In 2004 the Sony Corp came out with a revolutionary product. It was the LIBRIe, the first e-book reader with electronic ink display. It was impressive back then and technology experts saw it as a leader in what would most assuredly become the first of many new products of its kind to sweep across the globe.
But there were problems. And, as reported in a recent edition of the Wall Street Journal, “…the software was in Japanese, it required a computer to download a book, and the selection was limited.”
Today, Amazon.com’s Kindle dominates the e-reader business worldwide and hardly anyone remembers the Sony product. Why? Because Sony was focused on selling devices and Amazon was focused on selling books.
I’ve started this post on packaging your budget for donors with this story because it is EXACTLY what most non-profits do with their numbers and financial information. The focus of their number crunching is on maintaining old accounting categories and practice rather than presenting program (the book counterpart) to their donors. And this old and antiquated system is hurting fundraisers which, in turn, is hurting the organization as it becomes increasingly difficult to raise money.
So the accounting and finance focus is wrong. Add to that the fact that the donors are changing too.
Joshua Birkholz, in his book Fundraising Analytics says: “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.”
We must never forget that donors choose to give because they want to make the world a better place. After donating to causes they are passionate about, they like to measure the effect of their gift. A bottom line figure in an outdated annual report, some accounting mumbo jumbo, a glossy marketing brochure or some program description that is too general doesn’t get the job done anymore. Nor does it tell the donor what he or she wants or needs to know.
It is a fact that donors are changing. They are expecting more in their relationship with their favorite charities. And that is why it is so important for a non-profit to “package their budget”, a process Jeff and I call the Program Support Portfolio (PSP).
There are three important reasons why an organization should implement something like the Program Support Portfolio program:
- To directly address the changing donor landscape and their requirements.
- To support the fund-raising, marketing and communication functions of the organization by providing specific program information and pricing so that fundraisers can more effectively raise money.
- To reduce donor attrition which averages 40-60% in most organizations and represents multiple millions of dollars lost every year.
The “Program Support Portfolio” system we have created is designed to show donors specifically what their money will “buy”. It also addresses the five most common problems that currently exist within most non-profits as relates finances and the budget:
- The budget is organized for organizational purposes, not for donors.
- The program part of the budget is understated and therefore fundraisers are not focused on raising the total amount needed.
- Overhead is 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 (a) they cannot get to the numbers within a program category and (b) the budget cannot be presented in ways the donor thinks and supports, i.e. in terms of what is being done for people and/or the planet.
- 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 find troubling and sloppy and the organization runs the risk of losing support from this very important and growing public.
Gone are the days when a donor just gives to your cause 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 the organization does in end result and specific categories vs. accounting terms. That is why we created this approach to packaging the budget. The three words, Program Support Portfolio, have a special meaning:
Program: this is strictly about program, CURRENT program, what the organization currently does for people and the planet in an integrated manner. And this view goes down to the smallest level of the organization so that donors can grasp and support what is happening in every part of the organization. The reason we focus on current program is because that is what the current budget is all about. Our job in major gifts is to secure funds for the current program – not something new.
Support: this is about how a current program is supported. And it means that ALL the costs are in, both direct and overhead. Most fundraisers are only securing the direct program costs with their fundraising, NOT the overhead. This is a huge problem and is one of the reasons many non-profits are in financial trouble.
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, animals, the environment, issues of justice, economic development, drug rehab, single parent care, child care, job training, spiritual work, housing, feeding, etc. – any number of ways to help. And the donors 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.
When you package your budget you will want to have a “portfolio” of current program opportunities a donor can fund. Portfolio is defined as “a group of possible investments donors can have in an area they are interested in.” In the PSP system, each program for support in the portfolio contains four critical elements:
- Program category.
- People group helped.
- Price point.
You 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 her interest is, she would, more often than not, say, for example: “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 you need to have all of these fields of information decided/determined in advance. You want to present your total budget in all the ways you logically can. Doing it this way results in a truly donor-driven budget that will result in gaining full support for what your organization wants to do in a specific area.
These are the operating principles of the Program Support Portfolio system. In my next post I will tell you HOW it works. Stay tuned.