Ten steps to managing
fundraising in a recession
     A White Paper by Sean Triner, Co-founder and Director
              ...
Contents
Part one: introduction and getting the board on the right page .....................................................
Ten steps to managing fundraising in a recession

Part one: Introduction and getting the board on the right
page
Introduct...
The first thing most fundraisers and CEOs will think about is whether people will stop giving. But
there could be other ef...
What the board need to know
Recently I commissioned a little study. My theory was simple – surely the biggest variable for...
Cleary, spend more, make more.

(This data is based on Pareto Fundraising benchmarking charities – see appendix. They have...
more information and writing longer, more professional copy (in other words, by spending more
money) it could probably inc...
Perpetuating the myth does help some charities – but only the really big ones. A shift in strategy for a
small charity str...
Part one: summary
Charities should focus on net income, not ROI, or cost of fundraising. That simple switch in thinking
pu...
Part two: the facts about fundraising
Where money comes from
Government is the biggest contributor to the sector in most c...
Regular giving has a rate of growth set to overtake ‘cash’ in Australia within the next two years. In the
UK it already ha...
Although they have only been ‘marketing’ bequests for five years, The Lost Dogs’ Home is already
receiving significant beq...
Summary on bequests
A recession may or may not influence bequest values by a degree greater than the normal vagaries of
be...
Warm/house donor appeals – tactics and frequency
I will refer mostly to appeals through the mail here, but the lessons app...
But if it is that staff are too busy doing things that are less productive then you have a management
issue. Often this is...
This tells me that the difference in the strategy and tactics has an effect of 100 per cent, i.e. good
strategy/tactics wo...
The British experience during previous recessions was again a slight decline in growth rather than a
decline in real incom...
But they are great fun, motivating for staff, and when an event is held it is usually because that charity
has traditional...
The key problem is the lack of data; many schemes don’t allow the charity to build a relationship with
the donor, forcing ...
Part three: tsunami suicide, fundraising compared to
investments and the ten point plan to managing
fundraising in a reces...
Fundraising in an investment portfolio
Let us look at investment portfolios. A lot of charities have been doing well over ...
The ten point plan to managing fundraising in a recession
The board and management need to understand the data and stop un...
Conclusion
Despite the 9,604 words in this White Paper, the original question, ‘what should charities do about
their fundr...
Appendices

Appendix 1: Pareto Fundraising benchmarking cooperative
The following charities have pooled their transactiona...
Appendix 2: Pareto Fundraising and Sean Triner
Pareto Fundraising is a charity marketing business that is renowned for its...
Appendix 3: Other relevant articles, sources and information
Things will change, new reports and new data will come along....
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Ten Steps To Managing Fundraising In A Recession White Paper By Sean Triner

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Ten Steps To Managing Fundraising In A Recession White Paper By Sean Triner

  1. 1. Ten steps to managing fundraising in a recession A White Paper by Sean Triner, Co-founder and Director October 2008
  2. 2. 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 2 ©Pareto Fundraising 2008
  3. 3. Ten steps to managing fundraising in a recession Part one: Introduction and getting the board on the right page Introduction Banks are going bust, the survivors are reeling and panicking, governments are scrambling around to fix the mess, including using tax money to bail out these massive institutions. More than half a trillion dollars of tax payers’ money (just in the USA) is being spent ‘saving’ these institutions that made billions of dollars for an elite few. I am over-simplifying, but the mess was caused by a credit crunch closely connected to real-estate. Sound familiar? I am talking about the world in the early 90s, not 2008. Incidentally, about the time of a massive growth spate for many charities in the UK that kept gaining momentum with investment in regular giving (automatic debits). But what about charities this time – are they going to be hit by a recession, or even the threat of recession? How might a recession hit charities? What should they do about it? Should they spend more – or less? Should they be looking to cut services? If you are reading this, then almost certainly someone is going to be asking you these questions. What do you think? How will your charity fare? And what have your board and / or management decided? If they have decided anything – have they the evidence they need to make such decisions? Most importantly, have you really thought it through? This White Paper is designed to give you some tools to help make sure you are an expert. Even if you disagree with some of my points, at least they should get you thinking and searching for the right evidence. It’s pretty tough going at the moment. Your