A CRITICAL COMPONENT of most social sector organization's development efforts is the annual fund. For many organizations like churches or public-interest-issue groups, it may be their primary source of funds and as such, a matter of major board and CEO focus. Interruptions in its performance can have catastrophic impact on the organization's activities and even survival. At the other extreme lie some hospitals where the annual fund is a useful supplement to the organization's resources, but the hospital's operations are not crippled if there is a shortfall from the budgeted amount of funds to be raised by the annual fund.

Before the start of the year, a revenue target is established for the annual fund together with the estimated sources of these funds (friends, grateful patients, alumni foundations, etc.). Coming up with this number is very much an art. It necessarily contains many assumptions and aspirations that are quite rough in nature. Some of the key inputs to this process include the following.

Last Year's Target and Results

This is clearly the starting point. Did our results diverge significantly from the budget last year and if so, what are the most likely reasons? Had we planned too ambitious a jump from the prior year? Were there unexpected economic headwinds? Were there special factors impacting the institution such as a major scandal or the unexpected resignation of a key officer such as the CEO? Was there unanticipated turmoil in the development office such as illness, unexpected resignations, and so forth? Careful analysis of the previous year's performance versus budget is the normal place to start in preparing a budget.

Performance Against Similar Organizations

Often, organizations become too inward looking. External comparisons are key and often very sobering. If, for example, a school in a similar area with similar parent demographics is raising twice as much in their annual fund as we are, an obvious question is, why? Has this been a low priority area for us, do we have a staffing or leadership challenge in this area? Do we need an outside consulting firm's assistance in this domain, and so forth.

Are There Special Opportunities This Year?

Are there significantly more or less potential paying members associated with the organization this year? (Program expansion or decrease, enrollment changes, unusual events either positive or negative in our organization, etc.). Do we have remarkably different annual fund leadership in terms of skills and energy on both the staff and volunteer side for the coming year versus the previous year? Are there special events that have occurred in the broader economy that have either stimulated or depressed philanthropic animal spirits? In situations like this, past performance may give little insight for the future. Sadly, when you most need support, the sources may simply dry up (such as a financial meltdown, pandemic, or emerging recession).

Are We Getting the Right Amount from Our Constituencies?

For a church, two measures of success might be the total dollar value of all pledges and the number of families who make a pledge. Is the number of families participating in the annual fund anticipated to rise or fall over last year? Are we getting the right amount of money from the high-end families? In a recent campaign, one family was pledging 2.5 times the next largest gift. The development committee chair was able to use this pledge to get two other families of significant means to jump their pledge up to this new “normal.” Are we working at growing the number of families? Sense of community is very important. People with limited resources need to be encouraged to participate and feel that they are full members in a church in every sense. Their very presence helps create vibrancy in the community and should encourage more philanthropy from those who can afford it. Pledging money is only one way to support an organization. Your work as a volunteer is critical as is your presence as an active member of the community.

Other organizations have multiple communities, each of whose contributions in an annual fund need to be tracked separately. A school, for example, often has at least three major giving constituencies—namely, faculty, parents, and alumni. There are, of course, other potential categories such as past parents, friends, grandparents, and so on. Many parents and alumni may see high faculty and staff participation in the annual fund as a positive sign that those closest to day-to-day operations are visibly supportive of the institution. A high number of participants from this group consequently can help stimulate giving from other constituencies.

Parent annual giving for schools is often critical. To drive the support of this constituency, therefore, schools often organize solicitation by class (Grade 1, Grade 2, etc.) and work toward 100% participation in each class (being sensitive to family economics). In some cases, a $10 gift is more meaningful than a $25,000 gift. Additionally, especially affluent parents may be approached separately from the class effort and solicited by some combination of a member of the development committee, the development director, and the CEO. Additionally, special fundraising efforts are normally made around the graduating class. This is often the last opportunity to secure a major gift from these families as their children move on to college and their parents’ attention turns to other philanthropic endeavors and other horizons.

