What is Financing Not Fundraising?
This e-book is the third volume in the Financing Not Fundraising e-book series. The idea behind Financing Not Fundraising is that the traditional way nonprofit leaders, boards and donors have approached funding the work of nonprofits doesn’t work anymore.
Traditional nonprofit fundraising forces nonprofits to work harder and harder for a smaller and smaller return.
Nonprofits must break free from this vicious cycle and take a much more strategic approach to securing the overall financing necessary to achieve their goals.
The first step in this process is to fully integrate money with the mission and core competencies of the organization. In creating such a strategic financial model for her organization, a nonprofit leader will be setting her organization on a path towards financial sustainability, growth, and ultimately change to the social problem her nonprofit attempts to address.
This e-book, the third in the Financing Not Fundraising series, expands on the basic elements of the Financing Not Fundraising model and helps those nonprofit leaders who are ready to start moving away from fundraising to really dive into this new approach.
Contained in this e-book are new ways of thinking, new tools of analysis, new questions to ask. All with the intent of pushing your staff, your board, even your donors, to fund your work in a more effective and sustainable way.
Here are the chapters in this third volume of Financing Not Fundraising:
- OVERCOME NONPROFIT TABOOS
- REMOVE MONEY HURDLES
- FIND AND KEEP A GREAT FUNDRAISER
- RECRUIT A MONEY RAISING BOARD
- SET A HIGH FUNDRAISING BAR
- ENLIGHTEN YOUR DONORS
- BREAK FREE FROM THE STARVATION CYCLE
- CREATE DONOR PERSONAS
- CALCULATE OPPORTUNITY COSTS
- STOP APOLOGIZING
- GETTING STARTED
Times have changed. We no longer have the luxury of sticking our heads in the sand and continuing to do things the way they’ve always been done. My intent is that this e-book, along with all of the e-books in this series, will help you to see a new, better way to fund the critical work you are doing for society.
So let’s get started.
Overcome Nonprofit Taboos
It is an undeniable fact – the nonprofit sector doesn’t have enough money. There are many reasons for that, but part of it stems from the taboos the nonprofit sector (and the staffs, boards and donors within it) perpetuates.
But perhaps if we lay them bare, we can start to break free.
Nonprofit taboos are so insidious because they are unwritten and unquestioned. But that has to stop. If we want to move the nonprofit sector forward, we must uncover certain taboos and determine whether they are really unacceptable anymore.
Here are the five most egregious taboos in the nonprofit sector: Nonprofits Shouldn’t Raise a Surplus
For some reason it is unseemly for a nonprofit to have more money than they immediately need. If a nonprofit is not just barely breaking even, it is somehow unworthy of raising more money. To the contrary, a nonprofit that has operating reserves can invest in a more sustainable organization, conduct research and development to make sure their solution is the best one, recruit a highly competent staff, and weather economic fluctuations. It is far better to invest in an organization that is well poised to attack a social problem than one that is barely able to keep the lights on.
Nonprofits Shouldn’t Pay Market Rate Salaries
Nonprofits exist within a market economy, that is a fact. If someone is great at what they do, and they can make more money elsewhere, eventually they will do so. It is simple economics. I understand that mission is a driving force for people attracted to the nonprofit sector, but as competition in the social change space continues to grow, the best and brightest will be lured away by other nonprofits, government entities, or for-profit social enterprises. So if you want to attract and retain a really talented employee, you must pay them accordingly.
Nonprofits Shouldn’t Demand Board Members Fundraise
Why not? Seriously, I don’t get this one at all. If your governing body is free to make strategic and programmatic decisions without understanding, first hand, the financial implications of those decisions, you are setting your nonprofit up for failure. Mission and money must be strategically aligned, and the first and most important place that alignment occurs is at the board level. There are plenty of ways for board members to get involved in the financial engine of their nonprofit. Let’s stop apologizing for having to make money in the nonprofit sector and start requiring that every single board member get actively involved in the process.
Nonprofits Shouldn’t Question Donors
Since donors hold the purse strings nonprofit leaders are unwilling to tell them how it really is. But if the sector continues to act like a grateful recipient of a wealthy
person’s or institution’s largesse, that power imbalance will continue, as will the dysfunctions that accompany it. If instead nonprofits and funders were equal partners working together to solve a problem, maybe we could get somewhere. But this will only happen if nonprofit leaders become more confident at telling their donors (and board members) how it really is. And if nonprofit leaders are more strategic about diversifying their financial model, they are no longer beholden to a few funders.