investment income might be down; demand for services may well increase; people are looking at their expenditure and having to make some tough choices; your finance team and your board may well be feeling very nervous. However, if we are to continue, as charities, to address the future needs of our community and our beneficiaries, we need to take a long term view. This means protecting our future revenue, not just services today. There are going to be hard battles that you may have to fight and I hope this White Paper helps prepare you for the challenges ahead. The current news made me think back to a meeting in Hong Kong a couple of months ago with representatives of an international NGO. Fundraising staff from Hong Kong, Malaysia, Australia, Vietnam and other countries in the region discussed a recession. The Australian delegate told me that they were implementing a ‘recession budget’ for fundraising. I asked if that meant they would be spending more or less. She didn’t tell me, and I am not sure she knew what the correct answer should be. Maybe her board or management didn’t even consult her. But what should charities do about a recession? www.paretofundraising.com 3 ©Pareto Fundraising 2008
  4. 4. 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? Who should read this White Paper The first charity person I asked to check this White Paper told me she thought that the White Paper was more about what is good fundraising strategy than what a charity should do differently because of the recession. I think she is essentially right, but that doesn’t undermine the key point – that good fundraising strategy is essential if you are to protect your charity from any effects of a recession. There is a huge diversity in what we mean by ‘fundraising’ and ‘causes’ but this White Paper is aimed at traditional charities, not academia or the arts. It is also aimed at professional fundraising charities, i.e. those with fundraising strategies, investments, etc. It is not aimed at those wonderful smaller community organisations run by volunteers, or totally funded by government or grants. Nor is it written for charities and NGOs in countries with little disposable income across the population. Although I am aiming this White Paper at people in charge of fundraising – including CEOs – I think it will be extremely useful for board members and finance directors too. Of course, anyone with a general interest in fundraising should find it useful. The role of management and the board You as a donor Before we start, I want you to work with me here. On a piece of paper or on your computer write down: 1. Your favourite charity - not the one you work for. 2. How you support the charity (e.g. monthly gift, volunteer, occasional donation). 3. Why you support them. Here is an example: 1. My favourite charity: The Sumba Foundation. 2. How you support: regular gift from credit card and occasional donation. 3. Why? I went to see them at Christmas last year and met loads of the kids. Before the Sumba Foundation started its work, the infant mortality was about half the kids, i.e. half of them would die before they reached adulthood, mostly from malaria. It is easily prevented - nets and education – and I was really motivated. Please take the time to do this, it will be worth it. We will come back to it later. www.paretofundraising.com 4 ©Pareto Fundraising 2008
  5. 5. What the board need to know Recently I commissioned a little study. My theory was simple – surely the biggest variable for how much money a charity raised was how much they spent. It sounds obvious, yet boards and management often make decisions about growing their income without accepting the reality that to grow they can’t continue spending what they want on services – some of that money needs to be spent on fundraising. Just like growing any business, investment doesn’t come free. However, there are a few differences between a charity and for-profit businesses that put obstacles in the way of a charity having a businesslike approach to investment. Namely: 1) A lack of data, information, training and benchmarks for people who are making these decisions. 2) The very fact that charities exist to provide services to make things ‘better’ and any additional investment in fundraising means that they are not – in the short term – delivering those services. 3) Ill-conceived, ill-informed and reprehensible laws, regulations, guidelines and often internal policies that restrict the proportion of income that a charity can spend on fundraising. For example, Singapore has a law that stipulates that charities must spend 70 per cent of their income on direct services. Many US and Australian states have similar restrictions. Victoria for example requires charities to spend less than 40 per cent of income on fundraising. Much of our data (and common sense) shows that these rules restrict growth and prevent many charities being able to deliver more services and help more beneficiaries. The right information Management and boards have to make really tough decisions. Like a hospital, they have limited resources. Hospital staff have to make really tough decisions about priorities – and sometimes have to decide who to save. This is the level of responsibility boards and senior charity staff have taken on. Regardless of a recession, they need to make decisions to sacrifice services this