Alumni are often broken into two groups for annual fund purposes. One group is normal every-year annual giving. These are often solicited by mail and by telethons. The other groups are classes coming up on an every-five-years reunion. For schools that go through high school as well as for colleges, the numbers associated with these reunion gifts can be staggering. The author remembers vividly his second day as a freshman at Harvard as he sat in a large amphitheater being told with his 1,100 other classmates that courtesy of the generosity of previous classes (and their gifts to the University's endowment), all in the room were on at least a 50% scholarship. However, the presentation went on to note that at our class's 25th reunion, we would have the opportunity to repay that scholarship. Most people in that room never forgot that warm, early September day speech. At the author's 20th reunion, the class gift was $200,000. However, at the 25th reunion, it jumped to $8 million; and at the 35th reunion, it was $15 million (it was still going strong at his 60th, although most gifts were now planned gifts; see Chapter 6). All of this, of course, needs to be budgeted, which is a very complicated and imprecise process. For example, a year when Bill Gates's class has a major reunion will likely have quite different reunion results than in a year when his class does not have a major reunion.

Lack of insight into an individual's wealth and his or her feeling of warmth to the organization further complicates this. This was first vividly driven home to the author on his 25th university undergraduate reunion, where he served on the major gifts committee. Of the people who the class thought would give major gifts, very few actually did (they came from wealthy families, but had not individually contributed to the growth of that wealth). However, many major gifts came from former scholarship students as well as students from families of modest means at the time they attended the university. These individuals felt the university had opened whole new vistas to them and wanted to give a tangible gift that would allow the university to help the next generation of students like them in the same way. We got the budgeted number of major gifts (and their dollars) but from different people than we had anticipated. Over his life, the author has learned that it is much easier to solicit money from those who have made it than from those who have inherited it. Those who have made it tend to be confident they will make more. Those who have inherited it are often afraid of losing it.

In planning a successful class reunion, the class is normally split apart into two alumni committees, each supported by a different set of institutional officers. One committee and set of institutional officers is the development/class gift group, and the other is the class reunion events committee. The reunion events committee and their officers are charged with producing a wonderful experience for the alumni, filled with nostalgia and visions of the future (see Chapter 7 on events). This experience, in turn, creates a sea of happy alumni for the development/class gift committee and their officers to fish in.

Annual funds are charged with raising the largest amount of money they tastefully can without harming long-term development prospects of individuals where it is too early for them to make a major gift, given their personal circumstances, but where there may be great potential. This is a tricky scenario that must be managed effectively on a case-by-case basis.

Is Our Budget Reasonable Given the Economy?

Annual funds tend to do much better in meeting aggressive growth targets in economic boom times than in periods of economic stress. Interestingly, some studies suggest that reunion classes turn out to be much more generous when they graduated in times of economic prosperity, rather than if they graduated during times of economic distress. For example, in one university, the classes of 1912, 1913, 1914, and 1920 were much more generous in their gifts over the years than the World War I classes, or the Depression-era classes. The general hard times of these eras somehow negatively impacted the view of graduates of those eras.

Annual Fund Staffing Adequacy

Is enough institution staff in place to support the budgeted level of giving? Have we recruited the number and quality of volunteer staff needed to support this level of giving?

Stage of Development of Annual Fund

Is our organization in a relatively mature situation, vis-à-vis the annual fund, or are we in start-up or ramp-up mode? It makes a big difference in what the results can be if one is in a ramp-up mode, rather than in a mature environment.

In short, setting the budget target for the annual fund is a challenging process with no science underpinning it.

Picking the Annual Fund Chair

With the target fixed, the next task is the organizing of the campaign. For all but the largest of social enterprises, the most important task is the recruiting of the volunteer annual fund chair of the effort. If you get this right, almost surely good results will follow. You need a great communicator extrovert, who is energetic, works well with people, is organized, likes to ask people for money, and is not dismayed by rejection. Good annual funds are surrounded by a sense of excitement and a feeling that great days are ahead for the organization. The key person generating that excitement is the head of the annual fund. It is done through speeches, podcasts, social media, one-on-one meetings, telephone calls, written communication, and so forth. All meetings need to have a relentless upbeat tone to them. The world is filled with opportunities, not problems. A steady frame of optimism around a campaign literally becomes self-fulfilling in its infectious permeation of the staff. This job, if well done, is very time-consuming. You need to make sure the volunteer leader has the time to devote to it.

Logistics

Good annual fund campaigns rest on a foundation of well-designed and maintained logistics and database systems. Even the smallest organizations normally have a well-maintained supporter database. This includes names, nicknames, accurate and well-maintained addresses, email addresses, and telephone numbers. Procedures for both culling the database for no longer relevant names and adding new names are important. Past giving histories need to be maintained for everyone. Money spent on software packages for this and data entry staff is money well spent. The scale of effort varies widely. It can range from the church secretary with her Excel spreadsheet extracted from a database package to the processes of large museums and universities, which have multimillion-dollar software packages. (see Chapter 8 for more on this topic).