Nonprofits Shouldn’t Invest in Fundraising
In the nonprofit world, the fundraising function is equivalent to the sales and marketing function of the business world. No one expects Apple to create amazing gadgets and then sit back and hope people show up and buy them. They have an extensive and well-financed marketing and sales function. But nonprofits are expected to spend as little as humanly possible on fundraising. And nonprofits are even further challenged because they have two, not just one, set of customers: 1) the clients they serve who often can’t pay for services, and 2) the funders who pay for those services. So we are telling nonprofits to recruit and serve two sets of customers on a shoestring. That’s crazy. We have to get over the idea that investing in fundraising (high quality staff, technology, expertise, planning, marketing) is a bad thing.
At the end of the day, we have to stop apologizing for the realities of the nonprofit sector. It’s time nonprofit leaders stand up and start demanding the end to some serious strictures that hold them back from doing their jobs.
And, let’s remember, those jobs are to solve some of the most complex problems facing our communities. Those jobs are probably more easily and effectively done in the absence of crazy taboos.
So lead by example. Stop believing in and promoting these destructive nonprofit taboos.
Remove Money Hurdles
Most nonprofits that struggle to bring money in the door often don’t know why they struggle. When you are on the inside of an organization that is used to doing things a certain way it can be nearly impossible to see new opportunities, or to understand what you could do differently.
There could be many reasons why your nonprofit doesn’t bring enough money in the door. But here are the most common reasons a nonprofit struggles financially. See if any of these fit your nonprofit:
Too Many Programs Drain Money From Your Organization
It sounds like a truism — you struggle with money because your programs cost money. But the reality is that few nonprofits analyze their programs to determine each one’s individual impact on the bottom line. Often they will add a new program because it has an impact on the mission (or because a single funder wants the program), without understanding how the new program fits into the organization’s overall financial picture. The end result is an organization that is stretched to the breaking point. Nonprofit leaders must analyze all of their programs to understand their impact not just on mission, but also on finances, then they can make decisions about where to more sustainably focus resources.
You Are Leaving Money Up to One Person
The financial engine of a nonprofit must be a team effort. Yes, it is important, if you are large enough, to have a staff member whose sole job is to think about money, but you cannot leave it all up to her. The entire organization, from the front line program staff all the way up to the chair of the board must understand the critical importance of money and what role they individually play in securing it. Although program staff won’t actively solicit donors, they can still share client stories with donors, write blog or newsletter articles, participate in program tours with donors, and even suggest new ideas for tying money to their programs. And there are countless ways for board members to bring money in the door (see the “Recruit a Money Raising Board” chapter below), but you have to make sure they are aware of and doing their part.
You’re Not Effectively Telling Your Story
It is so common for nonprofit staff and board members, who believe so passionately in their cause, to think that it’s obvious to outsiders why they should get involved. But it isn’t. And in an increasingly crowded social change marketplace it is more important than ever that nonprofits be able to articulate, in a compelling way, what value they are providing a community.
You’re Doing What Everyone Else Does
It drives me crazy when a nonprofit that is struggling financially witnesses another nonprofit’s fundraising activity and tries to replicate that perceived success, without analyzing if it makes sense. Just because it looks like a recent gala or a new thrift store rakes in the money doesn’t mean a) that it did actually make a profit for the nonprofit and b) that it would make a similar profit for your nonprofit. The key is to make the best use of your specific assets as an organization. Think about what value you have to offer and who might be interested in paying for that value. For example, a homeless shelter could financially partner with local businesses to move people away from storefronts and into more stable and life-changing accommodations. You have to analyze what you have to offer and who specifically would be willing to pay for that value.
You’re Not Investing In Your Money-Raising Function
If you don’t have enough or the right kind of staff in place to raise money it is little wonder that you struggle. And if you’re not giving them effective tools they will be at a loss. Think about your financial engine and the various revenue streams you employ. Do you have the technology, staffing, systems, materials, space you need to raise money well in those ways? For example, if you want to raise money from individuals you need an effective database system that tracks contact information, interactions, history, interests. Whatever ways you bring money in the door, you need to ensure you have enough and the right kind of tools to do it well.
If your nonprofit isn’t raising enough money the reasons probably go far beyond how money comes in the door. An unsustainable financial engine is merely a symptom of some larger issues at the organization. Start to analyze which of these issues might be affecting your nonprofit.
Find and Keep a Great Fundraiser
Effectively staffing the fundraising function is always a key money hurdle for nonprofits. And the news is not good lately about how effective the head fundraiser is at nonprofit organizations.