year to be able to deliver more services in the future. When I look at successful charities (in terms of fundraising), a major factor – in fact the major factor – is whether or not their board operate like a business or not. This usually manifests itself in attitudes to risk and how important fundraising is on their agenda. These most successful charities are also the ones who make the most mistakes and have a pragmatic approach to their organisation. They know it is not easy, cheap, or given that you will grow. Charities like the NSPCC in the UK, Doctors Without Borders in USA, WWF in Malaysia, Greenpeace in China and Cancer Council NSW in Australia didn’t get to be so big by being cautious. They took risks. Some of the donor acquisition ideas they tried even bombed, but now they are reaping the rewards of their efforts. These charities also happen to spend more on their fundraising than their counterparts, who are not doing so well. The chart on the following page shows the outcome of the research project to prove the relationship between spend and income (the left axis shows the income scale, the right shows the spend scale). www.paretofundraising.com 5 ©Pareto Fundraising 2008
  6. 6. 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.) Return on investment / cost of fundraising The next challenge within boards is the fixation on cost of fundraising (COF) and its inverse – return on investment (ROI). This obsession goes beyond boards, so much so, that for many national, state or provincial governments, COF is one of the key measures that charities need to report. But this unhealthy obsession with COF ultimately damages our ability to make the world a better place. Fundraisers are often given a brief that they must grow income by X without the annual cost of fundraising increasing by more than Y. ROI can be a useful measure – for example, when a fundraiser is considering tactic A versus tactic B to acquire new donors and there is a limited budget. Provided ROI is considered over several years, measured holistically (e.g. to include additional gifts, upgrades and bequests), and the rollout repeat potential is considered, then it can be the best measure. But why is it generally so wrong? Principally, because obsession with ROI above all else harms growth. Too many charities choose the path of slow growth – or even reject otherwise successful strategies – because of their fear of a low ROI. For example, charity A raises $40,000 from its Christmas appeal to warm donors, at a cost of $10,000 - an ROI of 4. It knows that by increasing the amount of time spent on the appeal pack, sending out www.paretofundraising.com 6 ©Pareto Fundraising 2008
  7. 7. 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 7 ©Pareto Fundraising 2008
  8. 8. 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. That’s 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 non- donors) really do think. But it’s 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 isn’t 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 organisation’s 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, doesn’t understand these key things, any attempt to grow your net income, regardless of a recession, going to be very, very challenging. It’s up to you to make sure they understand this absolutely critical fundraising principle. www.paretofundraising.com 8 ©Pareto Fundraising 2008
  9. 9. Part one: summary Charities should focus on net income, not ROI, or cost of fundraising. That simple switch in thinking puts charities in a much safer space when it comes to budgeting or planning. Charities need to think like commercial organisations and concentrate on ‘profit’. If, during a recession, cost per acquisition (CPA, the net amount it ‘costs’ to recruit a donor) increases then charities will need to spend more to maintain their net income – possibly giving them a worse ROI but preventing them from having to cut services. Part two: overview Part two will give you more of the facts about where money comes from and how a recession could affect different areas, such as major donors, appeals, events and corporate fundraising. It will also go into more detail by looking at real data from various charities and examine the implications of fundraising as an investment. About Pareto Fundraising: working with boards and management Pareto Fundraising has offices in Australia, New Zealand, Hong Kong and Canada, in addition to senior staff working in the UK. We also work globally through online teleconferencing, webinars, etc. If you would like a more personal approach, we would be happy to visit you wherever you are based. Our very experienced senior consultants help fundraisers to show management and boards how strategic fundraising will enable their charity to continue providing their services. We would love to help you with your financial strategy, working with you, your board, finance director or CEO. Please email canyouhelp@paretofundraising.com for more information. www.paretofundraising.com 9 ©Pareto Fundraising 2008
