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Money for Good

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Money for Good

  1. 1. H O P E C O N S U LT I N G Money for Good The US Market for Impact Investments and Charitable Gifts from Individual Donors and Investors M AY 2 0 1 0M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L
  2. 2. INTRODUCTION AND CONTEXT The Motivation for the Money for Good Project It is our nature to see the world based on our own context, experiences, and points of view.  People in all walks of life struggle with this bias every day. How can a new product fail when you and your cohort believed that it was a great idea?  The need to understand the world as it is – not as we wish it were – has caused primary market research to become a multi-billion dollar industry.  The motivation behind the Money for Good project was to seek the ‘voice of the customer’ for charitable giving and impact investing. This perspective has been lacking in these sectors to date. As the Hewlett Foundation and McKinsey & Company noted in their recent report “The Nonprofit Marketplace,” there is a need to “invest in research that clarifies donors’ motivations, needs, and decision-making criteria.”1 With this report we have attempted to address that need, and to build a thorough understanding of the behaviors and motivations of Americans with respect to charitable giving and impact investing. 1. “The Nonprofit Marketplace: Bridging the Information Gap in Philanthropy”, The Hewlett Foundation and McKinsey & Company, 2008M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 1
  3. 3. INTRODUCTION AND CONTEXT The Goal and Structure of the Money for Good Project The goal of this project was to understand US consumer preferences, behaviors, and demand for impact investment products and charitable giving opportunities (together, these make up the “money for good” market), and then to generate ideas for how for- and nonprofit organizations can use this information to drive more dollars to organizations generating social good. We structured the project around three key questions related to this overall goal: 1.  How can nonprofits more effectively obtain donations from individuals? 2.  How can a greater share of donations go to the highest performing nonprofits? 3.  What is the market potential for impact investing and how can it be realized? Note: We also looked at how these findings relate to people who donate or invest in developing countries, with a particular focus on support to international entrepreneurship. Those findings can be found in “Money for Good: Special Report on Donor and Investor Preferences for Supporting Organizations Working Outside the US”M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 2
  4. 4. INTRODUCTION AND CONTEXT Our Approach to the Money for Good Project WHO WE TARGETED HOW WE RESEARCHED WHY SURVEY IS UNIQUE Individuals with household Used 3 sources of information: Breadth and Depth: survey is (HH) incomes over $80K. unique both in the number of These individuals represent External research, to learn respondents and the amount the top 30% of US HHs in terms from previous work in the field of information it covered of income, and make 75% of charitable donations from Qualitative research, High Net Worth1: half (2,000) individuals consisting of focus groups of the respondents had HH and interviews with over 30 incomes >$300k, making this We oversampled people with individuals, to test survey one of the most robust household incomes over language and inform surveys of wealthy individuals $300K, due to these hypotheses individuals’ disproportionate Behavioral Focus: survey share of charitable Quantitative research, looked at actions, not simply contributions and investments consisting of an online survey stated preferences. It also of 4,000 individuals. This was forced individuals to make the main focus of our trade-offs to mirror real life research decision-making and1. We refer to high net worth individuals throughout this report as individuals with HH incomes of minimize pro social responsesgreater than $300,000, as this is one of the criteria to be an accredited investorM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 3
  5. 5. INTRODUCTION AND CONTEXT Key Definitions Donations: Charitable donations by individuals to nonprofit organizations Impact Investments that have an active social and/or environmental Investments: objective in addition to a financial objective Money for Good: Charitable donations + impact investments Retail Donor or People with HH income between $80k and $300k. $80k is the Investor: cutoff for the top three deciles of US HHs in terms of income High Net Worth People with HH income over $300k, an income threshold for Donor or Investor:1 accredited investors. This represents the top 1.3% of US HHs Affluent Donor or Anyone with HH income over $80k (retail + high net worth). Investor: This was the full scope of our research1. Technically these are high income, not high net worth individuals. However, given the high correlation between income and assets and the fact thatincome is a more stringent measure of being an accredited investor, we have used the more common term “High Net Worth” in this reportM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 4
