Monday, December 3, 2007

Would you rather have one $100,000 donor or 2,000 $50 donors?

UPDATE: Thanks to Unfair Park, GiftHub and The Chronicle of Philanthropy for linking to this post.

The anonymous blogger at Don't Tell the makes some interesting points but overlooks some important details in their recent blog, "The difference between philanthropy and fundraising."

In summary for those who read this blog through syndication, the blog states that:

"I know some nonprofits that rely on big gifts from a small group of philanthropists in order to keep their doors open, however I personally feel better when an organization has hundreds (maybe thousands) of individual members who give provide many nonprofits with their mandate to exist."
We could argue pretty fruitlessly about the issue of needing to validate the organization's mandate (which I only see as relevant in order to satisfy the IRS' private vs. public charity test; it's a matter of tax benefits, not public good). However, I think that some valid points can be made on the matter of how these two scenarios impact non-profit organizations (and fundraising offices in particular).

In many ways, the anonymous blogger is right that it is better to have 2,000 gifts of $50 rather than a single gift of $100,000.

First of all, this situation is more sustainable. Making a political mistake with a donor in scenario one costs you $50, rather than $100K in scenario two.

And yes, as a fundraiser whose organization relies on major donors, I can tell you that there are people who have given upwards of $100,000 per year who suddenly stopped giving because we invited the wrong speaker to an event or our CEO made a comment with which they disagreed.

This is the downside of major gift programs: the tyranny of the donors.

(See this blog from Larry James, CEO of our organization, about Justin Hudnall's fabulous article, "Giver's Greed")

Second, the mission is more likely to be the focus rather than the donors if you receive lots of small gifts rather than a few large ones. As much as I support the sort of donor-centered fundraising advocated by Jeff Brooks at the Donor Power Blog or Phil Cubeta at GiftHub, major donors can wield undue influence over organizations that can frequently distract these organizations from their mission.

And yes, in the same way that I can give you examples of major donors who have pulled their giving to Central Dallas Ministries because of silly faux pas, I can also cite several instances in which we have been driven to make unwise decisions because a large checkbook was behind them.

I am proud to say that we have also turned down lots of money along the way because it would have pulled us off strategy. And I mean 6-figure and 7-figure gifts... nothing to balk at. We've maintained our integrity in key moments when donors were pushing the organization in the wrong direction.

But we are not perfect, and major donors have wielded disproportionate influence over our work at times.

And yes, we have at times been guilty of chasing money.... writing and securing grants for new programming because the money was available, not because we had the program in place and needed to fund it.

Again, these are problems that you would not have in the scenario of relying on many small gifts rather than a few large ones.

And if you're the Salvation Army, with a bucket on every corner soliciting pennies from the public, you don't have even to worry about filing a Form 990.

There are some problems, though, with relying on the masses for the bulk of your support.

First, some practical problems for the fundraising officers:

  1. If you believe in good stewardship, you send a receipt for every gift that you receive regardless of size. At $0.41, receipting 2,000 gifts is over $800 in postage. Factor in the costs of paper and printing, and your spending 1% of your gift just on bare-bones stewardship.

  2. Someone has to enter that information into your database and print those letters. Assuming it takes 2 minutes per acknowledgment (likely a very conservative estimate), that's nearly 67 hours in staff time. At a minimum wage of $5.85 per hour, that's an additional $4,000. Since most development officers make at least twice that, you're now talking about an additional 1% of your gifts on just bare-bones processing.

  3. Someone has to spend time depositing those gifts. That's more staff time, and possibly fuel costs. Likely, this is another 1% of your gift.

  4. Many of those $50 gifts will come in via credit card. That's another 3-5% cut off the top.

  5. You can therefore conservatively estimate that you will receive $6,000 to $8,000 less in the scenario of 2,000 $50 gifts rather than a single $100,000 gift.
These are just a few of the immediate costs associated with receiving lots of small gifts rather than a few large gifts. This doesn't even begin to include the costs of newsletters, event invitations, annual reports and other communications mailed to these donors. The costs can quickly grow to the point where these thousands of small gifts begin to contribute less and less to your organization's mission.

Let's take it to the next level: It is nearly impossible to build relationships with 2,000 donors who give you $50 compared to single donors capable of giving you $100,000. The return on investment of spending time calling $50 donors, sending them personal notes and meeting with them to tour programs is simply not there compared to cultivating major donors.

Are there people donating $50 to your organization who are capable of donating $100,000? Certainly. In fact, my organization recently received a commitment of $5,000,000 from a donor whose first gift was $100.

But this was a very rare exception to the rule. Although we eventually did a very good job cultivating this donor, his initial gift brought forth no such stewardship. In fact, he would have gone completely unnoticed without the help of an outsider -- who did not even know about his first $100 gift -- who referred him to us as a place to donate $50,000 at the end of last year.

This gift got our attention... which helped us to then add two more zeroes to that commitment within 12 months by stewarding the relationship.

We never would have done this for someone who donated $50 unless we realized that they were capable of the major gift.

On a related note, there is an insightful blog about at the Donor Power Blogcalled "The secretly wealthy donor fantasy." This blog debunks the myth of the $90,450 Direct Mail donor (in brief, they criticize that justify continually mailing the small-gift donor by saying that they may leave them money in their will when they die).

I do not believe that major giving programs should fully replace all other forms of fundraising (in fact, I previously blogged about some the problems of major gift fundraising in my November 10 blog, "UT Southwestern: A Case Study in the Core Problem with Major Gift Fundraising.").

However, if I had to choose between $100,000 from one person vs. $50 from 2,000 people, I would realize that there would be far more ramifications to my choice than simply the validation of my organization's mandate to exist.

I am thankful for the Don't Tell the blog. At the end of the day, I think that any successful fundraising program needs to integrate both a high-volume, low-dollar annual gift program alongside a major giving program driven around a small number of high-dollar gifts.