A recent study by CompassPoint reveals some startling realities about the fundraiser role in the nonprofit sector:
- 25% of executive directors fired their last development director
- 33% of executive directors are lukewarm about their current development director
- More than 50% of executive directors say they can’t find well-qualified fundraisers
- 50% of development directors plan to leave within the next two years
- And 40% plan to leave fundraising altogether
That sounds like a fundraising crisis to me. And it’s just another example of why fundraising in the nonprofit sector is broken.
What I find most troubling about CompassPoint’s study is that it makes nonprofits sound so powerless to do anything about this deep dissatisfaction with fundraising performance. But that simply is not true.
Here is how to go about finding and keeping a great fundraiser. Hire a Money Head
Don’t hire someone who can just write grants or someone who can just work with individual donors. Take a look at the entire financial engine of your nonprofit and hire someone who can develop and execute a strategy for strengthening and growing ALL aspects of that financial engine. If you have significant government grants or earned income, make sure you have someone on board who understands and can work with those aspects as well as the private money that flows to the organization.
Develop a Financing Plan
Don’t just expect to hire someone who will magically make money appear. Your head fundraiser has to be in charge of developing and executing an overall financing strategy for your organization. And that means that you need an overall financing strategy for your organization. Without a strategy, your chief fundraiser and your nonprofit are sunk.
Pay a Real Salary
It amazes me how many nonprofits expect to entice a great fundraiser by offering a salary that is comparable to someone with only a few years of experience. If you don’t have the current budget to pay a market rate, raise capacity capital (see the “Break Free From the Starvation Cycle” chapter below) to fund the first 1-2 years of the position. Once you have a great fundraiser on board he will raise his own salary while growing your nonprofit’s overall revenue.
Hire Enough Fundraisers
The rule of thumb is that it takes one full time person to raise $500K, including anyone who touches prospects and donors (database manager, prospect researcher, etc.). If you are asking a single fundraiser to raise $1.5 million there is little wonder why she is (and you are) miserable.
Give Them Tools
Don’t hire a great fundraiser and then fail to give him a donor database, an interactive website, marketing materials, prospect research, support. It does no good to hire someone with great ideas but no way to bring those ideas to fruition. If you don’t have the budget for additional support and tools, raise capacity capital (again, see the “Break Free From the Starvation Cycle” chapter below) to find it.
No one knows it all. In every other profession we expect to send employees to conferences, enroll them in classes, or coach them along the way. Don’t expect that your fundraiser automatically knows all there is to know. Give him opportunities to gain new knowledge, meet others in the field, and continue to grow his skills.
Work WITH Them
It drives me crazy how many times a nonprofit’s lone fundraiser is trying to raise all the money by herself. If you are going to align mission and money, you have to make sure that EVERYONE in the organization (board and staff) understand their role in bringing money in the door. Create a culture of philanthropy among the staff so that even a staff member who doesn’t have dollar goals in her job description understands that talking to prospects and donors, giving tours, writing thank you notes are critical to keeping the organization going. And make sure the board is trained in fundraising, has a give/get requirement, and has specific individual and board money goals, which I talk about at length in the next two chapters.
If you want to attract and retain someone who will develop a sustainable financial engine for your nonprofit, don’t leave her out in the cold. Fully integrate your head fundraiser into your organization and give her the tools, support and resources necessary to succeed.
Recruit a Money Raising Board
As I mentioned above, one of the biggest challenges for the head fundraiser is often an ineffective fundraising board. But if you want your board to contribute effectively to your nonprofit’s financial engine, you have to start from the beginning. And that is to recruit a money raising board.
In order to assemble an army of volunteer money raisers, advocates, and ambassadors for your nonprofit you have to get strategic. You must move away from scarcity-based board recruitment where you beg people to fill vacant holes on your board, and instead create a recruitment strategy that identifies the right people with the right skills, experience and networks who will become your partners in bringing more money in the door.
And that strategy looks like this:
Connect Your Strategic Plan to Your Board
Start by taking a look at your long-term strategic plan and ask the simple question, “What skills, experience or networks do we need on our board to make each goal of our strategic plan a reality?” And don’t think in broad terms like “fundraising,” or “marketing.” Rather, think very specifically about target audiences you want to access, new networks of people you want to find, specific skills that your strategic plan requires. A childhood literacy nonprofit probably needs board members who have key connections to local school districts, possess education-related expertise, or can talk intelligently about smart program design.
