ten steps to managing fundraising in a recession

8/3/2019 Ten Steps to Managing Fundraising in a Recession

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Ten steps to managing

fundraising in a recession

A White Paper by Sean Triner, Co-founder and Director

October 2008


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www.paretofundraising.com 2 Pareto Fundraising 2008

Contents

Part one: introduction and getting the board on the right page........................................................... 3Introduction ............................................................................................................................................ 3

Who should read this White Paper......................................................................................................... 4

The role of management and the board................................................................................................. 4

You as a donor ................................................................................................................................ 4

What the board need to know........................................................................................................ 5

The right information...................................................................................................................... 5

Return on investment / cost of fundraising.................................................................................... 6

Part one: summary.................................................................................................................................. 9

Part two: overview.................................................................................................................................. 9

About Pareto Fundraising: working with boards and management....................................................... 9

Part two: the facts about fundraising ................................................................................................... 10

Where money comes from ................................................................................................................... 10

The effect on bequests ......................................................................................................................... 11

Summary on bequests .................................................................................................................. 13

The effect on appeals and major donors .............................................................................................. 13

The Pareto principle...................................................................................................................... 13

Warm/house donor appeals tactics and frequency................................................................... 14

Donor acquisition.......................................................................................................................... 15

Major donors ................................................................................................................................ 16

The effect on regular giving .................................................................................................................. 16

The effect on events ............................................................................................................................. 17

The effect on marginal income sources................................................................................................ 18

Part two summary.............................................................................................................................. 19

Part three: overview ............................................................................................................................. 19

About Pareto Fundraising working with income generation............................................................. 19

Part three: tsunami suicide, fundraising compared to investments and the ten point plan to

managing fundraising in a recession..................................................................................................... 20

Tsunami suicide..................................................................................................................................... 20

Fundraising in an investment portfolio................................................................................................. 21

The ten point plan to managing fundraising in a recession.................................................................. 22

The board and management need to understand the data and stop unrealistic expectations........... 22

Apply the Pareto principle internally and externally............................................................................ 22

Look after your donors ......................................................................................................................... 22

Get more donors................................................................................................................................... 22

Conclusion............................................................................................................................................. 23


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Ten steps to managing fundraising in a recession

Part one: Introduction and getting the board on the rightpage

IntroductionBanks are going bust, the survivors are reeling and panicking, governments are scrambling around to

fix the mess, including using tax money to bail out these massive institutions. More than half a trillion

dollars of tax payers money (just in the USA) is being spent saving these institutions that made

billions of dollars for an elite few. I am over-simplifying, but the mess was caused by a credit crunch

closely connected to real-estate.

Sound familiar? I am talking about the world in the early 90s, not 2008. Incidentally, about the time ofa massive growth spate for many charities in the UK that kept gaining momentum with investment in

regular giving (automatic debits).

But what about charities this time are they going to be hit by a recession, or even the threat of

recession?

How might a recession hit charities? What should they do about it? Should they spend more or

less? Should they be looking to cut services?

If you are reading this, then almost certainly someone is going to be asking you these questions.

What do youthink? How will yourcharity fare? And what have your board and / or managementdecided? If they have decided anything have they the evidence they need to make such decisions?

Most importantly, have youreally thought it through? This White Paper is designed to give you some

tools to help make sure you are an expert. Even if you disagree with some of my points, at least they

should get you thinking and searching for the right evidence.

Its pretty tough going at the moment. Your investment income might be down; demand for services

may well increase; people are looking at their expenditure and having to make some tough choices;

your finance team and your board may well be feeling very nervous. However, if we are to continue,

as charities, to address the future needs of our community and our beneficiaries, we need to take a

long term view. This means protecting our future revenue, not just services today. There are going to

be hard battles that you may have to fight and I hope this White Paper helps prepare you for thechallenges ahead.

The current news made me think back to a meeting in Hong Kong a couple of months ago with

representatives of an international NGO. Fundraising staff from Hong Kong, Malaysia, Australia,

Vietnam and other countries in the region discussed a recession.

The Australian delegate told me that they were implementing a recession budget for fundraising. I

asked if that meant they would be spending more or less. She didnt tell me, and I am not sure she

knew what the correct answer shouldbe. Maybe her board or management didnt even consult her.

But what should charities do about a recession?


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The first thing most fundraisers and CEOs will think about is whether people will stop giving. But

there could be other effects too, for instance, the value of gifts left in donors wills and the impact on

services being key concerns.

In this White Paper, I am not going to discuss the impact of a recession on demand for your services,

nor how you should plan or budget to provide your services.

I am going to stick to my area of expertise: fundraising and management.

Consequently, this White Paper will focus on answering the question:

What should charities do about their fundraising plan and budget with regard to fear of, or

actual, recession?

Who should read this White PaperThe first charity person I asked to check this White Paper told me she thought that the White Paper

was more about what is good fundraising strategy than what a charity should do differently because of

the recession. I think she is essentially right, but that doesnt undermine the key point that goodfundraising strategy is essential if you are to protect your charity from any effects of a recession.

There is a huge diversity in what we mean by fundraising and causes but this White Paper is aimed

at traditional charities, not academia or the arts. It is also aimed at professional fundraising charities,

i.e. those with fundraising strategies, investments, etc. It is not aimed at those wonderful smaller

community organisations run by volunteers, or totally funded by government or grants. Nor is it

written for charities and NGOs in countries with little disposable income across the population.

Although I am aiming this White Paper at people in charge of fundraising including CEOs I think it

will be extremely useful for board members and finance directors too.

Of course, anyone with a general interest in fundraising should find it useful.

The role of management and the board

You as a donorBefore we start, I want you to work with me here.

On a piece of paper or on your computer write down:

1. Your favourite charity - not the one you work for.2. How3.

you support the charity (e.g. monthly gift, volunteer, occasional donation).Why

Here is an example:

you support them.

1. My favourite charity: The Sumba Foundation.2. How you support: regular gift from credit card and occasional donation.3. Why?