  6. 6. INTRODUCTION AND CONTEXT Project Team   The Money for Good project has been generously funded by the Metanoia Fund, the Aspen Institute of Development Entrepreneurs (ANDE), the Rockefeller Foundation, and the William and Flora Hewlett Foundation   The project was led by Hope Consulting (www.hopeconsulting.us), with additional advice and services provided by Clavis Partners, Engage123, CompassX Strategy, and e-rewards   The project ran from December 2009 – May 2010   For more information on these results, please contact: Hope Neighbor – Founder, Hope Consulting – hope@hopeconsulting.us Greg Ulrich – Project Manager, Money for Good – greg@hopeconsulting.us Julian Millikan – Survey Design, Money for Good – julian@hopeconsulting.us   The appendix contains additional information on the funders, partners and teamM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 5
  7. 7. INTRODUCTION AND CONTEXT A Final Note on This Report   This report summarizes the most important findings from our research   In addition, we have developed recommendations for how various actors can use these findings to drive more dollars to organizations generating social good   These recommendations are supported by the fact-base we have developed regarding the behaviors and preferences of donors and investors, but in some cases require additional research to properly vet the ideas •  E.g., we found a demand for impact investment products with small minimum investments, and recommend that the sector look for ways to provide those cost-effectively. However, we can not state that it is in the best interests of any specific organization to develop these products without a thorough understanding of the costs and benefits associated with them   We have noted areas where additional research is required throughoutM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 6
  8. 8. Agenda 1.  Executive Summary 1.  p 10 p 8 – 10 2.  Increasing charitable donations from individuals p 12 – 34 3.  Increasing donations to the highest performing nonprofits p 36 – 57 4.  Realizing the potential of the impact investing market p 59 – 88 5.  Final thoughts and next steps p 90 – 92 6.  Appendix p 94 – 106M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 7
  9. 9. EXECUTIVE SUMMARY Increasing Charitable Donations From Individuals Recommendations – For Nonprofits to Key Findings Improve Fundraising Capabilities A.  There is $45B of market opportunity, limited in part A.  Segment on behaviors, not demographics by high levels of loyalty in charitable giving B.  Tag and track your donors by segment B.  Donors are generally satisfied with nonprofits, but cite being solicited too often as their key area of C.  Determine what segments are best for your frustration organization, given your strengths C.  Few donors do research before they give, and D.  Develop consistent outbound marketing that those that do look to the nonprofit itself to provide appeals to target segments simple information about efficiency and effectiveness E.  Prioritize investments based on what will drive donor behavior D.  Behaviors matter: there are six discrete segments of donors with different primary reasons for giving F.  Capture donors early E.  Demographics don’t matter: HNW donors behave similarly to others G.  Understand how to manage different segments when approachedM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 8
  10. 10. EXECUTIVE SUMMARY Increasing Donations to the Highest Performing Nonprofits Recommendations – To Increase Funding Key Findings to High Performing Nonprofits A.  While donors say they care about nonprofit A.  There are three primary opportunities to performance, very few actively donate to the improve the quality of giving: highest performing nonprofits 1.  Closing the “care vs. act” gap 2.  Closing the “quality information” gap 3.  Closing the “good vs. best” gap B.  Changing this behavior will be difficult given donors’ varied motivations for giving, their loyalty B. The “Care vs. Act” and “Quality Information” to the nonprofits to which they give, and the fact gaps are the top priorities and can be that they believe that nonprofits perform well addressed concurrently by 1.  Providing simple information donors will use 2.  Pushing information to the donors 3.  Building broad awareness around some select key messages C. The opportunity to close the “Good vs. Best” gap lies with the High Impact segment D. Foundations can also help direct more capital to high performing nonprofits by helping them to develop superior fundraising capabilitiesM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 9
  11. 11. EXECUTIVE SUMMARY Realizing the Potential of the Impact Investing Market Recommendations – To Unlock the Key Findings Impact Investing Market A.  Most individuals are open to impact investing, but For organizations trying to unlock this market: need to know more A.  Clarify what impact investing means B.  There is $120B of market opportunity, half of which is for smaller (<$25k) investments; even the B.  Build awareness of impact investing and the wealthy want small investments opportunities available for investors C.  The opportunity is greater when positioned as C.  Develop and disseminate information on impact investments, not alternatives to charity investing to financial advisors D.  Once people get involved, their willingness to For all organizations involved in impact investing: invest increases (ramp in effect) D.  Structure products with small initial investments (< E.  People discover & transact through their advisor $25,000) F.  The key barriers investors see relate to the E.  Tailor products and messages by segment, to immaturity of the market, not the social or appeal to different motivations financial qualities of the investment opportunities F.  Make opportunities accessible to investors G.  Overall, downside risk is more important than upside financial returns G.  Position these as investments, not as alternatives to charity H.  However, those general preferences don’t apply to each investor. We found six discrete segments H.  Address barriers related to the markets’ immaturity, that have different priorities and motivations which are consistent across segmentsM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 10
