Climate Change And The Small Gift Donor
Ten years ago, in Danger Ahead, Tom and I warned of steady decline in the overall number of smaller gift donors. Although many heard the warning, few apparently did anything about it.
Today, a decade later the downward spiral continues. The cumulative effects of this ten year 25% decline are real and frightening.
Fundraisers and organizations who rely heavily on gifts under $250 via direct response channels should be especially alarmed.
Here’s the BIG PROBLEM in a nutshell:
Per a must-read report — Gilded Giving — published by the Institute of Policy Studies, American households earning $100,000+ increased their donation budgets by 40% between 2003 and 2013 while household earning less than $100,000 decreased their donation budgets by 34%.
You can download the full report here.
Why care?
After all, year after year Americans give more and more money. Record breaking amounts in fact.
Before I get specific about why direct response fundraisers should care, here’s what this 34% decline in small gifts means to the nonprofit sector generally, and more importantly to society overall.
Nonprofits normally seek funds from obvious sources. Attracting donors involves work and investment. Consequently, return-oriented charities will generally seek to optimize income while minimizing effort to raise it.
And so, the reliance on major donors increases year after year for many nonprofits, while the base of givers under $250 is left to erode in favor of the Big Gift.
Problem is that the giving of many major donors is erratic, leaving many organizations vulnerable to big income swings. On top of that many major gifts come (rightly so) with strings and conditions attached. At some point for many nonprofits, the proportion of restricted major gifts begins causing problems for the nonprofit that has neglected small gift fundraising. It finds itself strapped for unrestricted income to pay the electric bill, some staff salaries and provide essential operating flexibility.
From a broader societal standpoint, there are good reasons to be concerned about the endangered population of under $250 donors. You can read the dire warnings in Gilded Giving, and they range from an increasing number of Koch Brothers-like charities on both the right and the left all too capable of affecting public policy, to the ultimate damage done to local nonprofits like food banks, schools and local cultural organizations who tend to be the biggest losers from this trend.
My reason for calling all this to the special attention of direct response fundraisers is that the steady erosion of small gift donors is the direct response fundraising equivalent of climate change.
The loss of small gift donors dries up the well-spring for mid-level and some major donor giving … limits the growth of sustainer giving … shrinks vital unrestricted income … and plays havoc with the values of diversity and community building essential to healthy organizations.
Like climate change, we can either heed and act on this inexorable trend that has been apparent for more than a decade. Or we can remain in denial, refusing to take the known steps needed to retain donors, build loyalty and commitment and ensure the future by building greater value in our bases of small donors.
The signs of danger and demise are clear. The remedies and practices for avoiding catastrophe and holding on to small gift donors are clear.
So, why do so many fundraisers continue merrily on with heads stuck in the sands of denial?
Roger
5 responses to “Climate Change And The Small Gift Donor”
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What a coincidence! I just published an article on the same topic a couple of days ago.
https://imarketsmart.com/heres-more-nonprofit-data-that-will-inspire-you-to-focus-more-on-major-donors/
Great minds….
Thanks for addressing this topic. I think it’s a strong point to call fundraisers’ attention to this and recommend that they make sure not to forsake lower dollar donors. The focus on donor value has definitely brought more emphasis on up-front gift, sometimes at the expense of return rate (sheer numbers).
That said, I don’t think that the paucity of lower dollar donors is solely a result of fundraiser inattention. Rather, it seems to me that the most salient drivers are economic/demographic/tax policy-related and tied to the full emergence of models. Below is from a report we at Names in the News produced in mid-2015:
“- In April 2015, Target Analytics released a revealing report called The Macroeconomics of Fundraising, which detailed several factors that are likely correlated (or even causative) to downward impact on direct mail fundraising:
o Recessions and their aftereffects (e.g., people not only giving less to charity but a lower percentage of their discretionary income)
o High unemployment (less disposable income all around)
o Low interest rates (less return on investment means less extra income)
o The baby bust generation emerging as a higher percentage of the 50+ demographic than the boomers. (So fewer people in the donor age range that is most likely to give.)
o Tax policy (e.g., the 2011 Pease legislation limited the amount of itemized deductions for upper-income taxpayers)
Aside from the last item, which impacts the sheer amount likely givers donate, all of these imply fewer donors. And those donors remaining are likely to be from a demographic that can weather difficult conditions much more easily and continue giving at a similar rate. This creates a scenario with fewer lower gift donors than prior and a similar number of higher gift donors, resulting in an overall lower return rate and a higher average gift.”
Given that post-2008 recession, wealth disparity has soared, wages have been largely flat-line, and interests have remained low, I think it’s fair to say that the economic aspects above have not returned to what they were pre-recession (regardless of the recovery we have seen), such that the impact on fundraising (fewer donors/higher gift givers remaining) has continued.
Regarding models, as return rates have dipped, renting commercial and non-profit lists has often become too much of an upfront investment. I won’t belabor this, but suffice it to say, models have become a significant source of strong performing universe for many non-profits, and they tend toward higher average gifts rather than higher response rates. Some of this is by design, some is just the nature of their databases. Regardless, this has also been a significant contributor to the donor gift level trends we see.
A
Henry,
Thanks for your thoughtful response. I agree completely that the decline in lower dollar donors is not solely the fault of fundraisers. Demographics and rising income inequality play a major role. The sole point I sought to make is the small gift donor is a dwindling and expensive resource and nonprofits damn well better learn to nourish them properly.
Agree with all that’s been said. And… it’s really hard to predict the future given the fast pace at which the way we communicate is changing. Direct mail may become increasingly cost-prohibitive for many nonprofits, while online fundraising (especially P2P) may yield a greater bang for the buck.
We’re in a challenging period where it’s not easy to say it’s okay to do “this” and not “that.” Organizations of all sizes really do need to diversify their fundraising portfolios.
Major donors are still where you’ll find the best ROI. And the lion’s share (74%) actually do NOT restrict their giving per the 2016 U.S. Trust Study of high net worth giving. Older high net worth donors give to more organizations (avg. 11 age 70+) while younger ones give to fewer (avg. 5 under age 50). So I do counsel organizations large and small to prioritize major gifts — at whatever level makes sense for them. But they can’t neglect small gifts either.
I wholeheartedly agree with Claire. Yes, we are in the middle of a challenging period. Unfortunately, nonprofits prefer “do this, not that” black and white answers.
I’m instantly reminded of a tale of two shoe salesmen. I’m sure you remember it…
Two shoe salesmen were sent to Africa to see if there was a market for their product.
The first salesman reported back, “This is a terrible business opportunity. No one wears shoes!”
The second salesman reported back, “This is a fantastic business opportunity. No one wears shoes!”
And of course, the question is, when confronted with a problem or challenge, which salesman are you?
Far too many nonprofits fail to recognize the processes that move the $20 or $50 first-time donor along the funnel to becoming a mid-level/major donor.
And I think we’re absolutely discounting the power of everyday donors. Did we not all witness last weekend’s worldwide marches? Have we already forgotten what Bernie Sanders did and the power of $27? As Elaine Kamarck, a senior fellow at the Brookings Institution noted, “It’s great fundraising. It’s the purest kind of fundraising you can have, because nobody’s buying you.”
When you understand the power of storytelling, combined with the power of genuine donor love (not lip service), you can harness the strength of small donor numbers.