I went to see them at Christmas last year and met loads of the kids. Before the SumbaFoundation started its work, the infant mortality was about half the kids, i.e. half of them woulddie before they reached adulthood, mostly from malaria. It is easily prevented - nets andeducation and I was really motivated.

Please take the time to do this, it will be worth it. We will come back to it later.


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What the board need to knowRecently I commissioned a little study. My theory was simple surely the biggest variable for how

much money a charity raised was how much they spent.

1) A lack of data, information, training and benchmarks for people who are making these

decisions.

It sounds obvious, yet boards and management often make decisions about growing their income

without accepting the reality that to grow they cant continue spending what they want on services some of that money needs to be spent on fundraising.

Just like growing any business, investment doesnt come free. However, there are a few differences

between a charity and for-profit businesses that put obstacles in the way of a charity having a

businesslike approach to investment. Namely:

2) The very fact that charities exist to provide services to make things better and any additional

investment in fundraising means that they are not in the short term delivering those

services.

3) Ill-conceived, ill-informed and reprehensible laws, regulations, guidelines and often internalpolicies that restrict the proportion of income that a charity can spend on fundraising. For

example, Singapore has a law that stipulates that charities must spend 70 per cent of their

income on direct services. Many US and Australian states have similar restrictions. Victoria

for example requires charities to spend less than 40 per cent of income on fundraising. Much

of our data (and common sense) shows that these rules restrict growth and prevent many

charities being able to deliver more services and help more beneficiaries.

The right informationManagement and boards have to make really tough decisions. Like a hospital, they have limited

resources. Hospital staff have to make really tough decisions about priorities and sometimes have

to decide who to save.

This is the level of responsibility boards and senior charity staff have taken on. Regardless of a

recession, they need to make decisions to sacrifice services this year to be able to deliver more

services in the future.

When I look at successful charities (in terms of fundraising), a major factor in fact themajor factor

is whether or not their board operate like a business or not.

This usually manifests itself in attitudes to risk and how important fundraising is on their agenda.

These most successful charities are also the ones who make the most mistakes and have a

pragmatic approach to their organisation. They knowit is not easy, cheap, or given that you will grow.Charities like the NSPCC in the UK, Doctors Without Borders in USA, WWF in Malaysia, Greenpeace

in China and Cancer Council NSW in Australia didnt get to be so big by being cautious. They took

risks. Some of the donor acquisition ideas they tried even bombed, but now they are reaping the

rewards of their efforts.

These charities also happen to spend more on their fundraising than their counterparts, who are not

doing so well. The chart on the following page shows the outcome of the research project to prove

the relationship between spend and income (the left axis shows the income scale, the right shows the

spend scale).


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Cleary, spend more, make more.

(This data is based on Pareto Fundraising benchmarking charities seeappendix. They have

supplied their whole income databases compared to their declared annual fundraising spend.)

Return on investment / cost of fundraisingThe next challenge within boards is the fixation on cost of fundraising (COF) and its inverse return

on investment (ROI).

This obsession goes beyond boards, so much so, that for many national, state or provincial

governments, COF is one of the key measures that charities need to report.

But this unhealthy obsession with COF ultimately damages our ability to make the world a better

place.

Fundraisers are often given a brief that they must grow income by X without the annual cost of

fundraising increasing by more than Y.

ROI can be a useful measure for example, when a fundraiser is considering tactic A versus tactic B

to acquire new donors and there is a limited budget. Provided ROI is considered over several years,

measured holistically (e.g. to include additional gifts, upgrades and bequests), and the rollout repeat

potential is considered, then it can be the best measure.

But why is it generally so wrong? Principally, because obsession with ROI above all else harms

growth. Too many charities choose the path of slow growth or even reject otherwise successful

strategies because of their fear of a low ROI.

For example, charity A raises $40,000 from its Christmas appeal to warm donors, at a cost of $10,000

- an ROI of 4. It knows that by increasing the amount of time spent on the appeal pack, sending out


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more information and writing longer, more professional copy (in other words, by spending more

money) it could probably increase the donation income to $100,000. But the pack would then cost

about $50,000, giving an ROI of just 2.

So the boss says no and the charity continues the old way. Net income, however, is still only about

$30,000, whereas the more expensive method would have netted $50,000. Apart from the fact that

the charity has $20,000 less to spend on services (or fundraising growth) in the immediate term, the

decision is greatly flawed in the long term.

Meanwhile, charity B, which decides to go the more expensive route, is set to benefit from a) higher

net income, and b) many more donors. This is not just some hypothetical example. The chart below

depicts a real Australian charity that decided to look at the long-term picture and not worry about ROI.

The consequence for this charity of the shift in mindset was enormous. You can see that after a

number of years ROI is creeping back up again, but, more importantly, the overall amount available

for services (i.e. net income) from Tax Appeal 2004 to Xmas Appeal 2007 was $2.08 million.

(Charities in Australia usually have two peak times for mailing Christmas and tax as charitablegiving is tax deductible, a tax appeal is mailed around April/May to maximise giving before the end of

the tax year). If they had kept to the old strategy, and experienced a bit of growth, they could have

expected to net about $600,000.

I repeat: the organisation could have raised net$600,000, at an average ROI of 7 or netof $2.08

million at an average ROI of 2.8. It is clear which result is going to help its beneficiaries more.

They are also in a much stronger position to weather any external factors such as a recession.

So how come so many people are led astray by ROI? The answer is simple they are frequently told

that this is what is important to donors.


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Perpetuating the myth does help some charities but only the really big ones. A shift in strategy for a

small charity striving for growth is likely to reduce its ROI, but exactly the same strategy change for a

larger charity could actually improve its ROI. Thats just a mathematical fact.

In the above example, a charity raising $500,000 per appeal who followed the same change in

strategy would have seen hardly any change in ROI.

But we keep hearing, ROI (or COF) is important to donors. But who says so? Well, the media, the

public and maybe even common sense. The problem is that this is what people (donors and non-

donors) really do think. But its not how they behave. The charity above clearly had no problem.