Recruit for Specific Needs
Once you’ve identified what skills, experience, and networks your board must possess, test that list against what your current board has in order to find holes. Those holes become the very specific types of people you want to recruit. If a strategic goal is to expand your program beyond your current region, but no one on your board lives or has connections outside your region, that’s a hole. Start brainstorming who might fill that hole and how to gain access to him or her. (For some help, check out LinkedIn’s cool tool for helping you find prospective board members within your nonprofit’s network).
Find Each Member a Job
You don’t get people to help bring money in the door by asking them to just bring money in the door. You first must get them excited about what the organization is doing (the overall strategy) and then highlight their unique contribution to making that happen. Be very clear with each individual board member about what they bring to the table and how you would like to tap into their specific skills, experience, and networks to drive your strategy forward. People become invested in something when they believe they are making a real and specific difference. Help each board member figure out exactly how to do that.
Tie Everything to Your Financial Engine
Once you’ve figured out each individual board member’s job, brainstorm how that ties to money. To create a sustainable financial engine for your nonprofit, money has to be part of every conversation. If, for example, you’ve determined that a particular board member’s legal expertise is critical to your nonprofit’s ability to launch a new program in the coming year, then also work with them to figure out how that new program will become financially sustainable. Perhaps there is an earned income component to the new program that that particular board member could help you develop. There are many ways board members can contribute to the financial bottom line, so think outside the fundraising box and determine how each individual board member can contribute, not only strategically, but financially.
If you assemble a group of people who contribute very specific skills, experience and networks to the organization’s overall strategy, and if you effectively work with them one-on-one to nurture the assets they bring, you will soon see momentum build. Each board member understands their unique role, is excited about how it fits into the bigger picture, and has connected that role to the financial engine of the organization. Once you start to see successes with individual board members, share those with the whole board. Let them see what individual members are doing and how it moves the organization forward. They will be inspired to embrace their own unique role.
Many nonprofit leaders start from the wrong place of cajoling, demanding, begging (or simply giving up on the idea of getting) board members to fundraise. If instead you work to find each individual board member a unique role to play, the money will follow.
Set a High Board Fundraising Bar
And the money will surely follow if you set a high fundraising bar for your board. So here’s a radical idea.
What if every nonprofit board were responsible for bringing in 10% of their nonprofit’s annual operating budget?
That means that if your nonprofit’s budget is $1 million, your board would be responsible for raising $100,000 each year. They could do that through a combination of give and get activities, meaning they could all write personal checks (at whatever level makes sense for them individually) and then use their unique skills, experience and networks to raise the remaining amount.
That’s a crazy idea, right?
I don’t think so. Here’s why.
The Board Must Really Understand the Money Engine
A board of directors simply cannot separate themselves from the financial engine of their nonprofit. The entire board must fully understand and contribute to how money flows to the organization. They cannot argue that money is the purview of the staff; money HAS to be part of the board’s job. Until we make the board really participate in making the financial engine run, they won’t be able to have substantive conversations about how to raise or spend that money.
The Board Must Share the Burden
I’m so tired of silly, small board fundraising goals. Does a 15-member board that brings in only $15,000 out of a $1 million budget really make a difference?
Absolutely not. That’s pennies. If they are truly going to lead the nonprofit that they serve, they must share the financial burden. Ten percent of the operating budget starts to make a significant dent, so let’s start there.
The Board Must Tap Into Their Unique Assets
I am not suggesting that we force every board member to ask individuals for money. Far from it. Rather, I’m arguing that nonprofits start getting really strategic about tapping into each individual board member’s strengths and assets in order to make a bold fundraising goal a reality.
But you can’t just turn to the board and tell them to bring 10% in the door. Some things are going to have to dramatically change within your organization in order to make 10% a reality.
Here’s what you have to do:
- Work one-on-one with each individual board member to create an annual plan for how they will meet their part of the goal. Start this process by scheduling a meeting between the executive director and/or development director and each individual board member at the beginning of each fiscal year.
- Give the board lots of different ideas for how they can meet their goal. Create a one-pager with various options for board members to consider. It can include everything from hosting friend-raisers, to writing thank you notes, to negotiating with a vendor for lower costs, to providing intelligence on donor prospects, and the list goes on.
- Provide the training, materials, and education they need to execute on that individual plan. Make sure that your board knows how money works in the nonprofit sector and the various ways your particular nonprofit raises money. Take the fear out of the equation by making sure they feel confident and comfortable with money.
- Hold each individual board member accountable for their individual plans and goals, check in with them every month to see how they are progressing and what they need to be successful. And get the board chair involved when a board member isn’t pulling their weight.
