Organizations have three financial needs: the money they need to operate every year, not surprisingly called annual needs; the money they need to improve their building or upgrade their capacity to do their work, called capital needs; and a permanent income stream to ensure financial stability and assist long-term planning, the source of which is an endowment or a reserve fund or sometimes both.

ANNUAL NEEDS

Most organizations spend most of their time raising money for the program needs of the current year. This kind of fundraising is often referred to as the “annual fund” or the “annual drive” or, to cover all tracks, the “annual fund drive.” The annual fund uses several strategies, such as online fundraising, direct mail, special events, phoning, and personal visits. The purpose of the annual fund is to acquire new donors and to encourage current donors to give again and, if possible, to give bigger gifts.

Because the overall purpose of fundraising is to build a base of donors who give you money every year, it is helpful to analyze how a person becomes a donor to an organization and how, ideally, that person increases his or her loyalty to the group and expresses that increased loyalty with a steady increase in giving.

In moving from having never given to a particular group to giving regularly year after year and sometimes several times a year, a person goes through three phases. The first phase starts when a person is asked to give to an organization she hears or reads about and decides on the spur of the moment to make a donation. That first gift is called an “impulse gift.” Even if an impulse gift is fairly large, it will rarely reflect what the donor could really afford, and it is generally based on little knowledge or commitment to the organization. The donor is thanked as soon as possible; then, several times during the course of the year, she is asked for additional gifts to different areas of the organization’s work. Ideally, the donor is asked in a few different ways, such as by phone, at an event, or with a personal letter.

If the donor continues to give regularly for several years, she becomes what is called a “habitual donor.” Habitual donors see themselves as part of the organization and identify with the work and the victories of the organization. Some habitual donors have a bigger commitment to the organization than their gifts reflect and have the capacity to make a bigger gift. Identifying and asking these people to increase their gifts forms the basis of an upgrade program, and that process is often the majority of the work the organization will do to secure major gifts. In addition, many habitual donors may express their commitment to the organization through a bequest.

Once donors are giving larger gifts than they give to the other nonprofits they support, they become “thoughtful donors.” Instead of just giving what they are in the habit of giving, they now think about whether the size of their gift adequately reflects how much they care about the organization’s work relative to what they can afford.

The process of moving people from non-donor to donor, then to habitual donor, and then to thoughtful donor is the main focus in planning the annual fund. To maintain its annual income, an organization has to recruit a certain number of new donors every year, make sure the majority of their current donors give again, upgrade a certain number of regular donors into major donors, and invite as many donors as is appropriate to help with extra donations for special projects or to come to events.

ASKING SEVERAL TIMES A YEAR

Many people tell me they dislike receiving several appeals a year from organizations, and they rightly assume that they are not alone. However, even though it is counterintuitive, asking several times a year actually works. There are several things to keep in mind about this topic, and the most important has ramifications for all fundraising: Just because one donor doesn’t like something (such as being asked several times a year), it doesn’t mean that most donors feel the same. The fact is that most people don’t even notice how often they are asked, particularly if you are using a few different strategies.

Some donors give every time they are asked, and many donors find being asked a few times a year a good way to keep up with the work of the organization. Asking multiple times a year works because people have ups and downs in the cash flow: I get an appeal from one of my favorite organizations on the same day I learn I need four new tires on my car and the appeal is deleted. I get another appeal the same week I get an income tax refund and I go straight to the donate button. Also, people love different things. For example, I am invited to attend a premier of a movie related to the issue the organization works on and I immediately send it to three friends to see whether they want to go with me. I don’t think, “OMG—they are asking again.”

However, since fundraising is a process of building relationships, if a donor says to you: “I only give once a year, so please only ask me once a year,” then you will go into your database and suppress that person’s name for any extra appeals. If a donor says: “Don’t ever call me on the phone,” you similarly note in his or her file not to call that person.

ATTRACTING NEW DONORS

Somewhere between 20 and 30 percent of first-time donors make a second gift, and about 65 to 75 percent of regular donors continue to give. The hard truth is that most people, when offered the chance to donate to your organization, say no, and even the ones who make one gift do not make a second gift. Simply put, this means that if 1,500 people made a donation last year, not more than one thousand of them will give again this year, so you will have to attract five hundred new donors just to stay the same size. In planning fundraising strategies, then, you need a few focused solely on attracting new donors.

Organizations that lose fewer than one-third of their donor base most likely do not have enough donors—almost any organization can keep a small group of donors renewing year in and year out. You want to grow big enough that you are bringing in a lot of new donors, knowing that up to one-third of them will not stay. Organizations that lose more than one-third of their donors are not doing enough to keep them; in the case of most grassroots organizations, this situation usually means they are not asking donors for money often enough or thanking them when they do give. Remember, people who give away money are being asked often: the organizations they give to may ask several times a year, and they are also being solicited by organizations to which they haven’t given. If you only ask once a year, yours becomes a minuscule percentage of the solicitations the donor receives. In fact, many lapsed donors report that they don’t remember receiving any requests from the organization, and that it was not their intent to stop giving. To retain your donors, you need to use a few strategies designed just for them.

