Friday, October 7, 2011

Why Annual Fund Donors?

If Annual Fund donors contribute “only” 20% of the revenue, why not hire another Major Gifts Officer and redeploy Annual Fund staff? We hear this question frequently.

Now, Arrowhead Management is biased, as we make a good portion of our business advising nonprofits on maximizing the Annual Fund segment. And, we’ve spent a significant amount of time on this blog sharing some of these strategies.

But, we believe there are four objective reasons for running an effective Annual Fund Program – and, these reasons inspired us to launch our business:

Planned Giving Prospects: The majority of nonprofits with an established planned giving program have experienced the phenomena of receiving a notice from an estate attorney that Sally Smith is leaving a portion of her estate to them. An experienced VP of Development calls the Annual Fund Director to bring over Sally’s giving history: Sally has given an average of $25/annually for the last 35 years. The VP has never met her, Sally’s never attended an event, but she is a true believer in the cause.

Major Donor Prospects: Donors giving at the Annual Fund level do so for a variety of reasons, and one is disposable income levels. Once a donor can afford to give a major gift, s/he will remember the nonprofit that effectively thanked him/her when the gift was smaller.

Donor Retention: During 2010, donor retention levels actually increased among most nonprofits, which helped mitigate the impact of lower average gifts. Keeping donors engaged – even when their incomes fall or stagnate – ensures consistent revenues.

Only Engagement Avenue: Giving is the only way for some people to be engaged in your work. Not everyone in your community has time to volunteer, serve on your Board, work for you or be major donors.

Remember giving is about donors expressing their values. By investing in this segment, you are validating those values – and your mission.

For nonprofits with particularly transformative impacts on their clients – such as domestic violence agencies or homeless shelters – an annual fund can even be viewed as an extension of your programs and mission.

When your former clients give $25 or $50 annually to you, they are continuing the healing process.

Maybe that sounds cheesy, but it’s true – your clients feel good about being part of the hand up that helped them when they needed you. By running a robust annual fund program, you’re also continuing to empower and impact your clients.

Friday, September 9, 2011

Pyramid of Giving

Ah, the one key principle that all development professionals learned either at their first AFP meeting or within their first week on the job.

The Pyramid of Giving…the idea that a small number of donors contribute the vast majority of your revenues. And, that a large group of donors contribute the rest.

The industry standard is that 20% of your donors give 80% of revenues and 80% of your donors give 20% of your revenue. Your top 20% are Major Donors and your bottom 80% are Annual Fund Donors:

In this sample, 72 donors give $251,903 and 288 donors give $62,976 of the organization’s total revenues.

This pyramid has been skewed somewhat in recent years – as average gifts among all donor levels have shrunk, thanks to the Great Recession – but the principle remains.

This somewhat lumpy proportion is how most healthy companies and nonprofits operate. A few large clients/donors provide the bulk of revenue, yet are balanced with smaller clients who provide valuable and necessary revenue.

It’s important to focus on both giving buckets equally, but differently. At Arrowhead Management, we spend a lot of time working with small and emerging nonprofits to help them maximize their time and resources with annual fund donors, because sometimes, it’s easy to dismiss this group.

In our next blog, we’ll discuss why Annual Fund donors are so important.

Sunday, August 14, 2011

Five Things You Should Absolutely Test…at Some Point

1. Traditional envelope versus a self-mailing brochure;
2. Maximizing suggested gift options on reply envelop;
3. Pre-solicitation communication with donors: thank them before they give, rather than after;
4. Personalizing content based on donor’s recent interaction with organization;
5. Talk in general terms about your organizations vs. discussing singular programs;
6. Hire Arrowhead Management – an absolute MUST :)

Thursday, July 7, 2011

Donor Analysis: Demographic or Behavior

To maximize donor giving, you can employ one of two effective donor analyses: demographics or behavior.