And I have lots of other examples.

The charity probably had to explain the strategy to some major donors, and even the government

authorities that regulated charitable fundraising, but its economic basis was so solid that those guys

were not going to have a problem with it. Normal donors still gave and the charity never hid its COF.

As for the public, they may say ROI (or COF) is really important, but that isnt reflected in their giving

behaviour. The reason they give is because they were asked properly and they care about the cause.

1. My favourite charity: The Sumba Foundation.

People who harp on about the amount of money that goes on administration are normally non-donors;

cost of fundraising is just a good excuse for not giving.

I recall being told about an experiment where a group of people were given real money to donate.

They were given choices based on photos, stories about beneficiaries, and pie charts of expenditure.

Never were the pie charts a significant factor for choosing which charity to support.

No fundraiser should allow his/her organisations beneficiaries to suffer because they are bamboozled

by the unsubstantiated nonsense that passes for fact when it comes to ROI. Of course, you need to

be careful with your funds - I am not suggesting charities go out and take ridiculous risks - just thatthey plan strategically.

Don't believe me?

Remember the exercise right at the beginning? Did you write something like this?

2. How you support: regular gift from credit card and occasional donation.

3. Why?

Of course not. And do you even

Their cost of fundraising is really low and I am impressed by their effective admin

systems...

know

their cost of fundraising?

Donors care about what you do, the impact that you have. Trust me on this one.

If your board, or management, doesnt understand these key things, any attempt to grow your net

income, regardless of a recession, going to be very, very challenging. Its up to you to make sure they

understand this absolutely critical fundraising principle.


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Part one: summaryCharities should focus on net income, not ROI, or cost of fundraising. That simple switch in thinking

puts charities in a much safer space when it comes to budgeting or planning. Charities need to think

like commercial organisations and concentrate on profit.

If, during a recession, cost per acquisition (CPA, the net amount it costs to recruit a donor) increasesthen charities will need to spend moreto maintain their net income possibly giving them a worse

ROI but preventing them from having to cut services.

Part two: overviewPart two will give you more of the facts about where money comes from and how a recession could

affect different areas, such as major donors, appeals, events and corporate fundraising. It will also go

into more detail by looking at real data from various charities and examine the implications of

fundraising as an investment.

About Pareto Fundraising: working with boards and management

Pareto Fundraising has offices in Australia, New Zealand, Hong Kong and Canada, in addition tosenior staff working in the UK. We also work globally through online teleconferencing, webinars, etc.

If you would like a more personal approach, we would be happy to visit you wherever you are based.

Our very experienced senior consultants help fundraisers to show management and boards how

strategic fundraising will enable their charity to continue providing their services. We would love to

help you with your financial strategy, working with you, your board, finance director or CEO. Please

[email protected] more information.
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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Part two: the facts about fundraising

Where money comes fromGovernment is the biggest contributor to the sector in most countries. Whether local, national, a

foreign government (e.g. EU), or international agency (e.g. UN), most charity/not-for-profit money

comes from the taxpayer. How this is going to be affected by a recession depends on economic

modelling and policy understanding, which varies so much from country to country that I am well out

of my depth. So I am looking at non-governmental sources of income for the rest of this document.

The first thing charities need to understand is where that fundraised money comes from. In a recent

study involving the 23 Australia/New Zealand Pareto Fundraising benchmarking cooperative charities

(see appendix 1) backed up by data from previous benchmarking and also in line with other Pareto

Fundraising clients we see a clear pattern of where money and growth are coming from.

The chart below shows this pretty clearly.

This data shows that the biggest income source is bequests. By bequest, I mean the money left to

charities in peoples wills, also known as legacies in some countries. Cash(mail appeals, individual

major donors, etc) comes in at second place. But next comes regular giving. By regular giving I

mean people giving automated payments, usually monthly, and usually from their bank account,

phone bill, or credit card.

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

Bequest Cash Regular Gift Event

Grants/Trusts Capital Campaign Unsolicited Corporate

Community Merchandise In Memoriam Event Merchandise

Other


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Regular giving has a rate of growth set to overtake cash in Australia within the next two years. In the

UK it already has; in India, Hong Kong, Singapore and Malaysia regular giving is growing at an

astronomical rate for those farsighted charities who have tried it, and is probably the most important

fundraising mechanism worldwide.

Although regular giving is less prevalent in North America, Canada is leading the charge on recruiting

regular givers and many charities in the USA are proving its worth there. Doctors Without Borders

(MSF in USA), Greenpeace and World Vision are showing up their counterparts, growing significantly

through regular giving. Eventually the others will wake up and regular giving will probably overtake

cash within the next ten years in the USA too.

Eventincome might look good at first glance, but drilling down we see that about 50 per cent of it

comes from one charity that is doing brilliantly from a long-, strategic events program.

The second biggest event fundraiser is also the only charity to have nothave grown in real terms over

the ten year period and their reliance on events is the major cause of this lack of growth.

Grants and trustsare next, and although the proportion of income from these is marginal (at 6 per

cent) they get a special mention because a) they are easy and very cost effective and b) they are

growing substantially.

All the other activities are really marginal activities. None of them provide more than five per cent of

income.

By the way, having studied data from the USA, UK, Canada, Germany and other European states we

see that this pattern is remarkably similar in the mature markets. The Giving USA report shows that

about 80 per cent of charity fundraised income comes from individuals, as does the UKs Charity

Trends report.

In newer fundraising countries like Hong Kong, Malaysia and Singapore I have seen data that also

follows this trend and I am sure that the lessons from this White Paper will apply in those countries

too.

So lets look at the key sources of income, and then think about what might happen.

The effect on bequestsThe first thing we should be worried about is bequests. They account for a big share of the income of

a lot of charities.

Many charities receive bequests in shares, but often the most valuable asset in an estate is property.

Shares are being hammered so the value of bequests will take somewhat of a blow, but house

prices in Australia have not decreased as dramatically (yet), possibly cushioning the effect forcharities there. In the USA and UK falls of 5-10 per cent in property prices may be reflected in

bequest values already.

