6 Points of Economic Reality for Major Gifts
“We need more money. That’s why we’re starting a major gifts program.”
This is how many leaders think the economy of a major gifts program works. They decide to do it and — bam! — the money starts to flow in immediately.
And because they think that way it sets up an unrealistic and damaging relationship with the major gifts officer (MGOs) they hire. If you haven’t experienced this yourself, think about this to get a grasp on what usually happens:
- A decision is made to start or enhance a major gifts program.
- MGOs are hired.
- Finance requires the development leader to produce a new forecast for the expense and revenue budget, and to justify the added expense. This justification process usually has the finance person or the top leader pressuring the development leader to make sure a good quantity of net revenue results from the program its first year. This is where the problem starts. An aggressive revenue forecast is produced and now the MGOs must deliver on it. We are off to a bad start.
This is exactly what happens far too often. And it sets up the program for almost immediate failure. And if anyone in the organization tries to counter the progression of this fatal process, they are seen as obstructionists and pessimists. After all, “We have the donors who really want to support the organization. And now we are going to ask them to get involved to a greater degree.” As if it were that easy. Donors aren’t just sitting at home eager to give more because we ask them.
This is where leaders and chief financial officers and many development directors need a dose of economic reality as it relates to major gifts. And that reality, in Jeff’s and my opinion, has six points:
1. The donors in a major gifts program have to come from somewhere in the organization.
This is one of the greatest misunderstandings in major gifts. And hardly anyone talks about it. Some leaders and managers truly believe that the real donors that contribute significantly to the major gifts program will come from outside of the organization. They’ll say, “Just go out there and find them!” And the MGO is given a list of very wealthy people the MGO should go after. This is not smart. The fact is that the very best donors for the major gifts program are already in your donor base. And, yes, if they are given a chance to do something they really want to do, they will generously give.
2. When the donors are moved into the major gift program, the other revenue managers will object.
Most of the donors that the MGO qualifies will come from the direct marketing program. This means that the revenue that was once credited to direct mail or direct marketing will be credited to major gifts. This could be a $300,000-to-$600,000 swing per MGO in the first year! Yes, this does need to happen because a MGO needs to have a qualified list of donors for a caseload. And this is the right way to do it. The work-around on the credit thing is to give soft credit to direct marketing for those donors as long as they are receiving direct marketing communication, which they should until the MGO is absolutely certain he has a substitute strategy for that donor.
One caution here: Jeff and I recommend leaving all major donors in all direct marketing communication efforts, leaving the decision to take them off way into the future. Remove them too early, and you will lose revenue. Believe me.
3. A major gifts program takes time.
This is another often misunderstood point. People who are not familiar with how major gifts work actually think that there are a ton of donors who just cannot wait to give more. This is not true. The truth is that there are a ton of donors in your active donor file who could give more, but it will take time to develop the relationship to the point where they will give more.
In our experience, a major gifts program does not materially generate more revenue until its second year and then it grows from there with healthier results in years three to five. ROIs usually go from 1-to-1 to 1-to-2 the first year, counting attributable revenue to the MGOs efforts, then increasing to 1-to-3 to 1-to-5 the second year, then 1-to-6 to 1-to-8 the third year, and higher from there. We have seen more mature programs deliver 1-to-10 and as high as 1-to-20 — that’s $20 in the door for every dollar spent (all costs in).
A word of caution here: Every organization is different so do not take these figures and push them on your situation. Our best advice here is to simply assume a breakeven situation the first year, some decent return the second and things starting to look good in years three to five.
4. You must have something to offer a donor.
This is a critical piece needed to succeed in major gifts. And it is the most often overlooked part. “Just get out there and raise the money” is the usual directive from an authority figure to the MGO. Well, sorry, it doesn’t happen that way. The MGO needs something to present to each donor on the caseload — something that matches that donor’s interests and passions. If your organization does not provide that, a MGO cannot be successful. You must package your program and budget in order to give your MGOs the tools they need to be successful in fundraising.
5. Only a few donors will give transformationally.
This is another surprise for many leaders. They actually think that most of the major donors on a MGO’s caseload will give outrageous amounts. No, they won’t. Many will give more — generously more. But only a few will give transformationally.
From an economic point of view the strategy in major gifts is to have an incubator of donors on a caseload where a MGO, over time, can uncover those who will seriously rise to the top in their giving. This incubator is being refreshed one to two times a year as:
- The MGO discovers which donors will not want to give at the level originally thought and removes them from the caseload
- Replace those departing donors with new ones from the current donor file
There is a regular shifting and sorting that goes on in a healthy caseload. Do not interpret this shifting and sorting as a careless hunt for money. The MGO is sincerely and carefully trying to help every donor on the caseload fulfill their interests and passions. The MGO is simply spending more time on those who can give transformationally.
6. Value retention will go up.
This is the final area that is either ignored by or rejected by leaders and chief financial officers. In fact, Jeff and I have a situation right now where we have been able to show the leader the actual value that has been retained over prior years from the caseload donors. Prior to involving the donors on a MGO’s caseload in the major gifts program, those donors were attritioning in value at a rate of 46%. This means that if all those donors gave $1 million last year, they would give $540,000 this year — a loss of $460,000! And now those same donors are value attritioning at a rate of 8%, so a loss of only $80,000. That is a real savings of $380,000! Leaders must count this actual improvement in donor giving as a credit to the MGOs efforts. The fact is that when a donor is managed in a personal way value retention goes up. And this is good news.
If you are a MGO who is living under a management system where reasonableness and clear thinking abounds, be thankful. If, on the other hand, you are living under a system where unrealistic expectations have been set, Jeff and I suggest you share this post with your leader and/or chief financial officer to start a dialogue on this topic.
Most often, these good leaders do not fundamentally understand how the economics of major gifts works. And that is why it is important to provide this information.
If you’re hanging with Richard it won’t be long before you’ll be laughing.
He always finds something funny in everything. But when the conversation is about people, their money and giving, you’ll find a deeply caring counselor who helps donors fulfill their passions and interests. Richard believes that successful major-gift fundraising is not fundamentally about securing revenue for good causes. Instead it is about helping donors express who they are through their giving. The Connections blog will provide practical information on how to do this successfully. Richard has more than 30 years of nonprofit leadership and fundraising experience, and is founding partner of the Veritus Group.