Finally, you need to have some strategies to persuade current donors to give bigger gifts, not just additional gifts—these are called upgrading strategies. Parts Two and Three of this book discuss a wide variety of retention and upgrade strategies and their uses.

CAPITAL NEEDS

Occasionally, organizations need to raise extra money for capital improvements. Capital needs can range from new computers to the cost of buying and refurbishing an entire building. A capital expense is a one-time or infrequent expense that is too large for the annual budget. Most donors who give capital gifts have given thoughtfully to an annual fund. They know your organization, they believe in your cause, and they have the resources to help you with a special gift. These resources could be stocks, bonds, real estate, or any very large source of income. These gifts are given only a few times in a donor’s lifetime, and they are almost always requested in person. (See Chapter Twenty-Six, “Raising Money for Capital.”)

ENDOWMENT AND RESERVE FUNDS

An endowment or a reserve fund is a glorified savings account in which an organization invests money and uses the interest from that investment to augment its annual budget; the invested amount, or principal, is not spent. Endowment funds are raised in many ways, but the most common source is legacy gifts, such as bequests. A gift from a person’s estate is in some ways the most thoughtful gift of all and usually reflects a deep and abiding commitment to an organization. It also reflects the donor’s belief that the organization will continue to exist and do important work long after the donor is dead. The idea of making an endowment gift can be introduced to donors in a variety of ways, but most often a person making such a gift has a personal relationship with the organization.

An endowment is much more permanent than a reserve fund, which may be spent in times of emergency, and organizations that hope that someday their work will no longer be needed (which is what most social change groups are working toward) may recognize that an endowment may not be necessary for them. A reserve fund allows you to put money aside, use the interest, and occasionally use the principal. (How to set up an endowment is discussed in Chapter Twenty-Four, “Setting Up an Endowment,” and “Endowment Campaigns” are discussed in Chapter Twenty-Seven.)

THREE GOALS FOR EVERY DONOR

An organization has three goals for every donor. The first is for that person to reach the point of being a thoughtful donor—to give the biggest gift he or she can afford on a yearly basis. Annual gifts usually come from the donor’s annual income. The second goal is for as many donors as possible to give gifts to a capital or other special campaign. These do not have to be connected to capital improvements, but they are gifts that are unusual in some way and are only given a few times (or possibly only once) during the donor’s lifetime. Capital gifts are usually given from the donor’s assets, such as savings, inheritance, or property. A donor cannot afford to give assets every year, so will only give such a gift for a special purpose. The third goal is for every donor to remember the organization in his or her will or to make some kind of arrangement benefiting the organization from his or her estate. An estate gift is arranged during the donor’s lifetime but received by the organization on the donor’s death. Obviously, these gifts are made only once.

Most small organizations will do well if they can plan a broad range of strategies to acquire, maintain, and upgrade annual gifts, but over time organizations need to think about capital and endowment gifts and learn to use fundraising strategies that will encourage such gifts (see the chart below). Grassroots organizations do receive bequests and gifts of property, art, appreciated stock, and the like. Only by asking will you find out what your donors might be willing and able to do for your organization.

THREE TYPES OF STRATEGIES

Because all strategies are directed toward building relationships with funding sources—whether these sources are individuals, as this book stresses, or foundations, corporations, or government—it is important to understand the types of strategies that create or improve relationships with donors. There are three broad categories of strategies—acquisition strategies, retention strategies, and upgrade strategies—that directly relate to the cycles that donors follow: giving impulsively, giving habitually, and giving thoughtfully. How to choose and implement specific fundraising techniques for each kind of strategy is described in detail in Parts Two and Three of this book.

YOU CAN’T SAVE TIME

For small organizations, the ultimate reason to be thoughtful about fundraising strategies is to work smarter, not harder. The organization in the house party example raised 400 percent more money in their second year of house parties by spending a little more time to think about the strategy more thoroughly. There is a Buddhist saying: “Make haste slowly.” This adage applies to fundraising—and especially to the fundraising programs of small organizations with tight budgets, which have little room for errors that result from carelessness and lack of thought.

It is clear to me from years of working with nonprofit organizations that you can never save time. You can put time in on the front end, planning, thinking things through, and doing things right; or you can “save time” on the front end, only to have to spend the time during the middle of the campaign trying to fix what is not working and calm frustrated volunteers and board members; or you can put the time in at the end, clearing up the mess, figuring out who is to blame, grumbling, and having to do more fundraising because what you have done did not raise the money you need. This book will help you be a front-end time user!