- Have the board report at every meeting about their progress on the 10% goal. Once you set a goal make sure everyone is constantly mindful of it. Celebrate successes whenever you have them and provide ideas and assistance when they are falling short. But most importantly, make the board own their goal.
If we really want to see a shift in how the nonprofit sector is funded, we need to make some pretty radical changes to business as usual. So start to entertain the idea.
What would it look like if your board brought in 10% of your annual budget?
At the very least, put the question in front of your board at the next meeting as a topic for discussion and see what happens.
Enlighten Your Donors
Speaking of new topics of discussion for the nonprofit sector, let’s talk about some of the long-held assumptions many of our donors have.
It used to be that a nonprofit leader receiving a check from a donor would smile politely, say a big “Thank You” and go on her way. But just as (seemingly) every aspect of the world as we know it is changing, so too is philanthropy. We are starting to question traditional beliefs about how money is given and how it should be spent.
As a nonprofit leader, if you want to start securing and using money in a more strategic way, if you want to move from fundraising to financing, you need to bring your donors along with you.
It is up to you to enlighten your major donors about how they can use money more effectively. So that instead of being merely the recipient of your donors’ largesse, you become a true partner in putting their money to work for real social change.
We simply can’t sit around and wait for philanthropists to suddenly understand the hurdles nonprofits face. So the next time you meet with a major donor (an individual, foundation, or corporate donor with whom you have a one-on-one relationship), make time to have a deeper, different conversation aimed at enlightening them about the realities you face.
Here are some ways to start that conversation with your donors: “Overhead Isn’t a Dirty Word Anymore.”
The notion that “overhead” expenses, like administrative and fundraising costs, are unseemly in the nonprofit sector is becoming antiquated. Instead there is a growing effort to evaluate nonprofits based on the results they achieve, not the way they spend their money. And effective nonprofits need strong organizations behind their work. Take some time to educate your closest donors about this growing movement to support all aspects (including staffing, systems, technology) of a nonprofit organization.
“These Are The Hurdles Standing In Our Way.”
Let’s face it, most nonprofits struggle with some key organizational challenges. Perhaps you struggle to secure sustainable funding; or you can’t recruit and engage an effective board; or you want to grow, but lack an effective growth plan. Whatever your challenges are, start being more open with your funders about those challenges. It is a risky conversation, to be sure. But I bet that your long-term funders have probably already recognized some of those roadblocks you face, and your open and honest approach to facing them might start a new conversation about solutions.
“Here Are Some Solutions to Those Hurdles.”
You don’t want simply to tell your donors a laundry list of woes. As my mother always said “Don’t come to me with your problems, come to me with your solutions.” So before you tell your close donors what is holding you back, do your research about how you might overcome those hurdles. If you struggle to bring enough money in the door, perhaps a Financial Model Assessment could help. If you can’t effectively track and communicate with donors, you may need new technology and systems. If you don’t have enough staff to grow your programs, analyze the additional expertise you need and calculate how much it would cost. Put together a thoughtful plan for how you can overcome the obstacles you face.
“Here is How You Can Help.”
Which brings me to the key conversation you need to have to enlighten your donors. You cannot execute on a change plan if you don’t have the resources to do so. That’s where your key donors can play a role. If you’ve spent the time educating them about organization building, the key obstacles in your way, and your plan for overcoming those obstacles, then the next logical step is to ask them for help. If you have invested them in the need and direction for change, you are ready to ask them to invest in the solution.
I know it’s difficult for nonprofits and their major donors to have open and honest conversations. But we will never move forward if nonprofit leaders don’t start initiating some difficult, but potentially game-changing conversations with their donors. Indeed, effective social change depends on it.
Break Free From the Starvation Cycle
Let me give you an example of how a game-changing conversation with a donor can result in the money you truly need to make your nonprofit more effective and sustainable.
Recently I met with a nonprofit leader (let’s call her June) who has a great idea for an earned income venture that fits directly with her mission, but she doesn’t have the start-up capital to launch. When she explained this to me, she threw up her hands as if to say, “I’m powerless to move forward.”
But from my vantage point she has all the pieces necessary to raise the start-up capital and launch, she just isn’t putting them together.
It’s a common refrain — nonprofit leaders complain about being in a catch-22 of not having enough money to raise enough money. The nonprofit starvation cycle is one nonprofit leaders know only to well. Nonprofit organizations rarely have the technology, staff, and systems to function effectively. So they scrape by trying to squeeze one more drop out of a completely dry rock.
