Gift Histories Predict the Future

Before the start of each new fiscal year, nonprofits have the uber fun task of budgeting expenses and forecasting revenue. Determining where the funds will come from to deliver on the mission can feel a bit like a numerical game of Tetris, trying to make all the pieces fit together no matter how strange the final configuration.

I’ve encountered nonprofits whose annual fundraising goals increased by as much as 225% over what was actually raised the previous year. Such increases lead me to ask questions, like “Has something significant changed that would make such an increase possible?” and “Is there a major catalyst, like a new merger or program, that would reasonably account for such an expectation?”

The answers to both questions is usually “no.” The goal was set equal to the amount the organization’s board and/or executives wanted to raise. Unfortunately for all of us, wanting something doesn’t make it so! Fundraising involves strategy and organizational commitment. Let’s look at what should be taken into account when forecasting annual fundraising goals.

Compare the Last Three Years

Any donor management system (DMS) that is actively used by a fundraising department will have the ability to show how much money was raised using what methods (such as email, direct mail, corporate partnerships, etc.) for each of the previous three years. This is often tracked via annual fund campaigns and appeals. If your organization does not use a DMS (you should budget for one!), the information can be pulled from your accounting software.

Here is a simple, sample three-year comparison, using just a few annual fundraising methods (Note: Major gifts have intentionally been left out of this article’s examples, as major gift forecasting is an intricate endeavor in and of itself).

One look at this sample three-year comparison and you might think, “Wow! What happened to corporate sponsorships?” That query leads us to an important question that should always be considered when planning an annual fundraising goal, and that is “Was there an anomalous situation that year?”

In this example, the answer is: Yes, there was a pandemic that drastically decreased the number of special events that nonprofits held, and, because of the pandemic, many companies cut their marketing budgets. Correspondingly, sponsorship dollars to nonprofits decreased in 2020. Two other examples of anomalies that could lead to episodic bumps in fundraising are natural disasters and completed capital campaigns. Both natural disasters and capital campaigns are likely to increase fundraising temporarily but are not reliable gauges for projecting the future of annual giving.

Forecast Realistically

Three years of giving history will show an organization what they have consistently raised; that history should be used to form the basis for the coming year’s projections. A reasonable goal increase may be 20% or 25%, and a stretch goal might reflect an increase of 30% or 35%.

Goals that are artificially high — and likely unattainable — can adversely affect the organization. Programs will be cut during the year because their budgets were based on unrealistic numbers. There may be high turnover in fundraising staff because they feel set up to fail.

It is much more effective to plan your fundraising progression right alongside your organization’s strategic plan. Create a development plan each year that helps the nonprofit schedule actions and allocate resources. Run the numbers on the various methods of fundraising in which your organization engages to determine if each fundraising vehicle is efficient and effective, and then use that data to inform future fundraising decisions.

Though some might call huge increases in forecasting aspirational goals, most of the time when goals are set at something like a 225% or even 100% increase over previous years without any unique catalyst for the expected change, they are really just artificial goals. Budgeting and forecasting more realistically will be better for everyone involved.