In terms of planning your future income, keep an eye on your local house prices.

But, much more importantly, those charities that invested in bequests over the past five years or so

will see continued growth in their bequest income. This is a simple numbers game, best illustrated by

The Lost Dogs Home in Melbourne, Australia.

Back in 2003 they had 93 confirmed bequest i.e. 93 people had told them that they had mentioned

the charity in their will. Now it stands at over 1,300 more than five per cent of all of their financial

supporters.


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Although they have only been marketing bequests for five years, The Lost Dogs Home is already

receiving significant bequest income from their deceased donors. If the value of a bequest in 2009 is

even half what it was back in 2003, you can still see how much better off they will be. Half of 1,300

bequests is a heck of a lot more than half of 93.

Bequest income fluctuates a lot across the sector and it is influenced heavily by many factors. House

prices and share market being the biggest influences on value; and the effectiveness of charity

marketing influencing the number of bequests.

The next chart shows the total bequest income from the 23 benchmarked charities mentioned earlier.

Contributing about a third of total income, these variances are pretty substantial and probably bigger

(already) than any external influences from the recession.

The other key factor here is the type of bequest. The main two types of bequests specified amounts

or percentage of estate are both viewed as not that much different by donors, but have a huge

difference in value to the charity.

For example, I am 38 and lets pretend my estate is worth about $250,000 if I died now. (I dont own

any property.) If I decide to leave $25,000 in my will to my favourite charity, and then promptly die

they will receive $25,000. Equally if I decide to give them 10 per cent instead they will still get

$25,000.

However, according to the Australian Bureau of Statistics, I am not due to die soon and, in fact,

should croak it on 14 September 2049. If I had put $25,000 in my will back in 2008, the charity will

get $25,000 which of course will buy much less in 2049.

Also, hopefully, I will have increased the value of my estate by then lets say (hope) it is worth $5m

by then, so if I had written 10 per cent instead, which is no different to me now, the charity could end

up receiving $500,000, which should still be worth quite a lot. But whatever way you look at it itll be

20 times more than $25,000.

Of course many people who leave you a bequest will die before 2049 but the principle still holds.

One tiny wording change is worth a considerable amount more than any effect of a recession.

$m

$10m

$20m

$30m

$40m

$50m

$60m

$70m

$80m

$90m

1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08


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Summary on bequestsA recession may or may not influence bequest values by a degree greater than the normal vagaries of

bequest values. And there is nothing you can do about that right now.

But just two things will have a much greater impact in the future:

1) Increasing the number of people who include your charity in their will.

2) Ensuring they do it in the way that works best for both parties i.e. residuary/

percentage of estates.

The effect on appeals and major donorsEven a deep recession should have an effect on your appeals that is less than the impact of good

strategy. I can say this with confidence because of three things:

1) The Pareto principle. Approximately 80 per cent of charity money usually comes from just 20

per cent of donors your spread is likely to be similar.

2) Increasing the number of mail appeals and/or the tactics used can double a charities appeal

income within a year.3) Most charities simply dont ask their major donors properly.

The Pareto principleThe Pareto principle applies to some degree to all charities, i.e. a minority of your donors will give you

a majority of your income. In fact, looking at our benchmarking charities, we see that just 433 of the

475,155 donors (0.1 per cent) accounted for 50 per cent of the income and 9.1 per cent of the donors

gave 80 per cent of the income.

Although most of the charities are closer to the 80/20 rule, it can be a fair bet that your charity, if it

does public fundraising, receives 65-95% of income from just 20% of donors.

Now these top donors are usually much richer than your average donors. Unfortunately for society,

but fortunately for you, the distribution of wealth and income means that the majority of them they will

be the least hurt by a recession.

The Australian press has been going on about a recession for about a year now and people have

been talking about it a lot. But has it had an impact to date? We looked to the charities in our

benchmarking cooperative for the answers.

If there is no decline in results, the answer is definitely no. But even if there is a decline, we can

further investigate the causes of the decline. After investigation, we found the answer was no. Despite

a couple of charities blaming the recession for their under-budget results, the data shows nodecline

at all to date.

So the bulk of your money is probably safe and even if the bottom 80% who give just 20% of your

money are affected it is not going to be by 100%. I would plan for a reduction in income from this

group, to be on the safe side, of maybe 20%-40%. This amounts to 4-8% of your total income.

This issignificant, and maybe with someof your other donors affected you could see income dip,

perhaps as much as 15%. But 15% is much less than the potential increase you could expect from

implementing the tactics below.

So plan accordingly.


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Warm/house donor appeals tactics and frequencyI will refer mostly to appeals through the mail here, but the lessons apply for email and phone appeals

too.

Unless you are already doing things perfectly, you can raise more money from your appeals by

improving tactics.

The key tactics we apply at Pareto Fundraising (we keep no secrets!) are:

More sophisticated targeting.

Much longer letter copy, with a great story.

Letters that look like letters.

Very strong proposition, with very clear call to action, repeated frequently.

Much more thoroughly researched/interviewed case study.

Story has a beginning, middle and end.

More additional pieces in the mailing, reinforcing the proposition.

Clear deadlines.

Hyper-personalisation including specific ask amounts the whole main letter is never pre-

printed, it is always mail merged appropriately.

Outside of the actual appeal, tactics that increase income from the entire appeals program include

well-thought-out thank-you letters, email updates, email appeal sandwiches (emailing before and

after a mail appeal), donor care and genuinedonor surveys.

Years of data shows that getting these tactics right increases the amount donors give annually andit

increases their retention.

Appeals using these kinds of tactics are actually at the heart of any good supporter relationship

management strategy. It is amazing, but getting people to give more often is the best attrition busting

tactic for donors who give to your appeals.

Lets now look at frequency of appeals.

