“Donors are approaching philanthropy in a completely different way. They are making decisions more thoughtfully. Their gifts are following their own intended purposes. Donors are seeking a return on their philanthropic investments. And they desire an increased level of personalization. Organizations embracing this change are climbing a mountain of success with zenith, while others, forcing their own models onto their donors, are fighting in the foothills.” (Fundraising Analytics by Joshua M. Birkholz)
It is a fact that donors are changing. They are expecting more in their relationships with their favorite charities. Gone are the days when a donor just blindly gives without requiring accountability and information related to that giving.
And that is why progressive non-profits are spending more time figuring out how to Develop Offers That Donors Want, which is Pillar #4 of this series. Now, if you don’t think you need any offers to present to the major donors on your caseload, then stop reading – you are all set.
But if you are like most MGOs, this area right here is a serious problem. You have a very good program. You have a group of great major donors who are eager to help. And you have nothing to talk to them about. OR, if you do, it is packaged in such a weak way that it will be difficult for you to present it.
If this describes what is going on with you, then stay with me while we go through how to solve it.
First, let’s start at the beginning. A non-profit exists to serve humankind through a variety of programs. There are direct program costs associated with these efforts. And there are overhead costs. Nasty overhead costs – at least that’s how many of us think about them. The sum of all these costs equals a budget. For sake of illustration, let’s say this budget is $1 million.
This budget is funded through a variety of means, some government grants, some foundation grants, some corporation gifts, some individual current gifts and planned gifts, etc. For sake of illustration, let’s say there are 10 donor source categories who give $1 million to fund the budget.
This budget is organized for organizational purposes with organizational categories and labels. The broad categories are program and administration. For sake of illustration, let’s say $1 million is spent on the sum of these categories and for the program part let’s say there are 10 major program categories where we spend $700,000.
What we have, as a result of this exercise, is $1 million coming in from 10 major sources to fund a $1 million budget of which $700,000 is spent on program and the remaining $300,000 is spent on overhead.
There are seven problems that currently exist within most non-profits as relates budgeting:
- The budget is organized for organizational purposes not for donors. In this sense, the budget is not donor driven. Even though the majority of the funds come from donors, it is very difficult for a donor to see how the $1 million divides down into the 10 program categories.
- The program part of the budget is understated and therefore the fundraisers in the organization will not be focused on raising $1 million but $700,000. This will cause financial problems. While this dynamic does NOT occur at a conscious level, because the budget is organized this way, the net result is that the fundraiser actually uses the program target of $700,000 as the amount to raise vs. the whole amount . This just happens as a natural outcome or result of the structure that has been set up.
- While it is important to understand the difference between overhead and direct program costs, the danger is that overhead, over time, will be seen as a necessary evil and not as an integral part of program.
- It is almost impossible for fundraisers to represent what the organization does and quantify it because they cannot get to the numbers. The result of this dynamic is that donors are not given the right information that will make them satisfied donors. And dissatisfied donors go away which is why, in our work on the major gift programs around the country, we have uncovered a very large and disheartening attrition of good donors in most major gift files.
- It is difficult for fundraisers to raise funds because the budget cannot be presented in ways that the donor thinks and supports, i.e., in terms of what is being done for people.
- Because of this situation, fundraisers and donors will tend to want to fund programs that are outside the budget, causing even more problems internally.
- All of this results in a financial situation that younger, more inquisitive and business minded donors will find troubling and sloppy and the organization runs the risk of losing support from this very important and growing public.
While these seven points seem ominous and may, on the surface, be overly dramatic, the truth is that as the charity donor population becomes younger and more sophisticated, unless these situations are addressed, the many non-profits will face difficult financial times.
Why? Because donors will want to see things their way and they will demand more accountability for how their money was spent. Gone will be the days that a donor just gives because “I trust them”. There may be trust, but they will want to verify how things operate and, more importantly, they will be thinking about what your organization does in end result categories vs. accounting terms.
This is why Jeff and I have created a process and protocol we call the Program Support Portfolio (PSP). We have chosen these words because of the special meaning we have assigned to each word:
- Program: this is strictly about program, CURRENT program the organization does for people in an integrated manner. And this view goes down to the smallest operating unit, so that donors can grasp and support what is happening at the smallest organizational level. We have highlighted the word current in this copy to emphasize that the PSP program is about existing budgeted programs not new programs. The purpose of the PSP program is to help fund raising and communication personnel secure funds for budgeted programs.
- Support: this is also about how a current program is supported. And it means that ALL the costs are in, both direct and overhead. It also means that donors support the totality of the program, not just one part of it. In the example earlier, it means that $1 million IS COVERED, not $700,000.
- Portfolio: this means that there is a broad selection of things a donor can support in the current program. It could be children, youth, young adults, couples, seniors. Or, the donor could look at it as drug rehab, single parent care, child care, job training, spiritual work, housing, feeding, etc. – any number of ways to help. And the donor could look at it as all of the above PLUS a specific PLACE that they are interested in. It also means that there are different “price points” to any and all categories of help. So, if the donor wants a $1000 project, she can find it. Or if it is $10,000 or $3 million, she can also find it.
We want to have a “portfolio” of current program opportunities a donor can fund. Portfolio is defined as: “a group of possible investments a donor can have in an area they are interested in.” To be clear, each program for support in the portfolio contains four critical elements:
- Program category
- People group helped
- Price point
We must be able to offer the donor a current program to support that meets criteria in EACH of the four areas above. Why? Because that is the way donors think. If one is able to get a donor to say what their interest is, they would, more often than not, say, “I want to support the education (Program Category) program for children (People Group) in Newark (Location). And I am willing to participate with you at this time at the $50,000 (Price Point) level.
This is why we need to have all of these fields of information decided/determined in advance so we can present our total budget ($1 million) in all the ways we can that logically fall into the four critical elements mentioned above. This will result in a truly donor driven budget that will result in gaining full support for what the organization wants to do in a specific area.
Now, there is a lot of detail on how to execute this with your finance and program people. But it can be done. And the result will be that you will have a file full of project possibilities to present to your donors – projects that will match who they are and what they are interested in.
And that will keep your donors happy. And we all know that happy donors will stay with you.