  12. 12. Agenda 1.  Executive Summary p 8 – 10 2.  Increasing charitable donations from individuals 2. individuals p 12 – 34 3.  Increasing donations to the highest performing nonprofits p 36 – 57 4.  Realizing the potential of the impact investing market p 59 – 88 5.  Final thoughts and next steps p 90 – 92 6.  Appendix p 94 – 106M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 11
  13. 13. I N C R E A S I N G C H A R I TA B L E D O N AT I O N S F R O M I N D I V I D U A L S Executive Summary Recommendations – For Nonprofits to Key Findings Improve Fundraising Capabilities A.  There is $45B of market opportunity, limited in part A.  Segment on behaviors, not demographics by high levels of loyalty in charitable giving B.  Tag and track your donors by segment B.  Donors are generally satisfied with nonprofits, but cite being solicited too often as their key area of C.  Determine what segments are best for your frustration organization, given your strengths C.  Few donors do research before they give, and D.  Develop consistent outbound marketing that those that do look to the nonprofit itself to provide appeals to target segments simple information about efficiency and effectiveness E.  Prioritize investments based on what will drive donor behavior D.  Behaviors matter: there are six discrete segments of donors with different primary reasons for giving F.  Capture donors early E.  Demographics don’t matter: HNW donors behave similarly to others G.  Understand how to manage different segments when approachedM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 12
  14. 14. A. MARKET OPPORTUNITY Nonprofit organizations receive a majority of their donations – $172B – from affluent individuals 75% of all charitable donations – The wealthiest 30% contribute ~$230B – come from individuals 75% of all individual donations 2008 2008Donations Donations ($B) ($B) Top 30% HH = $172B $300 $150 $250 $229 $115 $120 $200 $90 $150 $57 $57 $60 $100 $41 $30 $50 $23 $15 $0 $0 Individual Foundation Charitable Corporate Wealthiest ~1% of Next 29% (HH Final 70% (HH Donations Grantmaking Bequests giving Households (HH Income >$80k) Income <$80k) Income >$300k) This research only looks at the most affluent 30% of households (>$80K in income)Source: Giving USA, 2008M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 13
  15. 15. A. MARKET OPPORTUNITY There is $45B of charitable donations available for nonprofits from affluent individualsDonations by top 30% of HHs ($B) $250 New Donations Market A minority of donors are willing to Opportunity consider donating an additional $192 $20B over what they give today $200 The market $172 $20 opportunity is the $25 Switchable Donations sum of new and $150 $25B of donors’ current donations switchable are not loyal to an organization, donations: and are therefore available to $100 be switched to new charities $45B $147 Loyal Donations $50 The majority of donations are given to the same organizations every year $0 2009 Donations 2010 Potential Donations Loyalty and switching determined based on donors’ certainty around future gifts, and their historical giving patterns. Details in appendix M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 14
  16. 16. A. MARKET OPPORTUNITY The $20B of opportunity for “new donations” is concentrated in a third of donors Only 1/3 of donors were willing to donate more than they do today   Question asked “if nonprofits Willing only to Not Willing improved on the areas you pay Reallocate to Change attention to, would you change 25% 41% your giving?”   Only 34% of respondents said they would donate more   Those 34% would donate $20B more (after adjustments to reduce overstatements1) Willing to   The 34% skew younger Donate More •  38% of respondents under 50 willing 34% to donate more vs. 32% over 501. See appendix for detailsM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 15
  17. 17. A. MARKET OPPORTUNITY Donors are very loyal, leading to only $25B of “switchable donations” (14% of total donations) The Majority of Donations are Loyal   Loyalty was measured based on% of $ Donated % Total Gifts Loyal: 86% donors’ certainty around future gifts, 100% % Total Gifts Available: 14% and their historical giving patterns1 78%   Almost 80% of all gifts made are “100% 80% loyal,” meaning that there is a virtual certainty that these gifts will be 60% repeated next year •  More loyal than typical industries 40%   Overall, on a weighted basis, 14% of gifts are available, or “switchable” •  Varies by income: 19% of donations by 20% 10% retail individuals are available, but only 7% 11% of HNW donors’ donations 2% 3% 0% 100% Loyal 99-67% 66-33% 32-1% 0% Loyal   This leads to $25B in “switchable” Loyal Loyal Loyal opportunity ($172B * 14% = $25B) 1. See appendix for details M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 16