If you ask your donors for money twice a year, the easiest way to (nearly) double the income is to

send four appeals. To double the income again you would need to appeal to them another five or so

times. Some of our clients with the best donor retention mail their donors more than a dozen times a

year. We recommend you balance your appeals program with 20 per cent of the major

communications being primarily donor care communications, such as the surveys, or thank-you letters

that just update the donor about what you have been up to.

All but the largest, most sophisticated direct marketing charities send a number of appeals to their

donors where the number of appeals per year is determined not by maximising return, but by their

internal resources. This is obviously the wrong focus. The restriction on resources can only be

caused by one of two things:

1) Staff are too busy doing other things.

2) There is a genuine lack of investment in staff.

In terms of prioritising, activities that maximise ROI are the top priority this is where ROI isuseful.

But anything that gets an ROI better than 1.0 should be considered as well. Starting with the highest

ROI activities and working down makes sense.

If the determinant for the number of appeals you send is that your staff are too busy doing other

things, and these activities achieve a better ROI than another appeal or two then, by default, the

problem is actually number two a lack of investment in staff.


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But if it is that staff are too busy doing things that are lessproductive then you have a management

issue. Often this is because that mailing appeals is pretty boring, laborious and not as much fun or

glamorous as events or other activities.

A fantastic (anonymous, for reasons that will become apparent) case study of this is charity X.

Charity X changed its appeal tactics to include those mentioned above. The first such mailing, which

went to the warm donor file only, raised just short of five times their best ever. This was comparable

to other charities that use the tactics earlier. But one charity, charity Y, did their first appeal at almost

exactly the same time and achieved exactly the same level of increase. They make a great

comparison.

Charity X and charity Y probably worked twice as many hours than on a normal appeal, and definitely

spent much more on the agency fees and print, but compared to the lift in income these extra staff

costs were insignificant.

But doing this was a massive pain in the butt. It was a much more challenging, frustrating and

downright harder process that really pushed all the staff involved the CEO with the copy, the data

team on selections, the direct marketing manager on project management and quality control. CharityY accepted that making 5 times more money from mailing exactly the same people requires harder

work.

A year later, charity X has never repeated the exercise. Charity Y has continued to achieve

ridiculously great results. Their most disappointing mailing over the year only raised about 2.2 times

their previous best ever.

Charity X staff went back to their comfort zones; they had a series of events and promotions to work

on. The amount that they raised from all of these events is significant, but nowhere near what they

would have raised by just mailing three more appeals. The bottom line: they missed out on the

opportunity to increase their netincome by about 50 per cent in one year recession proofing at its

best.

The lesson: be really, really focused on bottom line, even if it means tough management battles with

staff.

Donor acquisitionWould a recession effect donor acquisition? If it did, it could only do this in one of three ways:

1) Change the cost of services needed to acquire donors.

2) Change the response/sign-up rates.

3) Change the average donation amounts.

Costs of services could be affected, but depending on the supplier this could be either way. Forexample, professional service companies (such as printers) to whom charities are a minority customer

might become more aggressive in their marketing/sales to charities, which could lead to cheaper

prices. On the other hand, those that already discount for charities may find that the squeeze from

losing commercial clients forces them to pass the squeeze on to you therefore increasing prices.

For the sake of argument, let us assume there is a net increasein costs of services.

I think it unlikely that a recession on its own will significantly decrease the response, sign-up rates, or

average donations. However, we have examples of a well-designed cold mail pack that achieves an

ROI of 0.8 in 12 months, compared to another that achieves just 0.4.


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This tells me that the difference in the strategy and tactics has an effect of 100 per cent, i.e. good

strategy/tactics work twice as well. It is unlikely that a recession will halvethe response rates or

average donations. So getting strategy and tactics right is the key here.

(Acquisition is an area where long-term ROIis a greatmeasure because you have a limited amount

that you can spend on acquisition you need to spend it on the highest ROI areas).

Nearly all charities have seen declining response rates for years now, with costs rising, so, to some

extent, this is a bit of business as usual. Acquisition is bloody hard and expensive and will continue to

be.

However, you only acquire donors so that you can continue to communicate with them to make more

money, so if you can improve the income generated from a donor say by doubling it using the

tactics described above you can afford to spend more on acquisition. And this does not even

include the major donor and bequest potential of your new donors.

Major donors

The group least likely to be affected by a recession is also the group for which most charities have theleast developed programs. Many universities, arts institutions and hospitals especially in the USA

lead the way with in major donor fundraising. Their programs are shining examples that, put bluntly,

traditional charities should plagiarise.

I think there are four types of major donor fundraising activities: capital fundraising, high value direct

marketing, revenue stewardship (we call this major donors: next year) and the starter, just get on

with it approach for charities that are not doing (or succeeding at) any of the other three. We call this

starter approach Major Donors: Next Week because it doesnt work unless you do it next week.

Major donor revenue fundraising is the quickest and cheapest way to boost your cash, provided:

you need the money you can demonstrate why you need the money

you already have over 500 donors

If you have no program, or your program has not generated any income for the last six months, or

your major donor fundraiser has not made a direct ask in the past six months, then it is time to ask

your best donors for help, right now. If you have no idea how much to ask, my experience with many

donors is to start at ten times their previous largest gift.

The effect on regular givingAs with appeals and major donors, we looked at our benchmarked charities and investigated whether

these early days had any effect on income to date.

The answer: no.

But what about the future? We know that charities that have big regular giving programs have a more

even Pareto spread i.e. they get proportionally more from relatively more donors. This makes them

less vulnerable to the vagaries of the whims of a small number of people, but does it make them more

vulnerable in a recession?

The answer: maybe a bit. Enough lower-middle-class professionals could be affected by a recession

to make a difference. A good place to look at historical indicators is the British experience. They

have been market leaders in regular giving for nearly two decades now and have lived through a

couple of recessions already.


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The British experience during previous recessions was again a slight decline in growthrather than a

decline in real income. This is promising but we must not be complacent those recessions also

coincided with massive investment, growth and creativity in the area of regular giving and it is

impossible to tell whether the underlying trend was negative. If so, it proves that charities can pay

their way out of trouble i.e. recruit more donors to negate those that are lost through increased

attrition.