Campaign Mission and Theme

The first task that the annual fund committee chair and his/her team must do is to identify the major targets that will be supported by this year's campaign and perhaps develop an appropriate tagline, such as Building for Tomorrow, that can rally solicitors together around an inspirational theme. With the assistance of graphic artists and website designers, an appropriate set of campaign materials can then be prepared for social media, snail mail, and other print media.

Prelaunch Solicitation

Major organization officers, key staff, and all members of the board of trustees should be solicited if possible for their pledges in advance of the annual fund campaign launch. At the formal campaign launch, the commitment of 100% of the trustees and key supporters should be able to be announced. This block of support gives maximum heft to the campaign. The author's view is simple. Any board member who cannot support the annual fund at least at a minimum level should resign. Protests about an organization's policies are always helpful but denying support for the annual fund for an officer or trustee is the wrong way and place to do it. At the time of the public campaign launch of the annual campaign, the number of supporters and the total raised to date are important facts to share and communicate. This data helps radiate that important aurora of self-confidence and success.

Formal Launch

The time of formal launch is normally characterized by kickoff events, speeches, waves of snail-mail postings on websites, creating new websites, and email blasts. These items must present a coordinated message. Graphic artists, content specialists, and campaign facilitators all have their role to play in those communications.

The mission of the annual fund and the intended use of its funds must be clear. Some campaigns allow donors to specify specific projects toward which an individual's gifts can be directed. The author's preference is for general purpose gifts whenever possible. These give the organization maximum flexibility to match funds with needs (anticipated and unanticipated). It also tremendously simplifies stewardship issues.

A key issue addressed earlier is whether you ask for a gift at a specific level based on the person's past giving history and what you have been able to learn about their giving habits. One danger, of course, in asking for a specific gift is that you may not reach high enough, given the individual's capacity. Conversely, an absurdly high request may upset the relationship with the person.

As noted earlier, many organizations have giving societies. Each year, attempts are made by volunteers and development officers to move donors up from one society to the next highest. This is particularly useful in situations where many of the donors know each other as people who want to associate with their peers. A common society is one for younger donors who have graduated in the last decade and have given each year since graduation. Installing that early habit of giving is terribly important. It is often a precursor to major gifts when one has a 25th or 40th reunion. Interestingly, as noted in earlier examples, there are always a few people who want to be recognized for less than they actually gave (either out of privacy issues or to avoid becoming a target for other organizations).

Who and how you approach people is very much a function of their giving history and your perceptions of their wealth. The anticipated high-end gifts are done by the annual fund head or by the chief development officer. These solicitations become very complex if a capital campaign is in the offing or under way. You want an annual fund gift of size on the one hand to support existing operations but on the other hand, you may also want a capital gift, from the same individual, that is one or two orders of magnitude higher. You don't want the person giving the annual gift to think it is a substitute for the capital gift.

When one gets an annual gift that is out of line with expectations on the high side, it needs to be looked at carefully to see if it is a signaling gift. People who want to become closer to an organization often do this. For example, recently a relatively new donor to an organization went from a $5,000 annual gift to a $25,000 gift. A subsequent meeting initiated by the development director revealed the person had become much enamored with the organization and wanted to become much closer, perhaps becoming a trustee. It was also intimated during the meeting that as a trustee, her philanthropic juices might, in fact, run a good deal faster. In short, anything out of the routine is an occasion for reflection and perhaps action. A 50% drop in a gift could be simply changed circumstances or anger about some issues. It needs to be investigated and not left to fester.

An illustrative case with a happy outcome took place several years ago. A parishioner in a local parish lost confidence in the parish and moved to another parish of the same denomination. The parishioner had made a $50,000 capital pledge to the original parish. The parishioner did not want to fulfill it because of concern that it might be totally wasted (which was why he had changed parishes). Fortunately, there was a capital campaign going on in the diocese this parish was part of for a new conference center. The parishioner switched the pledge to the conference center, and felt good about satisfying the pledge to the church broadly defined. He thought nothing more about it.