  10. 10. Part two: the facts about fundraising Where money comes from Government is the biggest contributor to the sector in most countries. Whether local, national, a foreign government (e.g. EU), or international agency (e.g. UN), most charity/not-for-profit money comes from the taxpayer. How this is going to be affected by a recession depends on economic modelling and policy understanding, which varies so much from country to country that I am well out of my depth. So I am looking at non-governmental sources of income for the rest of this document. The first thing charities need to understand is where that fundraised money comes from. In a recent study involving the 23 Australia/New Zealand Pareto Fundraising benchmarking cooperative charities (see appendix 1) – backed up by data from previous benchmarking and also in line with other Pareto Fundraising clients – we see a clear pattern of where money and growth are coming from. The chart below shows this pretty clearly. $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 Bequest Cash Regular Gift Event Grants/Trusts Capital Campaign Unsolicited Corporate Community Merchandise In Memoriam Event Merchandise Other This data shows that the biggest income source is bequests. By bequest, I mean the money left to charities in people’s 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 ©Pareto Fundraising 2008
  11. 11. 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 UK’s 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 let’s look at the key sources of income, and then think about what might happen. The effect on bequests The first thing we should be worried about is bequests. They account for a big share of the income of a lot of charities. Many charities receive bequests in shares, but often the most valuable asset in an estate is property. Shares are being hammered – so the value of bequests will take somewhat of a blow, but house prices in Australia have not decreased as dramatically (yet), possibly cushioning the effect for charities there. In the USA and UK falls of 5-10 per cent in property prices may be reflected in bequest values already. In terms of planning your future income, keep an eye on your local house prices. But, much more importantly, those charities that invested in bequests over the past five years or so will see continued growth in their bequest income. This is a simple numbers game, best illustrated by The Lost Dogs’ Home in Melbourne, Australia. Back in 2003 they had 93 confirmed bequest – i.e. 93 people had told them that they had mentioned the charity in their will. Now it stands at over 1,300 – more than five per cent of all of their financial supporters. www.paretofundraising.com 11 ©Pareto Fundraising 2008
  12. 12. 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 let’s pretend my ‘estate’ is worth about $250,000 if I died now. (I don’t 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 – let’s 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 it’ll 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 ©Pareto Fundraising 2008
  13. 13. 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. The effect on appeals and major donors Even a deep recession should have an effect on your appeals that is less than the impact of good strategy. I can say this with confidence because of three things: 1) The Pareto principle. Approximately 80 per cent of charity money usually comes from just 20 per cent of donors – your spread is likely to be similar. 2) Increasing the number of mail appeals and/or the tactics used can double a charities appeal income within a year. 3) Most charities simply don’t ask their major donors properly. The Pareto principle The Pareto principle applies to some degree to all charities, i.e. a minority of your donors will give you a majority of your income. In fact, looking at our benchmarking charities, we see that just 433 of the 475,155 donors (0.1 per cent) accounted for 50 per cent of the income and 9.1 per cent of the donors gave 80 per cent of the income. Although most of the charities are closer to the 80/20 rule, it can be a fair bet that your charity, if it does public fundraising, receives 65-95% of income from just 20% of donors. Now these top donors are usually much richer than your average donors. Unfortunately for society, but fortunately for you, the distribution of wealth and income means that the majority of them they will be the least hurt by a recession. The Australian press has been going on about a recession for about a year now and people have been talking about it a lot. But has it had an impact to date? We looked to the charities in our benchmarking cooperative for the answers. If there is no decline in results, the answer is definitely no. But even if there is a decline, we can further investigate the causes of the decline. After investigation, we found the answer was no. Despite a couple of charities blaming the recession for their under-budget results, the data shows no decline at all – to date. So the bulk of your money is probably safe and even if the ‘bottom’ 80% who give just 20% of your money are affected it is not going to be by 100%. I would plan for a reduction in income from this group, to be on the safe side, of maybe 20%-40%. This amounts to 4-8% of your total income. This is significant, and maybe with some of your other donors affected you could see income dip, perhaps as much as 15%. But 15% is much less than the potential increase you could expect from implementing the tactics below. So plan accordingly. www.paretofundraising.com 13 ©Pareto Fundraising 2008