  18. 18. B . D O N O R S AT I S FA C T I O N A key area of donor dissatisfaction is that donors feel that nonprofits solicit them too frequently Importance vs. Performance1   For the most part, there is a high •  Ease of correlation between what donors say •  How org will donating •  Too frequent use donation •  Leadership is important and how well they feel solicitations nonprofits perform •  % of $ to OH quality •  Effectiveness •  Ultimately a barrier to getting people toImportance to Donors change behavior •  Direct use •  Regular reports •  Prompt and   Donors are not happy with how often •  Endorsements sincere they are solicited •  Can get thanks •  60% said this was very important to them, involved but only 40% said they thought nonprofits did a good job •  Innovative •  Consistent with external findings2 Approach •  Contact w/ beneficiaries   This analysis is for donor views of •  Social events nonprofits overall; it is useful for •  Gifts •  Recognition nonprofits to ask their donors how they perform specifically Performance of Nonprofits 1. Donors were asked to rate the importance of various elements of giving, and the performance of the nonprofits to which they donated, on 1-6 scale 2. “2008 Study of High Net Worth Philanthropy,” March 2009. Said #3 reason people stop donating to an organization is “Too Frequent Solicitation” (42%) M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 17
  19. 19. B . D O N O R S AT I S FA C T I O N With a few exceptions, donors believe nonprofits perform well on the important elements of giving (Note: this is additional detail on previous page’s chart) Donors’ View of How Important Various Donors’ View of the Performance of the Attributes Are When Giving to a Nonprofit Nonprofits to Which They Give 0% 20% 40% 60% 80% 100% 100% 80% 60% 40% 20% 0% Orgs Effectiveness 90% 87% Ease of Donation How the Org will Use my Donation 87% 75% Quality of Leadership Quality of Leadership 78% 72% Orgs Effectiveness Percent of Costs to Overhead 76% 69% Prompt and Sincere Thank You Ease of Donation 62% 68% How the Org will Use my DonationNot Being Asked for Money Too Often 59% 60% Regular Progress Reports Ability to Direct Donations Use 46% 59% Percent of Costs to Overhead Regular Progress Reports 41% 59% Ability to Get Involved Endorsements by Person I Trust 34% 52% Endorsements by Person I Trust Prompt and Sincere Thank You 31% 48% Ability to Direct Donations Use Ability to Get Involved 30% 40% Social Events Hosted by Charity Org Approach - Novel / Innovative 28% 40% Not Being Asked for Money Too Often Contact with the End Beneficiaries 24% 39% Org Approach - Novel / Innovative Social Events Hosted by Charity 16% 38% Public Recognition of Donation Worthwhile Gift 11% 36% Contact with the End Beneficiaries Public Recognition of Donation 9% 25% Worthwhile Gift M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 18
  20. 20. C . D O N O R S ’ I N F O R M AT I O N N E E D S Most donors don’t spend a lot of time researching, and those that do look for simple, digestible info Of those, ~75% spend …and they are looking for Only 35% ever do research <2 hours researching… simple facts and figures 0% 10% 20% 30% 40%Did Research onAny Donation in Quotes / 2009 <15 Min 14% Testimonials Stories 10% 15-60 Min 34% 35% 13% 65% 1-2 Hours 26% 15% 62% Detailed 2-6 Hours 16% Reports Never Researched Facts and Before Making a >6 Hours 10% Figures DonationM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 19
  21. 21. C . D O N O R S ’ I N F O R M AT I O N N E E D S Donors are looking for information on the efficiency and effectiveness of an organization…“Select the most important piece of information you sought out before giving” 0% 5% 10% 15% 20% 25% 30%   For better or for worse, Amount to "doing good" (vs. OH) 25% Overhead Ratio is the #1 The amount of good the org is accomplishing 24% piece of information donors are looking for How the org will use the donation 18% Approach to solving the problem 8%   In general, people are Endorsement by trustworthy org or person 7% looking for comfort that their money will not be Quality of organizations team 5% “wasted” (top 3 answers) What the donation will provide 4% Size of the challenge org trying to address 4%   People care about information on the Negative information (scandal, etc) 2% organization more than Other 1% information on the size of the problem (4%)M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 20
  22. 22. C . D O N O R S ’ I N F O R M AT I O N N E E D S …and donors typically look to the organization itself to collect information “Please select the single most valuable source of information you used” 0% 5% 10% 15% 20%   Many donors go directly The organization’s web-site 16% to the organization Employee/Volunteer at the NP 14% (3 of top 4 responses) A friend or family member 14%   Only 10% use Beneficiary 11% intermediaries that Internet search (e.g., Google) 10% evaluate a wide range of Website that has info on many NPs 10% nonprofits as their primary Presentation at an event I attended 8% source of information E-mails or mailings from the NP 4% Other 4%   If there was a strong Grant proposal or annual report 4% demand for information, there would likely be more TV news report or media article/video 3% activity with internet Advisor (e.g., lawyer, financial advisor) 2% searches and advisorsM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 21
  23. 23. D. DONOR SEGMENTS Donors are not alike. We found that, statistically, donors break out into six behavioral segments Repayer Casual Giver High Impact “I give to my alma mater” “I primarily give to well “I give to the nonprofits known nonprofits through a that I feel are generating “I support organizations payroll deduction at work” the greatest social good“ that have had an impact on me or a loved one” “I donated $1,000 so I “I support causes that could host a table at the seem overlooked by event” others” Faith Based See the Difference Personal Ties “We give to our church” “I think it’s important to “I only give when I am support local charities” familiar with the people “We only give to who run an organization” organizations that fit with “I only give to small our religious beliefs” organizations where I feel I “A lot of my giving is in can make a difference” response to friends who ask me to support their causes”Note: Segments based on statistical analysis. See appendix for detailsM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 22
