There are several advantages of having individual donations as a major source of nonprofit funding. First, individual donations are a very stable source of revenue. For example, in 2002, individual contributions in the US totaled $241 billion, an increase of 1% over 2001, in spite of the fact that the US economy was going into a recession. In contrast, Government funding of nonprofits is the most unstable, with major changes occurring according to the preferences of politicians in Washington and Sacramento, and with the dramatic swings in state and federal tax revenues that result from the economic cycle.
The contributions of foundations are more stable than government grants, but still can vary considerably according to changes in the value of the stocks in their portfolio. At the program and individual grant level, foundation funding is even more unstable because many of them fund a new program for a few years, and then drop that support in favor of another new program that comes along that is even more appealing.
A second advantage is that individual donations are typically unrestricted, and can be used for nonprofit overheads, or even reinvested in capacity building to generate even more income. Most government grants are actually outsourcing contracts, where the government is paying a nonprofit to deliver specific services to targeted populations. While there is nothing wrong with being a contractor for the government, their grants must typically be spent on delivery of services according to the exact terms of their contract.
In addition to being a fairly stable source of unrestricted income, developing individual donors has the added value of creating public awareness and support for a nonprofit. In order to develop donors, a nonprofit has to reach out to the community and convince prospective donors of the value that it contributes to the community. Many nonprofits that depend on grants for their revenue are almost unknown to the public, making it difficult to attract volunteers to serve on Boards or committees, or to rally much public support if they have to make major cutbacks, or even face extinction because of the loss of a major grant.
Where are these individual donors? They are almost everywhere. According to the American Association of Fundraising Council, 70% of households in the US donate money to charities. According to a study made by Professor Ross Gittell at the University of New Hampshire, California taxpayers who itemize their deductions give an average of 3.7% of their income to charities, or an average of $1800 per year per filer. People over 55, or people who also donate their time as volunteers tend to give more than the average donation of 3.7% of income.
How do you develop donors? The following donor development cycle seem to work well:
- Nurture a prospect’s positive feelings for the good things that your nonprofit does.
- Present your case for doing more, and your nonprofit’s low costs of doing its work.
- Ask for a specific pledge that you are pretty sure the donor would be willing to give.
- Offer an appropriate incentive for making the requested pledge.
- Follow up monthly with thank you notes, news of the good work that their donation made possible, and a variety of opportunities to get involved with your nonprofit.
- For high potential donors, develop an ongoing relationship, so you know what each donor is capable of giving, and the kind of incentives that appeal to that donor.
- After 4-12 iterations of steps 5 and/or 6, return to step 1
For example, when I retired from Procter and Gamble, I decided to endow a scholarship at Cornell. Their donor development staff started visiting with me in my home to bring me news about things that were of interest to me at Cornell. On one of these visits, I mentioned (with satisfaction) that the boy’s day school that I attended had put my name on a bronze plaque as a major contributor to the capital campaign for their new athletics building. A year later, Cornell sold me on making donations that would put my name on a bronze plaque in their new business school building.
On their visits, they noticed some of my golf memorabilia, and are now proposing that I endow one of the eighteen holes on the Cornell golf course, which, of course, includes a bronze plaque with my name on it as the tee marker for that hole. They even got one of my fraternity brothers, who is a golfer, to ask me for the donation. Cornell is a master at donor development.
At the grass roots level, when I worked at Procter and Gamble in Cincinnati, I volunteered my time as a fund raiser for the United Way, and trained dozens of P&G managers in how to ask for a donation. I remember calling on a Howard Johnson’s hotel with a colleague that I was training. I asked the manager if I could talk to the employees about making a donation. He laughed, saying that his employee turnover was 200% a year, and I would be lucky if I could raise a dime. But he agreed to let me try, and flippantly said he would match anything I raised.
The manager directed us to the basement stock room where employees took their breaks. I spent a few minutes talking with each employee, using the first steps of the donor development process, and asking each person to make a weekly pledge of the price of a cup of coffee. Sixty of the seventy employees made the pledge. When I asked the manager to match the total, he said those people will never honor their pledges. The next year, I checked the records, and to even my surprise, 85% honored their pledge. But by that time, the manager was a part of that company’s 200% turnover.