  14. 14. Warm/house donor appeals – tactics and frequency I will refer mostly to appeals through the mail here, but the lessons apply for email and phone appeals too. Unless you are already doing things perfectly, you can raise more money from your appeals by improving tactics. The key tactics we apply at Pareto Fundraising (we keep no secrets!) are: • More sophisticated targeting. • Much longer letter copy, with a great story. • Letters that look like letters. • Very strong proposition, with very clear call to action, repeated frequently. • Much more thoroughly researched/interviewed case study. • Story has a beginning, middle and end. • More additional pieces in the mailing, reinforcing the proposition. • Clear deadlines. • Hyper-personalisation including specific ask amounts – the whole main letter is never pre- printed, it is always mail merged appropriately. 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. Let’s 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 ©Pareto Fundraising 2008
  15. 15. 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 ©Pareto Fundraising 2008
  16. 16. 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 doesn’t 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. The effect on regular giving As with appeals and major donors, we looked at our benchmarked charities and investigated whether these early days had any effect on income to date. The answer: no. But what about the future? We know that charities that have big regular giving programs have a more even Pareto spread – i.e. they get proportionally more from relatively more donors. This makes them less vulnerable to the vagaries of the whims of a small number of people, but does it make them more vulnerable in a recession? The answer: maybe a bit. Enough lower-middle-class professionals could be affected by a recession to make a difference. A good place to look at historical indicators is the British experience. They have been market leaders in regular giving for nearly two decades now and have lived through a couple of recessions already. www.paretofundraising.com 16 ©Pareto Fundraising 2008
  17. 17. 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 isn’t 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 don’t 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 didn’t 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. The effect on events Let’s get something straight here – events are nearly always a distraction and a waste of money, time and investment for most charities, most of the time. There are some fantastic exceptions, but as a primary fundraising strategy events rarely produce sustainable, strategic growth. These exceptions probably cost the sector considerable amounts because so many charities think they can replicate the success quickly, rather than strategically. The best event programs run along similar lines to any other appeal campaign: build proposition/ product, acquire customers and keep reselling to them. Professional fundraisers in mature markets know that acquiring customers (prospecting, cold recruitment, etc) means running at a ‘loss’ – and that this loss is recovered through subsequent sales, not the first one. Strategic event fundraisers need to have a similar approach. Even then, from no matter what angle you look at it, the biggest charities don’t get to be big – and stay there – through a strategy with events at the heart. We also know that events carry a lot of risk. Bums on seats are usually the key for events, and if those bums don’t turn up events can turn into loss machines very quickly. They also take up a lot of internal resources. www.paretofundraising.com 17 ©Pareto Fundraising 2008
  18. 18. 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 isn’t 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 don’t drop your successful events in fear of the recession. The effect on marginal income sources Well, it doesn’t really matter much since, by definition, these are not that important. However, it is worth drawing attention to a couple of these: payroll giving and corporate fundraising. The main reason for this is because of the enormous amount of effort and energy that is wasted on them both. Energy and time is wasted on corporate fundraising in all countries. It seems to be a golden chalice that creates a huge cognitive dissonance. Despite all the evidence, many fundraisers think that corporate fundraising provide a great source of income for the sector and should be a vital part of a fundraising strategy. The fact is that fundraising from corporates, for most charities, is a waste of time and one of the least effective methods of raising money. Corporates account for 3-5 per cent of total income for charities in most ‘developed’ fundraising nations, and even this figure is misleading. The Pareto principle applies here too: much more than 80 per cent of that tiny slice is raised by a few charities. With few exceptions, such as Habitat for Humanity, those charities are the mega-brands, UNICEF, Red Cross (in some countries), WWF, UNHCR and big local institutions such as national heart foundations and big cancer charities. If you are one of them, then you need to be worried about a recession. Corporate gifts are a high target for companies feeling a squeeze – and this is borne out in our research, which shows a decline in corporate giving this year for the 23 Australian/New Zealand benchmarked charities. If you are not one of those lucky (but stressed) charities making money from corporates – then good news, you now have the perfect excuse to switch those wasted resources from corporate fundraising. Payroll giving is another big distraction for many charities, though this could be just an Australian phenomenon. The advantages of payroll giving – captive audience, matched giving from a small proportion of companies and an excuse to get in to see a company are massively outweighed by the disadvantages. www.paretofundraising.com 18 ©Pareto Fundraising 2008