  24. 24. D. DONOR SEGMENTS Each segment has different motivations for giving Casual High Faith See the Personal Core Drivers of Giving1 Repayer Giver Impact Based Difference Ties Cause impacted me or a loved one 38% 4% 2% 2% 6% 7% Org is established and respected 4% 27% 7% 3% 7% 8% I will be recognized or appreciated 1% 4% 0% 0% 1% 1% Easy to give through work 0% 3% 0% 0% 1% 1% Good social events or gifts 0% 3% 0% 0% 0% 1% Focused on underserved social issue 2% 4% 18% 1% 4% 2%Org better at addressing social issues 1% 5% 12% 1% 3% 2% Fit with religious beliefs 1% 2% 2% 65% 3% 2% Org works in my local community 3% 4% 3% 3% 30% 5% Org is small - gift makes a difference 2% 2% 2% 1% 16% 3% Familiar with org/leadership 3% 4% 2% 3% 5% 26% Friend/Family asked me 2% 1% 1% 0% 1% 10% In social or professional network 1% 1% 0% 0% 1% 5% Try to support friends charities 0% 0% 0% 0% 0% 3%1.  The segments were derived by grouping individuals who had similar priorities across these “Core Drivers” of giving. We tested for multiplesegmentations (from 3-9 groupings) and found this breakout of six segments to be the most robust. The %’s represent the relative importance of eachvariable to each segment’s decision making for charitable giving. “I care deeply about the cause” was important to all segments so was removed fromthe analysis (it’s more of a table stake than a driver of segment-specific decision making). See appendix for further details on the methodologyM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 23
  25. 25. D. DONOR SEGMENTS Repayer has the largest number of donors; Personal Ties has the largest amount of donations % % MEAN MEDIAN POPULATION DONATIONS DONATION1 DONATION2 Repayer 23% 17% $11,000 $1,800 Casual Giver 18% 18% $15,000 $2,500 High Impact 16% 12% $11,000 $3,500 Faith Based 16% 18% $18,000 $7,700 See the Difference 14% 10% $10,000 $2,500 Personal Ties3 13% 25% $27,000 $3,7001. Refers to all donations. 2. Refers to all donations. Estimated as people entered their giving in ranges (e.g., $1,000 - $2,499) vs. directly inputting theamount. 3. The reason that Personal Ties has such a large % of donations is because, in our survey, a disproportionate # of people who gave >$1M / yearfell into this category. This may be unsurprising, as many other reports discuss the importance of personal connections for very high net worth donorsM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 24
  26. 26. D. DONOR SEGMENTS There is at least $5B of market opportunity in each segment Market Opportunity by Segment ($B) New Donations Switchable Donations   Sufficient market opportunity Repayer $3.4 $2.2 exists in each segment Casual $4.0 $5.9   Faith Based and Repayer are Giver the most loyal segments (93% vs. 86% overall)High Impact $3.0 $3.0   The least loyal segments are Faith Based $4.0 $2.6 Casual Givers & See the Difference (80%) See the Difference $1.6 $3.5   The Personal Ties switching opportunity is driven by thePersonal Ties $3.3 $8.4 high current donation per personM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 25
  27. 27. E. DEMOGRAPHICS Segments don’t vary significantly by demographics; demographics are not critical predictors of behavior Segment mix is similar across gender… …age… …and income 100% 100% 100% Personal Ties 80% 80% See the 80% Difference 60% 60% Faith Based 60% High Impact 40% 40% 40% Casual Giver 20% 20% 20% Repayer 0% 0% 0% $80- $150- $300- $750K+ Male Female 18-39 40-49 50-59 60+ $149K $299K $749K Responses to other questions in the survey did not vary much by demographics – most importantly, high net worth individuals responded similarly to everyone elseNote: breakouts on this page are for the raw data in from the survey, before adjustments were made to rebalance for population demographicsM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 26
  28. 28. I N C R E A S I N G C H A R I TA B L E D O N AT I O N S F R O M I N D I V I D U A L S Recommendations for obtaining more donations from individuals by improving the donor experience A.  Segment on behaviors, not demographics B.  Tag and track your donors by segment C.  Determine what segments are best for your organization, given your strengths D.  Develop consistent outbound marketing that appeals to target segments E.  Prioritize investments based on what will drive donor behavior F.  Capture donors early G.  Understand how to manage different segments when approachedM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 27
  29. 29. R E C O M M E N D AT I O N S F O R N O N P R O F I T O R G A N I Z AT I O N S A. Segment on behaviors, not demographics Why Do This How to Segment   Nonprofits segmentations are often Repayer Casual Giver based on demographics, especially “I support organizations “I give to well known age and income that have had an nonprofits because it impact on me or a isn’t very complicated” loved one”   However, differences in age and income do not point to differences in High Impact Faith Based how donors give, or what they want •  While it may be useful to spend more “I give to the nonprofits “We give to that I feel are organizations that fit time with affluent donors because they generating the greatest with our religious beliefs” are often willing to donate more, they social good” should not be targeted differently Personal Ties See the Difference   It is more useful to segment based on what drives donor behavior, and “I give when I am “I only give to small familiar with the people organizations where I would thus influence the message and who run an feel I can make a approach for that type of donor organization” difference”M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 28