But instead of waiting for funders to fix the situation, it is up to nonprofit leaders themselves to break free. And the answer is often right in front of you. To break free from the starvation cycle, assemble the assets you already have in order to raise capacity capital.
Capacity capital is a one-time investment of significant money that can help build or strengthen a nonprofit organization so that it can create more social change.
Let’s first remember that there are two types of money in the nonprofit sector: revenue and capital.
- Revenue is the day-to-day money required to run programs.
For a literacy program, revenue buys books, materials, curriculum, volunteer coordination, and program staff time.
- Capital is the one-time infusion of money that builds or grows an organization.
For a literacy program, capital purchases a better system for gathering data on students, a donor database, the first 12-18 months of a Development Director’s salary.
Capacity capital funds things like technology, systems, a program evaluation, revenue-generating staff, and start-up costs for an earned income business. It is money that strengthens the organization so that it can do more.
But often nonprofit leaders, like June above, don’t recognize that everything they need to raise capacity capital and break free from the starvation cycle is right in front of them. Here are the necessary pieces:
You know what you need in order to do more, so put together a change plan and figure out what elements you need (technology, systems, staffing) and what they will cost. Do your homework so you can speak intelligently about what it will take to get you from point A to point B. June has a great business plan for her venture and knows exactly how much she needs in start-up costs.
Donors Who Love You
When raising capacity capital you want to go after donors who already love what you are doing and want to see more. You must convince them that a one-time investment of capacity capital will enable you to do even more of what they already love. June has a great network of long-time donors, whom she could convince to become capacity capital donors.
A Connection Between Capital and More Impact
Make a convincing argument to those donors that capacity capital will create more of what they already love. For example, having a great Development Director in place can bring hundreds of thousands of new dollars each year, which means many more people, will be touched by your organization. Or explain how an evaluation of your program will allow you to focus your resources on the highest impact activities. June could describe how a profitable earned income venture could increase financial sustainability while delivering more impact.
June has all of these pieces. She has a great plan for an earned income business that could significantly contribute to a more sustainable financial engine and thus allow her nonprofit to reach more people, a clear articulation of how much capital she needs and for what, and a committed group of donors who love the organization.
For her, and for most nonprofits, it is simply a question of connecting the dots.
Create Donor Personas
Beyond your close, long-term donors who can invest in building a stronger organization, you also want to continually be acquiring new donors who believe in your on-going programs.
It is a great fallacy in thinking among nonprofit fundraisers that anyone with money is a potential donor to their organization. Nothing could be further from the truth.
There’s a key practice in business marketing, creating buyer personas, which I think nonprofit fundraisers would be wise to adopt and could help them get more strategic about which prospective donors to go after.
Smart marketing is about reaching a specific target of people whose values intersect with your nonprofit’s unique ability to address a community need, like this:
This means that you don’t want to send your message out to everyone and anyone. Rather, you want always to target a specific communication to those unique people for whom it would resonate.
In the business world, this is called creating “Buyer Personas.” And I think nonprofit fundraisers should develop “Donor Personas.”
Creating Donor Personas means organizing your donor base into groups of people based on demographics, interests, lifestyle choices, etc. Then you want to find out as much as you can about those groups in order to clone them.
So, for example, an animal shelter might have the following beginning list of Donor Personas:
- Animal Activist
These donors are 16-30 years old, highly motivated, interested in advocacy and changing laws and systems to make the world a safer place for animals.
- Pet Lover
These donors are 25-65 years old and have adopted a pet from the shelter in the past few years. They aren’t politically active, but rather are very grateful for the newest member of their family.
- Dog Devotee
These donors may have may or may not have adopted a pet from the shelter, but they are fierce dog lovers. They don’t understand cats and are not interested in them.
- Cat Fanatic
Again these donors may or may not have adopted a pet from the shelter, but they are obsessed with cats and their welfare.
So how do you go about developing your Donor Personas? Start with these four steps:
- Group Current Donors
Take a look at your current donor base. Can you place people into profile groups like I did with the animal shelter above? What do some of your donors have in common? Do patterns and groupings start to emerge around a combination of demographics, lifestyle choices and/or worldviews?
- Ask Questions
Select a handful of current donors in each donor persona group and give them a call or send them an email. Tell them that you simply want to understand their motivations for giving so that you can find more like-minded people. Ask them a handful of questions like “Why do you give to us?” “Where did you hear about us?” “What do you do in your free time?” “What’s the best way to communicate with you?” Anything that will help you understand better what motivates them to give, how they make decisions, where they hang out, etc.