  19. 19. The key problem is the lack of data; many schemes don’t 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 charity’s 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. Part two: summary Changes in tactics, prioritisation and commitment to communicating with your donors will outweigh the effect of a recession. Economic downturn may shave some money off but really, for most charities, there is some low hanging fruit that just needs a creative or tactical shift to be reached. Part three: overview Part three will look at the dangerous phenomenon of ‘tsunami suicide’, which explores how charities reaction to external events such as a major disaster, or recession can be much more dangerous than the actual event. It will also draw a conclusion and present the ten steps to managing fundraising in a recession. About Pareto Fundraising: working with income generation Pareto Fundraising has offices in Australia, New Zealand, Hong Kong and Canada, in addition to senior staff working in the UK. When it comes to helping charities with their income generation strategy Pareto Fundraising has an extraordinary record. On average, we more than double the income of charities that work with us on their appeals programs. These charities include large, small, experienced and ‘new’ charities, as well as international NGOs with access to multi-national resources. Our bequest programs help protect charities’ future, even when there is already a bequest program in place. If you have more than 5,000 donors and have an appeals program, please talk to us. Email canyouhelp@paretofundraising.com for more information. www.paretofundraising.com 19 ©Pareto Fundraising 2008
  20. 20. 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 didn’t. Those that feared the tsunami would dramatically affect their fundraising so they should cut expenditure were right. Those that didn’t 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 don’t have enough to give again?’ The charities that carried on did fine. Those that didn’t, didn’t. www.paretofundraising.com 20 ©Pareto Fundraising 2008
  21. 21. Fundraising in an investment portfolio Let us look at investment portfolios. A lot of charities have been doing well over the past ten years from investments. It is always useful for charity directors to compare the returns that they get from fundraising with what they would get by investing that money ‘in the market’. Fundraising outstrips ‘investments’ by huge amounts. I looked at twenty charities fundraised income over the past ten years, compared to three good investment scenarios (5 per cent, 8.5 per cent and 10 per cent per annum). Yes, there are stories of charities achieving 30% in one year, but not now! The ‘best’ performing charity (based on financial growth) had grown 100 times in that period, the ‘worst’ had actually shrunk in real terms. But 13 had performed better than 10 per cent growth per year – which would better than 99 per cent of charity investment portfolios. The next chart compares the three investment scenario returns with the actual growth of the charities (all based on $1m ten years ago). 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 Charity 20 5% invest return 10% invest return 8.5% invest return www.paretofundraising.com 21 ©Pareto Fundraising 2008
  22. 22. The ten point plan to managing fundraising in a recession The board and management need to understand the data and stop unrealistic expectations 1. Stop using cost of fundraising (COF) or return on investment (ROI) as a key measure and concentrate on net income. 2. Work like a commercial organisation; accept reduced short-term growth in service expenditure to gain increased long-term growth. Don’t commit recession suicide. 3. Stop putting off bequest (legacy) marketing every year – it won’t make any difference to your income next year, but the charities that invested in bequest marketing during or after the last recession are in a lot healthier situation than those that didn’t. 4. Accept that donors are not cheap. Apply the Pareto principle internally and externally 5. Look at where your money really comes from now, and concentrate efforts on high yield activities like regular giving, bequests and major donors. 6. Look at where growth is coming from for successful charities, and ensure you are getting your slice. Look after your donors 7. Implement proper, well thought-out and planned ‘supporter relationship management’ – just think, if you had implemented Relationship Fundraising back when the book was written, your donors would be much more likely to stay with you now. 8. Ensure you are using the right tactics for fundraising – number of mailings, rigorous targeting personalisation, length of letters, actually asking for money in your appeals, telephoning to upgrade regular givers; any of these things not done well (or at all) will cost you much, much more than any impact of a recession. Get more donors 9. Regular givers are still the best bet in most countries right now; they can be expensive and it may take you two years to recover costs but, guess what, that is life in fundraising. 10. Understand the implied lifetime value of such donors – plan long term. www.paretofundraising.com 22 ©Pareto Fundraising 2008
