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How to Stem the Tide of Departing Donors

This is Part TWO of our interview with Rob Mitchell of Atlas of Giving, about giving trends in the US, why they are trending downward. Go here to read Part One.

Today we’ll talk about What You Can Do to address the downward trend of giving in the US.

Rob Mitchell: Millennials have a very different outlook on charitable giving. I’m 55 years old. My children are grown and gone. They would all be counted as millennials. They have so much more access to information than I ever did when I was their age, related to who I might give my money to.

Mazarine Treyz:  Right.

RM: And the days of your boss handing you a card and telling you no matter what you decide, you need to sign it and give it back to me so that somebody else can decide where your money is going to go. Those days are quickly approaching an end because millennials are – they have access to lots of data, and they want to make sure that the mission that they’re giving to and the organization that they’re giving to is really making a difference. And now they have access to that. I didn’t have access to that when I was their age. So that’s a fundamental shift, and I think a good one. I think a very good one.

MT: I love that. So you kind of talked a bit about why church giving is falling off, and you said – talking about the rise in environmental giving and how people as donors, especially millennials, are feeling much more empowered to give. Basically as, you know, researchers of the charity, and no one is going to tell me what to give to kind of thing. Am I hearing you correctly?

RM: Exactly. Exactly right. And yeah, they’re not going to tell me who the best charity is, and you know, another example I like to use – and millennials get this. Some of our older traditionalist nonprofit executives and practitioners completely disagree. If you look at the watchdog organizations, Guide Star, Charity Navigator, Better Business Bureau, Wise Giving Alliance. What’s been their focus? It’s cost per dollar raised.

MT: Right.

RM: And what I try to explain, the analogy that I use with people is this. Let’s say you have a charity and they’re an animal welfare charity, and they decide that they’re going to have the largest garage sale in the world. So all the items are donated. There’s no cost in them getting the items for the garage sale. All the labor for the garage sale is also given. There are no salaries, and they have the event and maybe it’s a multiple day, a weekend event, or a weeklong event. But at the end of the event they collect $1 million. Their cost per dollar raised is $0. According to the way that the watchdogs now measure things, that organization is a darling in their eyes. They have no cost per dollar raised. But they have $1 million for their mission. Then there’s another organization, another animal welfare organization, that says, you know what? We’re going to have one of the largest entertainment events in U.S. history. It’s going to be in multiple cities. It’s going to involve multiple kinds of music. It’s kind of maybe a South by Southwest kind of thing, and they have a budget of $5 million to put on the event.

And at the end of the event, after they’ve netted their expenses, they have $5 million left. So who has really done better for their mission? You’ve got one organization – oh, by the way. They would be unacceptable to any of the watchdog organizations because their cost per dollar raised would be $0.50 on the dollar. But at the end of the day or the end of the week, who has more money for the charitable mission? It’s the one that spent $0.50 to raise a dollar.

RM: That’s another fundamental thing I think millennials are catching onto is that it’s about measuring how well you perform your mission and not how much it costs.

MT: Right. When people say show me the overhead, they don’t really understand that it’s really not about how much it cost to achieve the good. It’s just how good are we at achieving the good? You know. So you talked a little bit about this before. I just wanted to follow up. How does the stock market affect charitable giving? Like you said, when the market was up the universities that had major donors were doing really well. For smaller charities, does the stock market matter as much? Or not really?

RM: Not nearly as much, and the other phenomenon that we’ve observed, especially since the end of the recession, or that helped keep charitable giving out of the recession, are donor advised funds.

So whether you’re a college or university in campaign mode, which most of them are consistently, many of their donors are satisfying their pledges with gifts of appreciated property, and most of that is stocks. Stocks and bonds, and in some cases perhaps real estate.

Donor advised funds have been the single biggest innovation, and I use that term kind of guardedly because actually donor advised funds were created with the 1968 Tax Act. They’re coming under fire because the biggest ones, Fidelity – the Fidelity Gift Fund, the Schwab Gift Fund, the Vanguard Gift Fund, the Silicon Valley Foundation, the Jewish Foundation, CAF America. These huge donor advised funds, as you know, there’s no requirement on the donor’s part to make a gift out of that fund in any amount of time, or for any percentage.

What’s interesting is that contrasting that with private family foundations that are required to give 5% of their assets each year, right now what we have is a situation where if you set the floor at 5%, we know from foundation history that’s what they’re going to give is 5%. Donor advised funds are giving, on average – making grants out of those funds of 22% annually.

So it’s a much more effective and efficient way for people to make gifts, and you asked about the stock market and its impact. If I set up a donor advised fund, and let’s say I have the goal of creating or building a – I have been on the board of a local animal welfare organization. Let’s say I have the goal of creating a brand new campus for that organization because they desperately need it. I may not have the money today, but I can continue to add to my donor advised fund.