To use either, you must still do rigorous analysis of your donors! We implore you not to use heuristics to put together your nonprofit’s donor profile or identify which giving behavior really characterizes your donors.

Or, hire Arrowhead Management and we'll do the analysis for you (c'mon! You knew there would be at least one shameless plug for us...)!

If you can’t invest some data analysis to identify these demographic or behavior ‘drivers,’ you might as well bulk mail your best post-Lehman Brothers appeal to everyone on your list.


Demographic analysis involves determining which demographic characteristics make a donor likely to give to your nonprofit.

A profile may be female, homeowner, between 55-65 and who attends religious services.

Using this profile and our proprietary analytical techniques, we predict the giving behavior and can identify donors and prospects in your database with high probabilities of giving at certain levels.

We would generate a list of prospects with a likelihood of making a minimum contribution. For instance, we would give you a list of 50 people, all of whom have never given a major gift, but fit the above target demographic.

This list has prospects with a 1 in 5 chance (or 20%) of making a gift above $10,000.


In outcomes or evidence-based analysis, donor behavior is analyzed and strategies are tested to maximize donor conversion rates and gift size.

Using statistically significant sample sizes, various tests/experiments are run over a period of time to determine the most efficient (highest conversion rate) and effective (highest average gift).

A specific action is determined and multiple donor lists are created, which are statistically significant to your nonprofit’s overall donor list.

For this example, an action can be a direct mail appeal. Different appeals will be sent to each list (we vary the dimension of differentiation depending on what you/we think might vary – e.g. teaser on the outside envelop, maximum gift options).

Analyzing the comparative response among lists, we determine which list yields a greater response rate and average gift – this is the most effective strategy.

Monday, June 13, 2011

How To Convert Donors

Once you’ve identified a solid pool of prospects, you’re ready to start converting.

But, how? Mail the same, tired prospect appeal you updated after Lehman Brothers collapsed?

Although probably most of the fundamental themes in that letter are still relevant, if you’re reluctant to recycle the letter by just changing to today’s date, try one of our 5 ideas…

1. Mix up the medium: if you’ve always tried converting new donors by snail-mail, try phone calls from volunteers/Trustees or email – or, try a combination of media per appeal.

2. Change the solicitor: if all your appeals come from your ED or Board Chair, try another Board member, an event/project Committee Chair, local celebrity – or a client or volunteer. Hearing about your mission from a client/recipient of your services drives home your impact.

3. Create meaningful follow-up emails: after an event, email attendees with links to photos from the event. Ask your Trustees/volunteers to forward this email to the 3 donors at their table for whom you don’t have emails. Post the photos on Facebook and your website two weeks after this email to create a sense of exclusivity.

4. Matching Gift: use a prospect appeal as an opportunity to secure a matching gift from a major donor (or group of donors). Leverage this matching gift to the prospects. Better yet, combine with #2 – by having the appeal signed by that donor.

5. Have fun: Although most of our missions deal with serious subjects, you can have fun with your appeal that’s still mission-based. For instance, NPR launched an innovative skit in one annual telethon featuring Alec Baldwin that turned the reason for giving to NPR on its head, as a way to demonstrate NPR's relevance. You know your donor audience - don't trivialize your mission, but don't feel obligated to always be so serious.

Thursday, May 12, 2011

Who To Convert To Donors?

Your prospect pool is not limited to the large and often impersonal lists of donors you might purchase from a list broker (such as Melissa DATA).

Also, while expanding your donor base through Melissa DATA prospect lists is a valuable strategy - and we are absolute advocates of it - it can take coordination and human capital and financial resources that you may not have.

As a nonprofit, you also have organic sources of potential donors, including:

1. People who have contacted your nonprofit for other reasons related to your mission: send your recent prospect letter/email to people who have called your hotline (if you capture their information, but be mindful of HIPPA), who have taken tours of your facility, who have donated nominal in-kind items, or have attended trainings offered by your nonprofit.