The outside consultant on the diocesan capital campaign, however, noted this unanticipated large gift from an unknown member of the diocese and decided to investigate. She reached out to the parishioner and found the individual was both committed to the church in general and was an experienced development person with significant personal resources. She arranged a meeting with the parishioner and the presiding bishop of the diocese. The chemistry between the two was so good the parishioner was successively asked to lead the capital campaign to a conclusion, then to head up a new development committee for the diocese, and ultimately to head-up the next diocesan campaign six years later. The individual ultimately gave substantially more to the diocesan campaign than the original pledge to the conference center. Curiosity and follow-up on the nonroutine is important.

Tracking Asks

For significant annual fund donors, the organization's expectations for them are significant, often greater than their past gifts. Overwhelmingly, it is felt to be important by the development professionals to use that “reach” number in a direct solicitation. A recurring problem, however, is that at the last moment, the solicitor blinks and, on their own, substitutes a much lower number. Even more frustrating, they may then lie to you in embarrassment about what was done. Some organizations solicit in teams of two just to avoid this phenomenon. If a solicitor repeatedly comes up short, their supervisor needs to get involved and help. This is a difficult sensitive situation, particularly if the solicitor is a significant donor.

Persistence Is Critical

Multiple waves of contact are often necessary for the annual fund. Letters, emails, and telephone calls are all weapons in a war of attrition. A record must be made of each attempted contact and its success. Without good records, you may inadvertently push harder than is right for the soliciting call of the moment. In all but the most unusual circumstances, when you get a pledge (even if much smaller than you hoped for), you have gone far enough for this year. These are lifelong relationships, and knowing when not to push forward at a particular time is an important skill. Capital gifts and planned gifts will likely be topics for future meetings. Obviously, good management of a prospect involves making a permanent record of the call (and its highlights), plus a thank you note for any gift. Over the long term, these records become very important inputs to capital campaigns and planned giving. These records are key because, often, different people are soliciting for the annual fund than will solicit for a future capital campaign. Each person needs to be informed about the other's activities.

Volunteer Training

This is very important. Volunteers need to know the objectives of the annual fund in great detail and what the relative priorities are of its different components. They need a draft script of their call. The content and tone of interviewing will vary widely from one social enterprise to another and require very different approaches. The ask, for example, for an overseas gap year study program versus for a church could not be more different in tone from each other.

Cold-Call Telethons

Cold-call telethons target small donors who may give only irregularly. For colleges and schools, a participation chair (responsible for getting as wide participation of the classmates as possible) is normally in charge of the telethon. The participation chair is charged with getting all classmates to give at least something. The gifts may run $25 to $100 and be built on nostalgia for the institution (although there is always the occasional surprise). These are relatively easy calls once you make contact. Making contact, however, because of caller ID is much harder today. Calls for money are repeatedly classified as spam and can be easily deleted by the intended recipient. Emails and snail mail are other ways to follow up these calls.

Donors You Know

These are very important but tricky calls. You have a personal relationship with the individual, but you may not know how the individual feels about the institution. The trick is to be positive and not take personally negative feedback about the institution. In difficult cases, the organization may eventually decide to put the person on a no-call list and simply communicate through email and snail mail (over the passage of time perspectives can change). In one case, one of the author's friend's family members was not treated well at all by an institution and the friend vowed never to contribute to it again. Fifteen years later, however, the friend met the new head of the institution who was trying to move the institution in an entirely different direction. In spite of himself, the friend was intrigued by the turnaround and ultimately got deeply involved, both financially and as a board member.

In another case, it may be in abeyance forever. A solicitor received a letter following the annual fund solicitation, saying the person would support the annual fund at a modest level for the indefinite future, but would not be further involved because he did not like the philosophy behind the product. The solicitor left it that when the donor's grandchildren were of age (they were not yet born), they should look again. The product has dramatically changed in the decades that followed since their exchange of correspondence. It remains to be seen, however, whether there will ever be a change in the donor's perspective in this case.

Initial Nonrespondents

The trick is to know who the nonrespondents are and then bring a focused campaign to their solicitation. A recent social service campaign illustrates this. Nearly 500 solicitation packages were initially shipped out by mail. All nonrespondents to this package, who had given last year, subsequently received as follow-up first a telephone message (message left if the person was not at home) and then an email. If that did not work, the remainder of nonrespondents were then divided into 7 clusters of 15 with 7 volunteers assigned (one to each cluster) to pursue them by telephone and mail. Three weeks later, a total of 207 individuals had responded positively. Each remaining nonrespondent was then sent a special delivery FedEx package with a personalized letter in it. Two weeks later, the total pledges had risen to 243, setting a record for the organization in terms of number of gifts. Relentless pursuit of only nonrespondents using the expensive distribution channel of FedEx did the job. Persistence and subsequent aggressive follow-up can make a difference. It must be done tastefully.