  23. 23. 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 couldn’t 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 doesn’t 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 ©Pareto Fundraising 2008
  24. 24. Appendices Appendix 1: Pareto Fundraising benchmarking cooperative The following charities have pooled their transactional data together to gather information useful for their planning and budgeting and also to provide useful data to the sector. Members within the cooperative are not anonymous, i.e. they can see their results, and we have agreed to share certain information with the public, though that is usually made anonymously. This White Paper has been informed by the data from the Australian and New Zealand charity members: Australia for UNHCR, Australian Conservation Foundation, Alfred Hospital Foundation, Benevolent Society, Bush Heritage Fund, Cancer Council ACT, Cancer Council NSW, CanTeen, Children’s Cancer Institute Australia, The Children’s Hospital Westmead, Children’s Medical Research Institute, National Heart Foundation of Australia, Heart Foundation NZ, Jewish Care, The Lost Dogs' Home, MS Research Australia, RedKite, Scope, Stroke Foundation, Surf Life Saving, Vision Australia, Wesley Mission and WWF Australia. These charities represent a good cross section of organisations by size, type of fundraising, type of cause, age and brand awareness. In addition, nine charities in Canada have recently joined to add even richer data to the cooperative. These charities include: Amnesty International, BC Cancer Foundation, Canadian Feed The Children, Care, Christian Blind Mission, The David Suzuki Foundation, Médecins Sans Frontières (MSF), Street Kids International and WWF. The next round of findings from the Australian, New Zealand and Canadian group is due in early 2009. This will show us what has happened from July to December this year. This will give us valuable evidence of how these benchmarked charities are tracking against the current global economic downturn and how donors are actually donating to charities during this time. Include your charity in the benchmarking cooperative and get access to this important data. More Australian, Canadian and NZ members are welcomed, and expressions of interest from UK and SE Asian charities encouraged – the wealth of information available through membership is considerable. For more information email canyouhelp@paretofundraising.com. www.paretofundraising.com 24 ©Pareto Fundraising 2008
  25. 25. Appendix 2: Pareto Fundraising and Sean Triner Pareto Fundraising is a charity marketing business that is renowned for its obsession with data. The organisation has an amazing track record for supporter relationship management programs with a diverse range of charities, large and small. On average, Pareto Fundraising have doubled the income from direct marketing appeals for their charities including Amnesty International Australia, The Lost Dogs’ Home, WWF Australia, ACF, Médecins sans Frontières and many more. Pareto Fundraising’s major donor and legacy/bequest programs attain ridiculously unbelievable results and their expertise on regular giving is well established. Pareto Fundraising has offices in Toronto, Hong Kong, Sydney, Melbourne, Brisbane and Wanaka but also offers consulting, development and major services globally. We want to help you improve your net income too. We can help your fundraising strategy, major donors, mail or email appeals, legacies/bequests, online fundraising, skill sharing, regular giving programs and more. We can also help you by presenting the information in this document to your boss or board, and help you to protect your organisation from the biggest threat from a recession – management cutting your budget. For more information please contact canyouhelp@paretofundraising.com. Sean Triner is co-founder and director of Pareto Fundraising and Pareto Phone. He worked as a fundraiser in several UK charities from 1989 until late 2002, when he started Pareto Fundraising in Australia with his friend and fellow fundraising expert, Paul Roberts. He is a prolific writer, check out his blog, and the special recessionwatch blog. www.paretofundraising.com 25 ©Pareto Fundraising 2008
  26. 26. Appendix 3: Other relevant articles, sources and information Things will change, new reports and new data will come along. Sign up to feeds from recessionwatch for the latest information and links to articles and blogs that I read when researching this article. Corporate fundraising takes up a massively disproportionate amount of our time. Find out more about “The Inconvenient Truth of Corporate Fundraising” Ideas about recession proofing from Fundraising and Philanthropy Forum in August 2008. If you want more information on how ‘Major Donors: Next Week’ can help you, check out ‘The Hitchhikers Guide to Major Donors’. More links, articles and ideas will appear on the recessionwatch blog. www.paretofundraising.com 26 ©Pareto Fundraising 2008

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