- Create Profiles
Armed with a deeper understanding of what makes these different groups tick, flesh out your donor personas. Give each group a descriptive name, like “Pet Lovers” above, and list their various characteristics (demographics, interests, anything you know about them). Then circulate these donor persona descriptions to your staff and board. You might even want to attach a fictional picture to each persona to make it more visually captivating.
- Market to the Personas
Now that you understand your donor groups better, create different content and opportunities that resonate with these different groups. For example, you might want to engage your “Animal Activists” via social media when the city council is threatening to pull some of your shelter funding. Or, you might ask “Pet Lovers” to virtually adopt shelter animals with a monthly contribution.
Now that you know your Donor Personas better make sure you target all of your marketing and fundraising activities accordingly.
Stop telling your story to anyone and everyone. Start figuring out what motivates those who already love you and use that information to build an army of additional supporters.
Calculate Opportunity Costs
In focusing your efforts on donors with the best potential fit with your nonprofit (as in the “Create Donor Personas” chapter above) you are making a conscious choice to put your organization’s limited resources to their highest and best use. I would love to see more nonprofits making those kinds of conscious choices more often, and there is a calculation that can help you do just that — opportunity costs
An opportunity cost is the value (money, time, resources) of the next best option when you make a choice between two options. Understanding the opportunity costs of decisions is particularly important when resources are scarce, as is the case in the nonprofit sector.
In calculating opportunity costs, you are consciously analyzing two or more options and quantifying the value of the next best option when you choose one option over the others. So, for example, when you are choosing between two new jobs you’ve been offered, you recognize that in choosing one position you are giving up the value (or salary) of the other position. It seems so simple, yet in the nonprofit world it becomes much more complex.
Because the nonprofit sector is under capitalized, money is king. A driving motivation in many nonprofits is to preserve money, or go after money, at all costs. So the concept of opportunity costs is often ignored. But if we truly want to put every last nonprofit resource to its highest and best use, we must understand opportunity costs.
Opportunity costs are calculated like this:
Opportunity Costs of Option #1 = The long-term benefits of option #2 – The long term benefits of option #1
If the opportunity costs for a particular choice are positive, you have not chosen the best (most valuable) option.
Let me give you a couple of examples of how opportunity costs can be calculated in the nonprofit world.
Fundraising vs. Friend-Raising Event
This decision came up for one of my clients recently. They were going to host an event at a board member’s house with 25 potential major donors. They were hesitant to use the event just as a group cultivation of major donors (a “friend-raiser”), so they were grappling with the idea of asking attendees to make a $100 donation (a “fundraiser”) while at the event (a total of $2,500 in revenue). That would have been a huge mistake because of opportunity costs.
If cultivated correctly over the coming year, the attendees all had the capacity to give much larger donations, probably an average of $5,000 per attendee (a total of
$125,000 in revenue). But if those attendees were forced to make a $100 donation, they would be done with their giving to that organization for the year.
The opportunity cost of the fundraising event would be:
$125,000 (value of the “friend-raiser”) – $2,500 (the value of the “fundraiser”) =
In other words, in deciding to hold a fundraising event, instead of a friend-raising event, the nonprofit is giving up $122,500 in value.
Needless to say, they decided to make the event purely a friend-raiser, with no fundraising ask because the friend-raising event, in this case, was much more valuable. However, it goes without saying that they now need to be sure to do effective follow up cultivation and eventually solicitation with every attendee to the friend-raiser in order to realize that value.
Grantwriter vs. Development Director
If a nonprofit leader is deciding whether to spend $45,000 to hire a grant writer or
$75,000 to hire a development director they might opt to hire the grantwriter because that is the cheaper option, and in the world of nonprofits, cheaper is always better. But in hiring a grantwriter, the nonprofit would save $30,000 in regular costs (the difference in salary between a development director and grantwriter), but lose many times that amount in long-term benefits. The difference in revenue brought in under the development director, someone who could increase the overall financial engine of the organization, could be in the hundreds of thousands and many times the value of the grantwriter, who would only be able to increase foundation and/or government funding.
So the opportunity costs of hiring a grantwriter would be:
$250,000 (estimated annual increase to overall giving with a development director)
– $30,000 (additional annual cost of the development director salary) – $100,000 (estimated annual increase to foundation giving with a grantwriter) = $120,000
In choosing the “cheaper” grantwriter, the nonprofit is losing $120,000 in value.
I would love to see more nonprofits calculate the opportunity costs of all of the decisions they make. In fact, because nonprofit leaders are so resource constrained they should be even more cognizant of opportunity costs and ensure that every last resource is put to its highest and best use.
