’m talking about. How many nonprofits even know what Web 2.0 is?

Jo: And they got excited. They would call every week and say, “I got my text message.” It was education, and it worked — but we NEVER presented it as fundraising. We kept it separate and talked about it in terms of warm prospecting and awareness. And they loved it!

Roger: And Web 2.0 is so important for the future. Especially if you believe that user-generated content, activism and giving is an important part of the future.

Kurt: And why isn’t education presented as cultivation?

Jo: We weren’t far enough ourselves to figure how to turn a text subscriber into a donor.

Roger: Certainly should be, Kurt, because it’s an essential part of building loyalty.

Roger: So far, in my experience, the ’net involves several steps before getting to money: involvement, activism, information and, eventually, financial participation.

Kurt: This is also what we have done in our sector for centuries: considered anything but an outright ask something other than fundraising — or asking for marriage on the first date. All the work that goes in the middle is what these new media can help us with.

Polly: We have encountered organizations that are looking for the “silver bullet” in their fundraising program — and they think it’s online fundraising vs. no direct mail!

Jo: So does every CFO out there. Stop using stamps and they’d all be in heaven!

Roger: When they throw away the postage meter, they’ll be in big trouble.

Margaret: There seems to have been a real gold rush mentality about the Web a few years ago. Did organizations get scared off when they realized it wasn’t going to translate into immediate money?

Roger: Fact, at least for now, is that the ’net when used in combination with the phone and mail will work, but not solo.

Polly: Yes, Roger. Our clients’ online efforts are driving up direct-mail results.

Roger: The problem lies in the siloing of the functions. Webmaster didn’t talk to the fundraisers … fundraisers didn’t talk to the webmaster … the executive directors talked to neither.

Roger: Absolutely, Polly. Same here.

Roger: Like any other part of our craft, it takes time for rules and principles and discipline to emerge. We’re getting there, but it will be several more years ’til the rules of integration and multichannel communication are understood in a way that’s financially helpful and predictable.

Margaret: You all seem to be in agreement. Let’s look into the future a bit. In a sentence … what is the biggest — and most immediate — challenge fundraisers face in 2008?

Kurt: Stock market. It’s so volatile. Coupled with the mortgage collapse, I think many mid-level donors (and some high-level donors) will be restricted.

Polly: There are several challenges, but here’s one: a willingness to invest in acquisition.

Roger: For most, the willingness to invest not only in acquisition but in understanding loyalty and retention.

Jo: The understanding and implementation of R&D.

Polly: Yes, Roger, cultivating new donors — after spending so much to acquire them — is essential!

Roger: The big problem for the last five years has been retention. Still fairly easy to acquire new donors, but far more difficult to retain them.

Jo: Very true!

Roger: Consequently, the cost of donor acquisition goes up because the return on investment — because of shorter donor lifespan (attrition) — goes down.

Polly: We tell our clients that new-donor retention should be viewed as an extension of their acquisition investment.

Kurt: How much of retention is just plain increased competition?

Roger: I don’t think very much, Kurt. Frankly, I think it’s because groups have not adapted to the changed nature of the donor universe. We have moved from the “tell me” type of loyal donor to the “show me” type of more skeptical donor.

Roger: And if there is anything everyone MUST learn it is how to be transparent and accountable to new donors to show them just what their help and involvement is accomplishing.

Kurt: And show me really means show ME.

Kurt: Donors, like customers, are looking for relationships, not sales calls.

Roger: Yes. Absolutely.

Jo: It’s true — as we began ramping up our sustainer investment, one of the key costs was the customer-service center, dedicated Web areas … all that stuff … to create a safety net!

Roger: And that’s why Polly is correct in her view that retention needs to be viewed as part of the acquisition process.

Polly: And there are many new donor-retention strategies and techniques that have proven to boost retention and giving frequency.

Roger: You’re one of the few who see it this way, Jo. A sad commentary on our trade. But the sad fact is that when I present a retention or loyalty budget that involves donor service, etc., the answer is usually, “Well, maybe sometime.”

Margaret: So no matter what strategies or combination of strategies you use, it all has to boil down to more intimate and accountable relationships with donors?

Kurt: I think it’s more the relationship has to be specific to the donor, which is why Web 2.0 is so fascinating.

Roger: It’s basically back to the future. The more personal the relationship, the more long-lasting.

For Part 2 of this e-chat, be sure to read the January issue of FundRaising Success.