  30. 30. R E C O M M E N D AT I O N S F O R N O N P R O F I T O R G A N I Z AT I O N S B. Tag and track your donors by segment Why Do This How to Tag and Track (Illustrative Ex’s)   Because different donor segments Please answer the following three questions: respond to different hooks, it is 1.  Why do you donate to our organization? important to know into which segment A.  A loved one was afflicted by the disease a current or prospective donor falls B.  A friend asked me to C.  Donated at 25th anniversary event D.  …   Segment tags can (and should) be 2.  What do you like most about our organization? tracked in an organization’s donor A.  Strong religious principles database B.  More effective than similar nonprofits C.  …   Determining which segment a donor is 3.  How… in is very doable; it can be as easy as asking a few behavioral questions for Name Address Donation When Segment each donor (again, this can’t be done John Doe 142 Oak St… $500 12/5/09 High Impact based simply on demographics) Sue Kim 88 Chestnut… $250 9/15/09 Repayer Jim Smith 42 Pine St… $75 1/1/10 Casual Giver …M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 29
  31. 31. R E C O M M E N D AT I O N S F O R N O N P R O F I T O R G A N I Z AT I O N S C. Determine which segments are best for your organization, given your strengths Why Do This How to Pick Target Segments   Nonprofits can’t be all things to all 1.  Define what you stand for people, and certainly can’t effectively market themselves as such 2.  Assess what you do best, and what makes you distinct   The best way to set your organization 3.  Look at your current donors – why do apart from others is to be clear on they donate to your organization, and your strengths, and market yourself into which segment do they fall? accordingly 4.  Now, look at the six donor segments –   There is sufficient headroom in each select those that are the best fit for your segment, so the available dollars organization should not dictate where a nonprofit focuses Some potential examples: •  Susan G. Komen: Repayer, Personal Ties •  A Local Shelter: See the Difference, Faith Based •  TechnoServe: Repayer, Personal Ties, High ImpactM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 30
  32. 32. R E C O M M E N D AT I O N S F O R N O N P R O F I T O R G A N I Z AT I O N S D. Develop simple, consistent outbound marketing that appeals to target segments Why Do This Some Ideas…   Donors give for different reasons, and   Create outbound marketing approach thus respond to different appeals that appeals to target segments, i.e., •  Channels for communication and asks   Donors want simple information, and •  Look and feel of website and images •  Consistency in all messages are not willing to do a lot of research   Communicate a few, simple messages   While many donors want general •  Simple story that appeals to 1-2 segments performance information, and want •  Supported by a few key metrics to know how their gift will be used, different segments have different   Create brief summaries / asks for “hooks” that will inspire them to give donors, nuanced by target segment •  E.g., a hospital could focus on: a) appealing to the families of current When you donate to [org name], 99 cents out of and past patients; every dollar go to help the end beneficiaries… b) how they benefit the local community Do you remember the great times you had at ___ c) their quality vs. other hospitals University? Well, now we need your help…M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 31
  33. 33. R E C O M M E N D AT I O N S F O R N O N P R O F I T O R G A N I Z AT I O N S E. Prioritize investments based on what will drive donor behavior Why Do This How to Prioritize Investments We measured the importance of various traits  Nonprofits should only invest where it for the sector as a whole (see pages 17 - 18); will change behavior – and should not nonprofits could survey their donors to see how invest where it won’t they perform on each of those dimensions 1.0  Nonprofits need to understand what Unsatisfied needs 0.9 donors want and how donors feel that 0.8 the nonprofit performs on those criteria 0.7 •  Nonprofits can attract more donors by Importance improving on ‘unsatisfied needs’ 0.6 •  Nonprofits can save time and money by 0.5 cutting back on areas of over-investment 0.4 0.3  Requires being strict – “Will changing 0.2 what we do here really cause donors to 0.1 Areas of potential over-investment [no longer] give to us?” 0.0 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 PerformanceM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 32
  34. 34. R E C O M M E N D AT I O N S F O R N O N P R O F I T O R G A N I Z AT I O N S F. Capture donors early Why Do This Some Ideas…   Most elements of donor behavior   Engage young people who don’t vary with age or income correspond with your target segments and have strong   Further, donors are rather loyal, so: earning potential •  Once they donate, they are yours to lose •  Young donors program (e.g., Bravo Club) •  If you don’t have them once they’ve •  Bring young, connected professionals to started to give, they are hard to convert the Board (e.g., Young Associates Board)   So, while many nonprofits target   Because an organization’s volunteers wealthy, older donors, it may be are disproportionately likely to give to better to target younger, less affluent that organization, create opportunities donors that have earning potential for young people to volunteer •  Partner with firms with young professionals (banks, consultancies, technology, etc)   Invest in the lifetime potential of donors, not just this year’s potentialM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 33