2. Facebook/Twitter Fans: have a social-media/internet-savvy volunteer sift through all the profiles of your FB and Twitter fans to see who is already on your list.

3. People already involved in your nonprofit, but who are not donors: volunteers/vendors/former staff/speaker at your community events/conferences. Although this suggestion sounds obvious, whenever we suggest it to our clients, they usually respond “oh yeah...we should ask our volunteers to become donors – great idea!”

4. Event attendees who are guests of current donors, or people who attend your free/friend raising events: maybe you’re absolutely zealous about getting the contact information for these people, but if you’re like the rest of us Development mortals, it’s a great opportunity to ask your Trustees and Friends groups to share the names of people who “should” be giving to you.

Tuesday, April 12, 2011

5 Major Gift Ideas

Now that you’re convinced a major gift program is the cornerstone to an effective fundraising strategy, let’s share some ideas for what your program could look like:

1. Launch a (removable) donor wall in your lobby to recognize annual giving above a pre-designated amount. For instance, if your average gift is $50 and the top 20% of your donors give $500 and higher, make $500 the minimum for listing.

Quick case study: We had one client that employed this like gangbusters; during Q4 of their fiscal year, they sent an appeal to all donors the past year who gave at least $500, sharing that the donor wall printing was coming up and they hoped to include that donor. It was a terrific solution to sluggish summer giving.

2. Or, adjust your donor wall upward based on cumulative giving.

3. Create specific ‘benefits’ for major donors. Customize based on your resources and assets, but good ones we’ve seen include: website listing, (e-)newsletter listing, naming this group, donor wall, freebie invitation to signature events for the highest giving levels and a major gifts-only reception/event/activity/engagement (exclusive lunch with the founder/visible and popular Board Member).

4. Make sure to let higher level annual fund donors know about your major gifts program. If your major gift program begins at $500, share your major gift program with your $250-$499 donors.

5. Further stratify and re-think qualifications annually. For instance, $500 may start your major gifts program, but if your single largest donor contributes $7,500, you’ll need additional recognition opportunities for that donor and others near that level.

Additionally, re-run your 20% donors/80% revenue analysis each year; you may find your top 20% of donors shifts to $750 and you’ll need to adjust accordingly.

You may want to wait until that trend occurs for two years – and, secure buy-in from Board and Major Donor Solicitors before simply changing.

But, be proactive and aware of such changes, as you succeed with major gift fundraising!

Thursday, March 17, 2011

Why Major Gifts?

We’re often asked by clients and prospective clients why should they start a major gifts program? Typically, we hear this from small, start-up nonprofits.

Many cannot spare the human capital needed to prepare, meet and follow up with individual donors.

We understand the importance of effectively allocating human capital assets to maximize an organization’s impact on its mission and other fundraising activities.

However, we also believe to achieve growth and sustainability goals, major gifts from individual donors are the cornerstone of any effective fundraising plan:

1. Your philanthropic sources should be aligned with industry trends: approximately 80% of giving in the U.S. is from individuals (grants– 12%, corporations – 5% and government grants – 3%). To achieve this balance – even with a modest $250,000 budget – fundraising professionals will spend hours upon hours chasing after their average gift donors ($35) or, worse yet, will seek grant funding, which is ultimately unsustainable.

2. Without a major gift program, you’re signaling to your community that $35 is a mission-critical gift. If you truly wish to expand your impact, $35 can’t remain mission-critical. To change your organization’s culture of small giving and grow beyond a grassroots movement, you must lead the way among your donors by launching a major gifts program.

3. It’s an expectations game and some donors in your community will absolutely ‘step up’ to this challenge of giving more than your average of $35 because your mission has special significance to them. Fundraising is an opportunity for donors to express their values; give your donors a vast array of opportunities.

4. Introducing and maintaining a successful major gifts program entails one of our favorite themes: segmentation. You will undoubtedly communicate with a major donor differently from a $35/annual fund donor. Such effective communication ultimately makes all donors happy.