The money can be invested to earn more money tax-free while it’s in the fund, and that combined even perhaps with part of my estate at the end can satisfy my philanthropic goal of building that new campus, and that is a very powerful, powerful way for donors to manage their philanthropy.

I quite frankly am stunned, shocked, and surprised at the critics in our sector who want to put a time limit on how long money can stay in a donor advised fund. They also are calling for revealing who the donor advised funds belong to, and for a minimum floor of how much they need to give annually. That makes them basically the same as a private family foundation, and donor advised funds have the potential of having a much bigger impact than family foundations ever have.

MT: Oh, yeah. I mean, DAFs are huge, and most nonprofits don’t even know how to take advantage of them.

RM: Well, it’s interesting. The most difficult thing as a practitioner is knowing which of your donors, or who in your donor base, has a donor advised fund that you might be able to go solicit. I don’t know that you’ve ever interviewed or spoken with Gregory Warner, but he has now come up with a product called MarketSmart that allows a charitable organization to identify who among their donor base actually has donor advised funds.

MarketSmart sort of gives you keys to things you’ve never had before as a fundraising practitioner. So yeah, I know that the United States Treasury has now announced that they’re going to have hearings about donor advised funds. I know who the principal critics are in the nonprofit sector, and I frankly think that they are wrong and short-sighted.

MT: Thanks for that tip. So I wanted to ask another question. Why do people get more cagey about giving in an election year? This is our election year, 2016. You know, a national election. Why is it less of a sure thing that we’re going to get more charitable giving this year?

Rob Mitchell

RM: There are lots of reasons, but I think the principal reason can be summed up with one three letter word. Tax. Depending on the outcome of the election, both for the president and the Congress, you could either be looking at less in taxes or more in taxes, and as you and I have already discussed, when it comes to charitable giving it’s all about discretionary income. So if you’re paying more in taxes, you’re going to have less discretionary income for charitable giving. And so people will tend to wait on the sideline. I mean, you know, the presidential candidates specifically have made their positions very clear. I mean we basically have three candidates left. One wants to take money away from people and redistribute it to other people. One is sort of in the middle, and the other one believes that the lower taxes are, the better everybody does. So that’s why people are cagey during election years about charitable giving. They want to find out what the next four or eight years is going to look like in terms of taxes.

MT: So there’s a downward trend in giving, and I know this is a big question, but since you’re a former fundraiser for the American Cancer Society and you’ve led a humongous team, I’m going to ask you this anyway. What can nonprofit staff do to stop this downward trend in giving? What’s possible?

RM: I don’t know that they can stop the trend, because the trend involves issues far larger than they have any control over. But my advice as a practitioner would be now is the time to cement your relationships with your regular contributors. You don’t want to have donor attrition during hard financial times. You want to do everything possible to maintain good relationships and sell your mission. Work harder than ever to sell your mission and its effectiveness, and be very specific. If you’re an organization that serves homeless people, talk about the number. Give examples and talk about the number of homeless people that your organization is serving, and how much it costs to serve a family of three or a single individual. Make your case more. Use this time to make your case more clearly than you’ve ever made it before. You know, I was with the American Cancer Society. Cancer is more than 200 different diseases. So it’s not just about cancer. It’s what is the cancer organization doing that is measurable that makes a difference?

And I would recommend that to any charity or church, by the way. I think you can’t have a squishy mission and you can’t have a squishy answer to how are you spending my money? You’ve got to be very, very specific, and the more data you have and the more true anecdotal stories of how you’ve helped are going to make a huge difference. And that way, when the economy comes back or demographics turn a different way, or the stock market begins its next upturn, you are prepared to take advantage of it. Then the other thing I would say to a practitioner is look, it’s always wise during times like this if you can to diversify where your funds come from. You know, there are a lot of organizations, as I said, that rely on lots of small gifts from lots of donors. Maybe now is the time to look at beefing up your estate program or think about things that you have, needs that you have, that might encourage somebody to make a major gift. Begin to diversify your fundraising portfolio style. Don’t be so reliant on small gifts.

What to try when giving is down

Universities have obviously annual funds. They’re constantly in campaign mode. They’re pretty diversified, but they do best when the market is doing well and real estate prices are good. There are a lot of organizations that are not so diversified, and so during these kind of off times is a great time to think about and invest in new ways to diversify your fundraising portfolio. But I would say sell the mission harder and more effectively than you ever have, and you will reap the benefits.

MT: Right. I love that. So really getting people into the plan giving aspects, you know, maybe a donor advised funds piece. Just trying to get them to try other things to diversify their income, but not take too many risks.