  35. 35. R E C O M M E N D AT I O N S F O R N O N P R O F I T O R G A N I Z AT I O N S G. Understand how to manage different segments when approached Why Do This How to Manage Different Segments   Targeting and messaging to chosen 1.  Develop 3 reasons why each segment donor segments is for outbound should donate to your nonprofit, and marketing communicate to all fundraisers   However, when donors from ‘non 2.  Create a simple set of questions that you target’ segments come to you, they ask each prospective donor when you meet him/her should not be turned away •  Can be standard questions with responses that will assign each donor to a segment, e.g., “Why are you interested in our   As a result, it is important to have a organization”? (See Rec #2) clear set of talking points to use with each donor segment, not just your 3. Emphasize the messages appropriate for target segments, to maximize your that segment ability to appeal to them 4. Tag and track the donor over timeM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 34
  36. 36. Agenda 1.  Executive Summary p 8 – 10 2.  Increasing charitable donations from individuals p 12 – 34 3.  Increasing donations to the highest performing nonprofits 3. performing nonprofits p 36 – 57 4.  Realizing the potential of the impact investing market p 59 – 88 5.  Final thoughts and next steps p 90 – 92 6.  Appendix p 94 – 106M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 35
  37. 37. I N C R E A S I N G D O N AT I O N S T O H I G H P E R F O R M I N G N O N P R O F I T S Executive Summary Recommendations – To Increase Funding Key Findings to High Performing Nonprofits A.  While donors say they care about nonprofit A.  There are three primary opportunities to performance, very few actively donate to the improve the quality of giving: highest performing nonprofits 1.  Closing the “care vs. act” gap 2.  Closing the “quality information” gap 3.  Closing the “good vs. best” gap B.  Changing this behavior will be difficult given donors’ varied motivations for giving, their loyalty B.  The “Care vs. Act” and “Quality Information” to the nonprofits to which they give, and the fact gaps are the top priorities and can be that they believe that nonprofits perform well addressed concurrently by 1.  Providing simple information donors will use 2.  Pushing information to the donors 3.  Building broad awareness around some select key messages C.  The opportunity to close the “Good vs. Best” gap lies with the High Impact segment D.  Foundations can also help direct more capital to high performing nonprofits by helping them to develop superior fundraising capabilitiesM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 36
  38. 38. 0 1 2 3 4 5 6 The organizationsM AY 2 0 1 0 effectiveness How the organization will use my donation Percentage of costs dedicated to overhead Quality of the organizations leadership How easy it is for me to donate Does not ask me forH O P E C O N S U LT I N G C O N F I D E N T I A L money too often Allows me to direct where my money goes performance is important… Provides progress reports on their work Highlight endorsements by trustworty people/orgs Allows me to get Average score from respondents on a 1-6 scale, where 6 = “I pay extremely close attention to” involved A . D E M A N D T O D O N AT E T O H I G H P E R F O R M I N G N O N P R O F I T S The majority of people say that nonprofit Thanks me promptly and sincerely Offers a novel or innovative approach Provides contact or engagement with beneficiaries Hosts worthwhile social events Provides a worthwhile gift for my donation Publicly recognizes my one of the three highlighted responses 85% of respondents answered 5 or 6 to donation “How much do you pay attention to the following when giving to charity?”37
  39. 39. A . D E M A N D T O D O N AT E T O H I G H P E R F O R M I N G N O N P R O F I T S … However, very few people spend any time looking into it…People say they care about nonprofit performance, but few look into it Comments from Focus Groups % of all Respondents “Giving to charity should be the easy 100% thing in my life” 85% 80% “I don’t want to spend the time to do research” 60% “With known nonprofits, unless there is 40% 35% a scandal, you assume they are doing well with your money” 20% “[Third party validation]…would be 0% another layer of effort for me. I would State that Do research on any have to figure out whether the rating performance is "very gift important" (1) company is reputable or trustworthy”1. % responding 5 or 6 on a 1-6 scale, where 6 = “I pay extremely close attention to”M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 38
