It sounds like a semantic difference – after all, if donors are donors, then their money becomes your money.

But it makes all the difference in the world.

We know that (unfortunately) donors have an aversion to overhead.  Take a study from Gneezy et al.  They allowed participants to give $100 to either charity: water or Kids Korps USA.  In each case, they said that Kids Korps USA’s overhead was 0%.  When donors were told charity: water’s overhead was 0%, 73% of donors chose that charity.  If charity: water’s overhead went to 5%, the proportion dropped to 67%; if the overhead ballooned to 50%, 49% of participants gave to charity: water.

We probably all figured that, having heard complaints from donors that even our own organization’s overhead rates that are so lean and mean they verge on emaciated are too much.  Perhaps some could even justify this by saying charity: water isn’t an efficient charity at 50% overhead.  But we probably didn’t know the other half of the story.

The researchers also asked how many people would give to charity: water if they were at 50% overhead, but that overhead was covered.  That is, charity: water was still (in this hypothetical example) an inefficient charity, but that the donor’s personal donation was not used in part to cover those costs.  In that case, 71% of donors chose to give to charity: water – functionally the same as if charity: water had no overhead at all.

In other words, donors don’t care how you spend your donations.  They care greatly how you spend their donation.

The Test

The researchers went even farther, testing a campaign that looked at whether having a lead donor, matching donor, or lead donor covering overhead influenced donation rates to increase.  Here were the conditions:

• Control: “Our goal in this campaign is to raise money for the projects. Implementing each project costs $20,000. Your tax-deductible gift makes a difference. Enclosed is…”
• Seed money: “A private donor who believes in the importance of the project has given this campaign seed money in the amount of $10,000. Your tax-deductible gift makes a difference. Enclosed is…”
• Matching gift: “A private donor who believes in the importance of the project has given this campaign a matching grant in the amount of $10,000. The matching grant will match every dollar given by donors like you with a dollar, up to a total of $20,000…”
• Seed money to cover overhead: “A private donor who believes in the importance of the project has given this campaign a grant in the amount of $10,000 to cover all the overhead costs associated with raising the needed donations…”

The Results

Here were the results, in response rate and revenue per piece:

• Control: 3.36% with $.80 revenue per piece
• Seed: 4.75% with $1.32 revenue per piece
• Match: 4.41% with $1.22 revenue per piece
• Seed covering overhead: 8.85% with $2.31 revenue per piece

This seed funding that covers the overhead means that a person’s donation goes 100% to the mission.  As such, it’s a very effective way to get people to give.

Testing on Overhead Issue by DonorVoice and DMANF

This leads us into the testing DonorVoice and the DMA Nonprofit Federation did together.  One row of the Pre-Test Tool grid dealt with how overhead was treated.  This was the most important row as to whether a person would like, or dislike, a communication.  In order of preference:

#1 by a wide margin:

Like the Gneezy et al study, being able to say your gift goes 100% to the mission is the most powerful thing you can do to improve liking.

#2 (with a significant gap between this and the next three):

Ah, the classic pie chart.  I was skeptical of this treatment, but it does actually seem to help.

#3 – three-way tie:

And

And

not saying anything.

The idea with noting that fundraising costs are very low was to give transparency into the actual costs of fundraising, which donors seem not to know.  This test seems to indicate it’s something they don’t care to know.

Asking for an additional donation to cover overhead has come into vogue recently for online donations (to cover processing costs).  The bad news is it doesn’t help ; the good news is it doesn’t hurt either. So,  if you are getting additional donations this way, go for it.

But the biggest news is clearly that if you can eliminate the overhead from an individual’s gift, the more likely you are to get said gift.  Once again, the researchers had it right.

Nick

P.S. Tomorrow we’ll talk about whether having various seals and trust indicators can help  in your direct marketing.