Think of Nonprofit Major Gifts as a Business

Who would ever think of running a nonprofit major gifts program as if it were a business? Not many people. And that’s too bad, because it would cause each of us to pay more attention to the things that are important.

I have often said that the only difference between a nonprofit and a for-profit is that the for-profit pays taxes. Other than that, there should be no difference. All the same rigor and discipline that is needed to run a successful for-profit company should be applied to every charity in the world. There is no excuse not to run them that way.

This line of thinking—operating a nonprofit like a business—is perfectly captured in an article by Marc Koenig titled, “The Importance of Treating Your Nonprofit Like a Business.” Read it and then come back, so I can show you how I apply his principles to major gifts.

Marc starts out by defining a business as an activity that creates value for others and makes their lives better and more meaningful. Money does change hands. The business gives the customer a service or product—the customer gives the business some money. If this works like it should, both sides believe they have received proper value.

In a nonprofit, the same thing happens. Money changes hands. The nonprofit gives the donor the ability to fulfill their charitable interests and passions. And the donor gives the nonprofit money. Again, if done correctly, both sides believe they have received a fair and proper value.

I disagree with Marc’s assertion that the “fundraising gig is a little tougher than traditional sales,” because when you have identified a donor’s passion and interest and provided that donor with a path to fulfill that interest and passion, it’s like falling off a log to help them give their money to make it all happen. The critical point is having the proper match. But, I digress…

Marc then quotes Josh Kaufman’s belief that states, "… a business is a repeatable process” that:

1. Creates and delivers something of value…
2. That other people need or want…
3. At a price they’re willing to pay…
4. In a way that satisfies the customer’s needs and expectations…
5. So that the business brings in enough profit for it to be worthwhile for the owners to continue operation.

Here is how this applies to major gifts:

1. Create and Deliver Something of Value

The most basic transaction in major gifts is a sum of money in exchange for the ability of the donor to fulfill their interest and passion. That’s it. Nothing more. Nothing. This seems so simple. Yet, Jeff and I see this principle violated time and again in many nonprofits around the world.

Instead of fulfilling donor interests and passions, the organization and the major gift officer (MGO) simply go for getting the money. And that’s where everything starts to go bad. The second you start to go for the money you lose sight of the sacred and mystical thing that should happen between your donor and your organization—this exchange of values that positions the donor to address some of the most pressing needs on the planet. And when your eyes are off of that mark, you will start down a path of failure. Something of value must be delivered to the donor. And what does the donor value? Doing good in our hurting world.

2. Something That Other People Need or Want

You have probably seen this happen in major gifts—where the program people or the CEO, president or executive director has come up with this really cool idea that no one wants or needs. It happens more than you know. And this is where the insiders are self-expressing vs. really being market-driven. So, this second point is also key. In order for the donor to adopt and support a solution, there must be compelling need and a believable solution. Here is how these three things work together (Image below).

Credit: Richard Perry

Too many major gift programs fail at securing donor support because the need is just not compelling (i.e. no one thinks it’s really important), and then there is not a believable solution. Get these two things right and the donor will support it.

3. At a Price People Are Willing to Pay

This whole thing on price is so interesting to me. Think of all the “price promises” you have seen in fundraising. X amount will dig a well. Y amount will feed a child for a month. Z amount will provide a hospital bed for a week. And the list goes on with price promises on books for kids, animals or forests saved, housing provided, etc.

Part of providing a believable solution is to also provide a believable price. And by “believable,” I mean the donor will be willing to give that amount because he or she perceives is the right price for the service or goods provided. How do you price your programs for donors in the proposal and asks you make? Do you just make a number up? Sorry, didn’t mean to offend you, but many people do. Or do you seriously do a cost study, which includes overheads, and come up with the right cost for the program you want the donor to support? Jeff and I find that there are many folks who do not take this part of offer development seriously—and you need to take it seriously in order to come up with a “price” the donor is willing to “pay.”

4. Satisfy the Customer’s Needs and Expectations

The primary expectation a donor has in the nonprofit transaction is to know that their giving actually made a difference. For the most part, nonprofits do a poor job of communicating this basic bit of information to their donors. I don’t know why this is true, although, I suspect it has something to do with leftover thinking from two or three decades ago, when donors were expected to just trust their charity to do the right thing. You may have some of that thinking in your organization. And if you do, the burden is even greater for you to deliver as much as you can to your good donors on how their giving has made a difference.

5. Bring in Enough Profit to Make It Worth Continuing

In the commercial world, you have “margin,” which is essentially what is left ver after you pay for the cost of producing the product or service—the cost of selling it and the cost of running the business. It is what is leftover: the profit margin.

It is more complicated than what I have just said, but for the sake of this application, just think about what is left over after all the costs have been covered. In the nonprofit world, the cost of a project or program needs to include an allocation of costs to run the organization. And running the organization includes administration, operating and fundraising costs.

A big mistake made by many nonprofits is that they do not include these costs as part of what an individual program or project costs. The result is that funds are secured for the direct costs of the project or program, but all the rest of the cost, sometimes up to 20 to 30 percent, is not covered, which means that the nonprofit is deficit spending and will soon be in trouble. This is one of the most misunderstood and mismanaged areas of nonprofits today. And if the leaders of those organizations were thinking like for-profit business people, this would not happen.

Nonprofits need to have margin, too. And in the major gift area this means that every project and program you present to a donor should carry a healthy amount of overhead in the price of that project or program. Be sure you are doing this. It is not only ethical to do it—it makes good business sense as well. 

When you are running your major gift program as a business, everyone wins. The donor wins. The organization wins. And the person helped wins. There is no other way to do this.