  40. 40. A . D E M A N D T O D O N AT E T O H I G H P E R F O R M I N G N O N P R O F I T S … When they do research only a quarter are interested in the level of social impact an organization is having…“Select the most important piece of information you sought out before giving” Comments from Focus Groups 0% 10% 20% 30% “I look at what percentage of Amount to "doing good" (vs. OH) 25% dollars actually goes to those The amount of good the org is being helped. I will look that up if it 24% accomplishing is easy to find” How the org will use the donation 18% “I look for 25% or lower admin Approach to solving the problem 8% costs” Endorsement by trustworthy org or 7% person “It’s too hard to measure social Quality of organizations team 5% impact” What the donation will provide 4% Size of the challenge org trying to “I’m not a mini-foundation; don’t address 4% treat me like one”Negative information (scandal, etc) 2% Other 1%M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 39
  41. 41. A . D E M A N D T O D O N AT E T O H I G H P E R F O R M I N G N O N P R O F I T S … and they use that information to validate their donation, not to choose between organizations For the 35% that do research, it is often to “validate” their choice of charity Comments from Focus Groups% of the 35% that research “I just want to make sure my charities 100% ‘hurdle the bar’, I don’t care by how much” 80% 63% “I just want to ensure that I’m not 60% throwing my money away.” 40% “I can’t determine which is the ‘best’ 24% nonprofit, but I can find out if a 20% 13% nonprofit is bad” 0% “We give to faith based organizations if To determine To help me To help me whether I would decide how choose they are accredited by our church” make a gift to much to give between this organization multiple orgsM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 40
  42. 42. A . D E M A N D T O D O N AT E T O H I G H P E R F O R M I N G N O N P R O F I T S So, overall, only 3% of people donate based on the relative performance of a nonprofit organization Gives based Total Cares About Does Any Researches Population Performance + Research + Performance + on relative performance 3% 100% 85% 32% 21%Note: %’s represent total people. So, while 35% research, only 32% care about performance AND researchM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 41
  43. 43. B . B A R R I E R S T O C H A N G I N G B E H AV I O R Changing donor behavior is an uphill battle   Sadly, the reality is that very few donors actively try to give to high performing nonprofits when they make their charitable contributions   Changing these donors’ behaviors will be challenging, in large part due to three critical barriers: 1. Donors don’t give to ‘maximize impact’ “I give because it makes me feel good” 2. There is no ‘burning platform’ to motivate change “I don’t research, but I am sure that the nonprofits to which I donate are doing a great job” 3. Donors are loyal “I give to the same organizations each year. Some metric won’t change that”M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 42
  44. 44. B . B A R R I E R S T O C H A N G I N G B E H AV I O R Donor’s don’t give to maximize their social impact. Only the “High impact” segment cares about this at all Importance of Key Drivers of Donation Importance of “Organization is Better (for population overall) Than Others at Addressing Social Issues” 0% 5% 10% 15% Care deeply about the cause 33% Cause impacted me / loved one 12% Repayer 1% Fit with religious beliefs 11% Org established and respected 9% Casual Giver 5% Org works in my community 7% Familiar with org/leadership 7% Focus on underserved social issue 5% High Impact 12% Org better at addressing social issues 4% Org is small - gift makes a difference 4% Faith Based 1% Friend/Family asked me to give 2% I will be recognized or appreciated 1% Personal Ties 3% In social or professional network 1% Easy to give through work 1% See the Difference 2% Enjoy benefits (social events, gifts…) 1% Try to support friends charities 1%M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 43
  45. 45. B . B A R R I E R S T O C H A N G I N G B E H AV I O R Donors feel that nonprofits perform well – there is no ‘burning platform’ for them to change Importance vs. Performance1 •  Ease of •  How org will donating   For the most part, we see a high •  Too frequent solicitations use donation •  Leadership correlation between what •  % of $ to OH quality donors say is important and how •  Effectiveness well they feel nonprofits performImportance to Donors •  Direct use •  Regular reports •  Prompt and   This correlation is more stark than •  Endorsements sincere •  Can get thanks one would see in most other involved industries •  Innovative Approach   This creates a big challenge to •  Contact w/ getting people to do more beneficiaries •  Social events research -- they see no need to •  Gifts do so •  Recognition Performance of Nonprofits 1. Donors were asked to rate the importance of various elements of giving, and the performance of the nonprofits to which they donated, on 1-6 scale M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 44
  46. 46. I N C R E A S I N G D O N AT I O N S T O H I G H P E R F O R M I N G N O N P R O F I T S Recommendations on how to increase funding to high performing nonprofits A.  There are three primary opportunities to improve the quality of giving: 1.  Closing the “care vs. act” gap 2.  Closing the “quality information” gap 3.  Closing the “good vs. best” gap B.  The “Care vs. Act” and “Quality Information” gaps are the top priorities and can be addressed concurrently by 1.  Providing simple information donors will use 2.  Pushing information to the donors 3.  Building broad awareness around some select key messages C.  The opportunity to close the “Good vs. Best” gap lies with the High Impact segment D.  Foundations can also help direct more capital to high performing nonprofits by helping them to develop superior fundraising capabilitiesM AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L 45

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