However, when we look at the data, we know that somepeople will cancel someof their regular

donations. We also know that most regular givers give to more than one charity. So you need to

make sure that it isnt yours they cancel. This is not a bad rule to follow regardless of a recession

since keeping donors is usually much cheaper than acquiring donors.

Interestingly, another wonderful way of increasing retention is upgrading your regular giving donors.

And the best way to do this is by using the phone. If you dont do this, then I would recommend

switching some of your acquisition budget to this immediately.

As well as the fact that upgraded donors (obviously) give more per month, they are also more likely to

stay with you, upgrade again and, in an amazing blessing, those you speak with and ask to upgrade,but refuse, are morelikely to stay with you than those you didnt ask.

There are two main groups of regular givers. The first is those recruited by direct dialogue, also

known as face to face i.e. the process of stopping strangers on the street, at events and door to

door to ask for a regular gift. The second is all the others recruited by direct response television

(DRTV), mail, phone, online, SMS, etc. We know that face-to-face (F2F) donors are younger and less

mail responsive, but they do upgrade their gifts.

For all types of regular donors I recommend a strong supporter relationship management (SRM)

program that includes an annual survey and upgrade phone calls, as well as updates and donor care

by mail, phone and email. However, sending mail or email appeals/ upgrades to F2F donors is

usually a waste of time and money.

As a recession looms, make sure that you put a supporter relationship management program in place.

Communicate well with your donors, find out about them, talk to them, look after them and, therefore,

keep them.

The effect on eventsLets get something straight here events are nearly always a distraction and a waste of money, time

and investment for most charities, most of the time.

There are some fantastic exceptions, but as a primary fundraising strategy events rarely produce

sustainable, strategic growth. These exceptions probably cost the sector considerable amounts

because so many charities think they can replicate the success quickly, rather than strategically.

The best event programs run along similar lines to any other appeal campaign: build proposition/

product, acquire customers and keep reselling to them. Professional fundraisers in mature markets

know that acquiring customers (prospecting, cold recruitment, etc) means running at a loss and

that this loss is recovered through subsequent sales, not the first one. Strategic event fundraisers

need to have a similar approach.

Even then, from no matter what angle you look at it, the biggest charities dont get to be big and

stay there through a strategy with events at the heart.

We also know that events carry a lot of risk. Bums on seats are usually the key for events, and if

those bums dont turn up events can turn into loss machines very quickly. They also take up a lot of

internal resources.


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But they are great fun, motivating for staff, and when an event is held it is usually because that charity

has traditionally done fundraising events. This, of course, is not the point of charities.

We want to have fun, and many a session at fundraising conferences talks about putting the fun

back into fundraising; but the mantra should be put the raising back into fundraising. That is how

we help our beneficiaries.

Often, events rely upon corporate sponsorship to turn a profit, part of the circle of death that traps

many charities into doing events to have something to sell to corporates, and doing corporate

fundraising to help support events. As you will see below, corporate fundraising isan area that has

already declined possibly because of the recession over the past few months.

Many fundraisers (and CEOs and boards) will point to the fact that events generate awareness and

interest in the charity, and they hope that this will turn into more income.

The effect on marginal income sources

Well, there simply isnt room

for any tactic or strategy that relies on hope when there are so many proved strategies that are based

on fact.

For most charities, a good, long hard look at how much is actually raised (net of direct andstaff costs)

usually drives them to the conclusion to drop the events and reallocate resources.

If you are one of those rare charities that makes lots of net income from events, then be prepared to

spend a little more to protect them your cost per acquisition may well increase but dont drop your

successful events in fear of the recession.

Well, it doesnt really matter much since, by definition, these are not that important. However, it is

worth drawing attention to a couple of these: payroll giving and corporate fundraising. The main

reason for this is because of the enormous amount of effort and energy that is wasted on them both.

Energy and time is wasted on corporate fundraising in all countries. It seems to be a golden chalicethat creates a huge cognitive dissonance. Despite all the evidence, many fundraisers think that

corporate fundraising provide a great source of income for the sector and should be a vital part of a

fundraising strategy.

The fact is that fundraising from corporates, for most charities, is a waste of time and one of the least

effective methods of raising money. Corporates account for 3-5 per cent of total income for charities

in most developed fundraising nations, and even this figure is misleading.

The Pareto principle applies here too: much more than 80 per cent of that tiny slice is raised by a few

charities. With few exceptions, such as Habitat for Humanity, those charities are the mega-brands,

UNICEF, Red Cross (in some countries), WWF, UNHCR and big local institutions such as national

heart foundations and big cancer charities.

If you are one of them, then you need to be worried about a recession. Corporate gifts are a high

target for companies feeling a squeeze and this is borne out in our research, which shows a decline

in corporate giving this year for the 23 Australian/New Zealand benchmarked charities.

If you are not one of those lucky (but stressed) charities making money from corporates then good

news, you now have the perfect excuse to switch those wasted resources from corporate fundraising.

Payroll giving is another big distraction for many charities, though this could be just an Australian

phenomenon. The advantages of payroll giving captive audience, matched giving from a small

proportion of companies and an excuse to get in to see a company are massively outweighed by the

disadvantages.


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The key problem is the lack of data; many schemes dont allow the charity to build a relationship with

the donor, forcing a separate third party communications program (i.e. through the company), which is

not likely to be better than a charitys own program. This could lead to higher attrition, prevent

upgrading and cross selling, and generally takes control of the relationship away from the

donor/charity.

Even when the donor data is provided, we know that attrition tends to be higher than credit card or

bank account debits.

Overall, the marginal income sources corporate, merchandise, community and in memoriam are

marginal for a reason. Unless you are a very small charity, or one of the charities where these

income sources are notmarginal, just drop them. Regardless of a recession, there are easier ways to

turn a buck.

Part two: summaryChanges in tactics, prioritisation and commitment to communicating with your donors will outweigh

the effect of a recession. Economic downturn may shave some money off but really, for most

charities, there is some low hanging fruit that just needs a creative or tactical shift to be reached.