RM: Exactly, and take a hard look at the way you’re raising money today. I mean, just as an example. Lots and lots of organizations for decades have used galas as ways to raise money. Well, what we know is that on a cost per dollar raised basis, galas are very, very expensive, and the people who come to the galas are very difficult to keep as regular donors to an organization. So maybe you start looking at your gala strategy and say, we want to do something different or we want to do our gala strategy in a different way.

MT: Yeah, because so many of these galas just don’t make the money for the efforts that we put into them.

RM: Oh, yeah. And I’ve heard all the – believe me, from volunteers and staff. I’ve heard all the – and I’m going to use the term excuses. I’ve heard it all. Well, yeah, maybe it doesn’t raise any money but it provides us very good visibility in the community. I think that’s a cop out. I mean, we need to raise money.

MT: Now that we’ve talked about practitioners, if you had one piece of advice you could offer to nonprofit CEOs or directors to hold onto their donors or get more donors, what would it be?

RM: Personal time. Face to face is best. Make some phone calls. If you’re a CEO, let your Chief Development Office or your Chief Fundraising Officer, whatever you call them. Let them give you a list of your most – two lists, really. Your largest supporters and your most consistent supporters, and call. Go see them if you can. If it makes sense. But set aside a few minutes each day to scribble out a note of thanks for your long term support, or pick up the phone and call and say, you know, I have noticed that you have been one of the most consistent donors we’ve had over the last 22 years and I just want to – I want you to know it has not gone unnoticed and I wanted to thank you for it.

MT: Oh, lovely.

RM: That will go such a long way. We all like to be appreciated and we all like for somebody to know our name, and when the CEO or the Executive Director of an organization can make a phone call like that, write a note like that, or invite somebody to lunch or dinner and thank them for what they’ve done, that is – first of all, it separates you from your competition. Because I can guarantee you not many of your competitors are doing the same thing. You know, one of the things that I do at my health club that I mentioned to retain the members that we have is we call every member, all 3,800 of our members. We call each one of them on their birthday to wish them a happy birthday, and you wouldn’t believe how much goodwill that creates and how it improves our retention.

MT: Thank you for sharing that. That’s really special, and I think that’s something that we can all implement if we make a point of asking our donors, hey, when’s your birthday? Love to send you a little note. And that really does make a difference.

RM: There is one other thing that I would also suggest, that I have used personally and seen work very well, and that is what I would call a donor welcome packet. So if you acquire a new donor, think about what their questions might be. It doesn’t have to be slick and expensive. That’s not what they’re looking for. But answer obvious questions you think they might have and send them a packet that says welcome to – you know, welcome to our family, basically. We’re so appreciative that you’ve decided to entrust us with some of your resources, and we hope that we can continue to earn your support and the money that you have given to us or giving to us is going to make a difference in us being able to perform our mission very successfully.

Keep donors quote

MT: Thank you so much for taking the time to do this interview today. It was really, really informative and I hope everybody learned a lot. And if people do want to get the Atlas of Giving report and kind of go over it in more detail, do they just go to Atlasofgiving.com?

RM: Atlasofgiving.com, you’ll have to register as an Atlasofgiving.com user. But all that requires is your email address, and then in the top left portion of the home page menu bar, it says current monthly report. Just click on that, and you’ll get between 14 and 16 pages of data you never knew you could have. The best part is, it won’t cost you a dime.

MT:  Thank you so much. If anybody wants to get in touch with you and ask you more questions, would you like to give people your email?

RM: Sure. Anybody can reach me at rob.mitchell@atlasofgiving.com. I’d like to thank you for giving me the opportunity to discuss the Atlas. I think it’s a great tool for practitioners whether you’re in the C-Suite or you’re a pounding the ground fundraiser. It’s a great tool for you.

MT: Yeah. I know a nonprofit right now that’s having similar results this year when they wanted higher results, and I think it could be a real comfort for some CEOs to know that, hey, treading water this year may be the standard that every other nonprofit is going to be doing in 2016. So don’t blame your fundraiser necessarily.

RM: Perfect. Benchmarking is important. Benchmarking is important, and as I say – oh, and I would also encourage people if they’d like to learn more about some of the things that we’ve talked about to go to my LinkedIn page. I think right now I have something like 32 different blog posts up on that LinkedIn page, and it includes everything from what lower oil prices will – what effect lower oil prices have on charitable giving, to how you manage the role – or my latest one is how you manage the rollercoaster we’re riding on right now and give some positive suggestions on things people might consider doing.

(Disclosure: I was provided a free copy of the May Atlas of Giving report to do this interview)

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Mazarine