Humans Have Habits

A great bane of annual fund heads is that humans are creatures of habit and change can be very hard. If you are used to paying a pledge in April, getting you to do it in January may be almost impossible. More frequent mailings have acerbated this problem because donors afraid of sending three or more gifts each year by mistake may inadvertently wind up sending nothing.

Donor Education

When someone first joins an organization as a member, they usually have very little understanding of how it is financed and what expectations are of an individual in the first several years. Donor transparency for small and midsize organizations is critical. Number of donors, total giving, and giving/donor are pieces of information that donors expect to have today. (They also need transparency on the expense side). Obviously, the data on individual gifts is kept confidential.

Mean gift level, median gift level, and the shape of the giving pyramid are really important things for the development officer to understand. If the largest gift is three times the next largest gift, this could be a real problem if the large gift is a significant part of the total giving. If the lead donor becomes disaffected in some way, the organization becomes vulnerable to having to suddenly retrench. This is not a paranoid thought because the reality is that sometimes people do become alienated from organizations.

One obvious solution to the problem is to find another one or two people to give at the same level as the large gift, thus mitigating the risk of one donor leaving. The reality is that there are much bigger concentrations of wealth today, facilitating the potential success of this tactic. When one person gives at the highest level, it does change the nature of the dialogue with other donors. The author wryly remembers a conversation with an individual who had just heard news of the largest gift ever given to the organization. His thought was that a new norm for meaningful gifts had just been established (in fact, it had).

Emotional Impact

The sad fact is that some annual funds are in organizations that are just more viscerally appealing to their donors. Parents and grandparents give to schools because of the great impact they can see the school is having on their children and grandchildren. Alumni give in thanks for what they were given many years ago, which allowed them extraordinary opportunities. Hospitals have research centers that prosper through the gifts of grateful patients and their relatives. Museums conversely have a more cerebral appeal, as do libraries. Finding money for both of these is hard work because they do not pull the same visceral heartstrings. It should also be noted that the Tax Act of 2017 made it very difficult for middle-income families to gain any tax benefit from philanthropy (as they had in the past). This has put a real damper on the annual fund part of philanthropy. Conversely, for the wealthy, the tax advantages for philanthropy were maintained.

Transparency on Sources of Support

Fifty years ago, the funding sources for most social enterprises were not much talked about. It is an enormous advantage for fundraising today that transparency in funding now exists and donors can see both the potential sources of funds and risks for organizations. It used to be that only a very few in an organization would have such an overview.

Tonality

Each annual fund campaign has to capture the spirit, ethics, and values of the organization. A church campaign needs to have the proper air of respect and spirituality in it. A lower-school campaign conversely has to be light and enthusiastic in tone. A hospital campaign needs to have care/compassion, technology, and medical ambiance in it, and so forth. A medical research organization needs a message of hope and progress. All need money but they must go about prospecting for it differently, depending on who they are.

Stewardship

The final, but vital part of the annual fund is the prompt and accurate acknowledgment of the gifts, their immediate deposit, sending a note of thanks together with appropriate acknowledgment of a tax-deductible gift. All this helps produce an image of a well-managed enterprise.

Progress Measurement

From beginning to end, preparation of weekly reports of progress on the campaign this year versus last year (and if meaningful, against budget) are vital.

These reports need to be broken down into appropriate subgroups such as category of gifts, region, and so forth. The campaign is then summarized into number of gifts, total dollar value of gifts, and so forth. This report should hit the CEO's desk every week together with an analysis of variances. This speed and transparency keep the necessary tension of accountability in the organization. It should also trigger corrective action in either the annual fund operations or in expenditures as a whole for the organization (if it looks as though the campaign is coming in well below target). It is another example of the old adage, if you cannot measure it, you cannot manage it. In summary form on a monthly or quarterly basis, these reports go to the board. Of course, any cancellations or defaults on pledges are also reported.

Summary

In summary, the annual fund is the primary financial support engine for many organizations and a vital part of other organizations. From the beginning of an organization's creation, an important aspect of its activities is to build financial strength. The annual fund is an important tool. Planned giving, capital campaigns, and special events are other ways of building this strength. No sensible CEO can afford to take her/his eyes off these risk-mitigation strategies for one minute.