It becomes increasingly obvious to me that the nonprofit sector suffers from a lack of confidence. Centuries of being sidelined as “charities” while the real work of the world (business) took center stage has made the nonprofit sector continually apologize for the work they do and how they do it.
Nowhere is this more true than in the financing of their work. But for the nonprofit sector to start to demand a seat at the big table (or better yet to create a brand new, better, bigger table) the sector must stop apologizing for needing money.
To truly begin to use money as a tool, nonprofit leaders have to stop regretting their need of it and start demanding that they receive enough and the right kinds of money to successfully accomplish their work.
But you can’t simply decide to stop feeling bad about asking for money. Instead you have to find the confidence to identify and secure the right financing for your work.
Ask for Change, Not Your Organization
You shouldn’t be asking for money for your organizational needs, rather you should be asking for money as a vehicle to help your organization create social change.
Everyone is uncomfortable when asking for a handout. If instead you are asking for resources to make positive social change, which a donor cares about, it is much more powerful, compelling and confidence-inspiring.
Find the Right People
It surely can be awkward asking for money if you are asking the wrong person. Don’t fall into the trap that many nonprofits do by thinking that anyone with money is a potential donor to your nonprofit (see the “Create Donor Personas” chapter above). People give based on values, therefore you only want to target people for whom your mission and your work resonate deeply. No matter who your target is (an individual, a foundation, a corporation) think about whether they have the Capacity to give at the level you need, have a Connection to someone at your nonprofit, and have a Concern for your nonprofit’s mission. Being strategic about who you are targeting makes you much more confident when you finally make the ask.
Tie Money to Your Goals
If you know as an organization what you are trying to accomplish and how much that will cost, you will have much more confidence asking for money. Instead of just asking for money, you will be asking for the financing necessary to accomplish your strategic goals. If you have a smart organizational strategy you can confidently ask a potential donor to invest in a solid, well-thought out plan for creating change to a problem they care about. And that’s much less awkward than asking someone to just give, right?
Take Out the Middle Man (or Event)
So many nonprofits sidestep the awkwardness of asking for money for their mission by holding a big gala event instead. The thinking is that if they camouflage the ask inside twinkly lights, great music and food, and a loud band that people won’t mind opening their wallets. Aside from the very real fact that you are leaving money on the table (see the “Calculate Opportunity Costs” chapter above), events simply enable the lack of confidence I am describing. Instead of feeling so guilty about asking for money that you run your board and staff ragged by staging a huge event, take out the middle man and identify, cultivate and solicit donors who truly care about your work and will give more significantly through a major donor campaign.
Share Your Results
If your nonprofit is truly creating social change, then you can very confidently ask others to join you as partners in making that change continue to happen. Collect, analyze and share the results of your nonprofits programs. Demonstrate the change that you are creating and that donors care about. With solid results to point to, you can confidently ask other people to invest in your successful work.
At the end of the day, if your nonprofit is creating positive community value then you should confidently be asking for the money necessary to make that value grow. Stop apologizing for needing the financing necessary to do the work and start finding and confidently inviting interested investors to partner with you.
In so doing you will be moving your nonprofit from fundraising to financing.
We live in a new reality. The old ways of raising money in the nonprofit sector just simply won’t work as they once did. It is time to take a much more strategic, integrated approach to creating a sustainable financial engine for the social change you seek.
Here are some ways you can start to move your nonprofit from fundraising to financing:
- If you want to learn more about the Financing Not Fundraising approach, download the Financing Not Fundraising, vol. 1 and Financing Not Fundraising vol. 2 e-books from the Social Velocity website.
- If you want to read case studies of other nonprofits that moved from fundraising to financing and dramatically increased their financial sustainability, go to the Clients page of our website.
- If you’d like to explore whether our Financial Model Assessment or Financing Plan consulting services are right for your nonprofit, email [email protected] to schedule a free consultation.
- If you’d rather get started on your own, download our Creating a Financing Plan Step-by-Step Guide.
- Check out the other Social Velocity e-books, guides and tools at the Tools page of our website.
I hope you found this e-book helpful. As always, I welcome your feedback or questions about any Social Velocity tool. Please email [email protected] with questions, comments or feedback.
This e-book was designed to help you think about transforming your nonprofit. If you want a customized approach, or need help engaging more board, staff and donors in the change process, call (512) 694-7235 or email [email protected] to schedule a free consultation with Nell Edgington.
Social Velocity is a management consulting firm that helps nonprofits become more strategic, sustainable, and above all, more effective at creating social change.