Part three: overviewPart three will look at the dangerous phenomenon of tsunami suicide, which explores how charities

reaction to external events such as a major disaster, or recession can be much more dangerous than

the actual event. It will also draw a conclusion and present the ten steps to managing fundraising in a

recession.

About Pareto Fundraising: working with income generationPareto Fundraising has offices in Australia, New Zealand, Hong Kong and Canada, in addition to

senior staff working in the UK.

When it comes to helping charities with their income generation strategy Pareto Fundraising has an

extraordinary record. On average, we more than doublethe income of charities that work with us on

their appeals programs. These charities include large, small, experienced and new charities, as well

as international NGOs with access to multi-national resources. Our bequest programs help protect

charities future, even when there is already a bequest program in place.

If you have more than 5,000 donors and have an appeals program, please talk to us. Email

[email protected] more information.
mailto:[email protected]:[email protected]:[email protected]


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Part three: tsunami suicide, fundraising compared to

investments and the ten point plan to managing

fundraising in a recession

Tsunami suicideWhen the Indian Ocean tsunami hit in December 2004 it created an amazing response from many

communities. A big question for charities not directly connected to the tsunami was How much will it

affect my fundraising?

Some charities cancelled events and postponed or cancelled mailings, fearing that they would not do

as well. Others cut acquisition budgets. But most carried on as normal most of the charities I was

working with mentioned the tsunami in their communications.

The outcome? Those that cancelled/postponed/cut acquisition budgets did worse than those that

didnt.

Those that feared the tsunami would dramatically affect their fundraising so they should cut

expenditure were right. Those that didnt cut, figuring they would still make more money for their

cause were right too. Basically the charities that lost out because of the tsunami did it to themselves.

This is tsunami suicide.

It was repeated this year. Some of our Chinese (Hong Kong) clients decided to cancel activities

because of the earthquake in China. Not surprisingly they made no money. Even my own colleagues

were reluctant to encourage charities to continue as normal their common sense was screaming to

them, Hong Kongers just gave more than ever before surely they dont have enough to give again?

The charities that carried on did fine. Those that didnt, didnt.


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Fundraising in an investment portfolioLet us look at investment portfolios. A lot of charities have been doing well over the past ten years

from investments.

It is always useful for charity directors to compare the returns that they get from fundraising with what

they would get by investing that money in the market. Fundraising outstrips investments by hugeamounts.

I looked at twenty charities fundraised income over the past ten years, compared to three good

investment scenarios (5 per cent, 8.5 per cent and 10 per cent per annum). Yes, there are stories of

charities achieving 30% in one year, but not now!

The best performing charity (based on financial growth) had grown 100 times in that period, the

worst had actually shrunk in real terms. But 13 had performed better than 10 per cent growth per

year which would better than 99 per cent of charity investment portfolios.

The next chart compares the three investment scenario returns with the actual growth of the charities

(all based on $1m ten years ago).

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

Charity1

Charity2

Charity3

Charity4

Charity5

Charity6

Charity7

Charity8

Charity9

C

harity10

C

harity11

C

harity12

C

harity13

10%i

nve

streturn

C

harity14

8.5%i

nve

streturn

C

harity15

C

harity16

C

harity17

C

harity18

C

harity19

5%i

nve

streturn

C

harity20

2007/08


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The ten point plan to managing fundraising in a recession

The board and management need to understand the data and stop unrealistic

expectations1. Stop using cost of fundraising (COF) or return on investment (ROI) as a key measure and

concentrate on net income.

2. Work like a commercial organisation; accept reduced short-term growth in service expenditure

to gain increased long-term growth. Dont commit recession suicide.

3. Stop putting off bequest (legacy) marketing every year it wont make any difference to your

income next year, but the charities that invested in bequest marketing during or after the last

recession are in a lot healthier situation than those that didnt.

4. Accept that donors are not cheap.

Apply the Pareto principle internally and externally5. Look at where your money really comes from now, and concentrate efforts on high yield

activities like regular giving, bequests and major donors.

6. Look at where growth is coming from for successful charities, and ensure you are getting yourslice.

Look after your donors7. Implement proper, well thought-out and planned supporter relationship management just

think, if you had implementedRelationship Fundraisingback when the book was written, your

donors would be much more likely to stay with you now.

8. Ensure you are using the right tactics for fundraising number of mailings, rigorous targeting

personalisation, length of letters, actually asking for money in your appeals, telephoning to

upgrade regular givers; any of these things not done well (or at all) will cost you much, much

more than any impact of a recession.

Get more donors9. Regular givers are still the best bet in most countries right now; they can be expensive and it

may take you two years to recover costs but, guess what, that is life in fundraising.

10. Understand the implied lifetime value of such donors plan long term.
http://www.kenburnett.com/http://www.kenburnett.com/http://www.kenburnett.com/http://www.kenburnett.com/


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ConclusionDespite the 9,604 words in this White Paper, the original question, what should charities do about

their fundraising budget with regard to fear of or actual recession? is almost irrelevant.

I began quite a bit of research in parallel to looking at strategy. I also wanted to look at what

happened to charities during the recessions in USA, Australia, Canada and UK in the 80s, 90s and00s. I noticed that charities still grew but there seemed to be a decline in the rate of growth across

the board, and some charities accelerated growth (NSPCC being a great example).

Because I was doing this research in parallel I stopped drilling down when I realised I was wasting my

time it was irrelevant. The strategies to weather a recession are simply the best strategies to grow

a charity at any time. Things may be a little bit more expensive (though I couldnt find any evidence to

back that theory).

I figured:

If there is going to be a recession, and it does affect fundraised income, then charities should adopt

the ten point plan above, aware that their return may not be quite as high as they are used to, but still(logically) much better than investing any surplus in bank or share portfolio.

If there is a recession, and it doesnt affect fundraised income, then charities should adopt the ten

point plan above, aware that their return will be what it would have been without a recession.

If there is no recession, then charities should adopt the ten point plan above as it has proved time and

time again to offer the best returns.


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Appendices

Appendix 1: Pareto Fundraising benchmarking cooperativeThe following charities have pooled their transactional data together to gather information useful for

their planning and budgeting and also to provide useful data to the sector. Members within the

cooperative are not anonymous, i.e. they can see their results, and we have agreed to share certain

information with the public, though that is usually made anonymously.

This White Paper has been informed by the data from the Australian and New Zealand charity

members:

Australia for UNHCR, Australian Conservation Foundation, Alfred Hospital Foundation, Benevolent

Society, Bush Heritage Fund, Cancer Council ACT, Cancer Council NSW, CanTeen, Childrens

Cancer Institute Australia, The Childrens Hospital Westmead, Childrens Medical Research Institute,National Heart Foundation of Australia, Heart Foundation NZ, Jewish Care, The Lost Dogs' Home,

MS Research Australia, RedKite, Scope, Stroke Foundation, Surf Life Saving, Vision Australia,

Wesley Mission and WWF Australia.

These charities represent a good cross section of organisations by size, type of fundraising, type of

cause, age and brand awareness.

In addition, nine charities in Canada have recently joined to add even richer data to the cooperative.

These charities include:

Amnesty International, BC Cancer Foundation, Canadian Feed The Children, Care, Christian Blind

Mission, The David Suzuki Foundation, Mdecins Sans Frontires (MSF), Street Kids Internationaland WWF.

The next round of findings from the Australian, New Zealand and Canadian group is due in early

2009. This will show us what has happened from July to December this year. This will give us

valuable evidence of how these benchmarked charities are tracking against the current global

economic downturn and how donors are actually donating to charities during this time.

More Australian, Canadian and NZ members are welcomed, and expressions of interest from

UK and SE Asian charities encouraged the wealth of information available through membership

is considerable. For more information email

Include your charity in the benchmarking cooperative and get access to this important data.

[email protected].
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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Appendix 2: Pareto Fundraising and Sean TrinerPareto Fundraisingis a charity marketing business that is renowned for its obsession with data. The

organisation has an amazing track record for supporter relationship management programs with a

diverse range of charities, large and small.

On average, Pareto Fundraising have doubled

For more information please contact

the income from direct marketing appeals for theircharities including Amnesty International Australia, The Lost Dogs Home, WWF Australia, ACF,

Mdecins sans Frontires and many more. Pareto Fundraisings major donor and legacy/bequest

programs attain ridiculously unbelievable results and their expertise on regular giving is well

established.

Pareto Fundraising has offices in Toronto, Hong Kong, Sydney, Melbourne, Brisbane and Wanaka but

also offers consulting, development and major services globally.

We want to help you improve your net income too. We can help your fundraising strategy, major

donors, mail or email appeals, legacies/bequests, online fundraising, skill sharing, regular giving

programs and more. We can also help you by presenting the information in this document to your

boss or board, and help you to protect your organisation from the biggest threat from a recession

management cutting your budget.

[email protected].

Sean Triner is co-founder and director ofPareto FundraisingandPareto Phone. He worked as a

fundraiser in several UK charities from 1989 until late 2002, when he started Pareto Fundraising in

Australia with his friend and fellow fundraising expert, Paul Roberts. He is a prolific writer, check out

hisblog, and the specialrecessionwatch blog.
http://www.paretofundraising.com/http://www.paretofundraising.com/mailto:[email protected]:[email protected]:[email protected]://www.paretofundraising.com/http://www.paretofundraising.com/http://www.paretofundraising.com/http://www.paretophone.com/http://www.paretophone.com/http://www.paretophone.com/http://seantriner.blogspot.com/http://seantriner.blogspot.com/http://seantriner.blogspot.com/http://www.recessionwatch.blogspot.com/http://www.recessionwatch.blogspot.com/http://www.recessionwatch.blogspot.com/http://www.recessionwatch.blogspot.com/http://seantriner.blogspot.com/http://www.paretophone.com/http://www.paretophone.com/http://www.paretophone.com/http://www.paretophone.com/http://www.paretofundraising.com/mailto:[email protected]://www.paretofundraising.com/


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Appendix 3: Other relevant articles, sources and informationThings will change, new reports and new data will come along. Sign up to feeds fromrecessionwatch

for the latest information and links to articles and blogs that I read when researching this article.

Corporate fundraising takes up a massively disproportionate amount of our time. Find out more about

The Inconvenient Truth of Corporate Fundraising

Ideas aboutrecession proofingfrom Fundraising and Philanthropy Forum in August 2008.

If you want more information on how Major Donors: Next Week can help you, check outThe Hitchhikers Guide to Major Donors.

More links, articles and ideas will appear on therecessionwatch blog.
http://www.recessionwatch.blogspot.com/http://www.recessionwatch.blogspot.com/http://www.recessionwatch.blogspot.com/http://seantriner.blogspot.com/2008/09/inconvenient-truth-of-corporate.htmlhttp://seantriner.blogspot.com/2008/09/inconvenient-truth-of-corporate.htmlhttp://moreforall.blogspot.com/2008/09/recession-proofing.htmlhttp://moreforall.blogspot.com/2008/09/recession-proofing.htmlhttp://moreforall.blogspot.com/2008/09/recession-proofing.htmlhttp://seantriner.blogspot.com/2008/10/hitchhikers-guide-to-major-donor.htmlhttp://seantriner.blogspot.com/2008/10/hitchhikers-guide-to-major-donor.htmlhttp://recessionwatch.blogspot.com/http://recessionwatch.blogspot.com/http://recessionwatch.blogspot.com/http://recessionwatch.blogspot.com/http://seantriner.blogspot.com/2008/10/hitchhikers-guide-to-major-donor.htmlhttp://moreforall.blogspot.com/2008/09/recession-proofing.htmlhttp://seantriner.blogspot.com/2008/09/inconvenient-truth-of-corporate.htmlhttp://www.recessionwatch.blogspot.com/

ten steps to managing fundraising in a recession

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