Capital Campaigns Are Not Always the Solution
Recently, I talked with a nonprofit on the West Coast looking to expand its programmatic efforts in another state. While it had financial resources because of its fee-for-service revenue model, it didn't have much bandwidth and infrastructure operationally to conduct a campaign in a new community 2,000 miles away. It was a large organization, but only one person focused on fundraising with an engaged board.
Because of the need for added revenue for this project, the director reached out to capital campaign firms, which mostly told the director the path was to do a capital campaign. But a feasibility study, costing $30,000 to $70,000, needed to precede the campaign.
You don’t need to do a feasibility study, and you don’t need a capital campaign. Given the lack of presence in a new state, I already know what the community responses would tell the nonprofit. As nonprofits need to be good stewards of the funds from their donors, consulting companies also must do the same with the resources of their clients. A capital campaign is the easy answer, and not every nonprofit needs to go down that path. There are other ways of accomplishing the goals you seek to achieve.
The Feasibility Study and Capital Campaign Fallacy
The feasibility study theoretically gauges a nonprofit's ability to launch a capital campaign and likelihood of success. But there are two things about the industry you should know.
- Chances are that you don't have to do a feasibility study (so, save yourself the money).
- A capital campaign is not the only way to raise funds for a significant programmatic or capital effort.
While a capital campaign is a good approach to raising funds — in some instances — it doesn't always have to be the approach taken. Think of a capital campaign as only one tool in the toolbox. For the organization I spoke to, the recommendation to do a feasibility study and then a capital campaign was like suggesting you needed a hammer while what was necessary was a scalpel. The reality is that a campaign requires a significant amount of infrastructure and could stress the organization's human and financial resources.
The fact of the matter is, in many cases, you need to create a funding plan (e.g., a strategic major gifts effort), and execute it consistently and well. Some consultants want nonprofits to do a capital campaign and typically recommend a study with the campaign. While this generates consulting fees and sets the table for future work, often it's not in the best interest of the nonprofit or its donors. Further, it doesn’t serve small nonprofits with limited infrastructure and resources well.
You Have Limited Resources, and the ROI Might Not Be Worth It
Usually, the successful campaigns you hear about happen within nonprofits with broad and deep resources in the community. Building momentum for a capital campaign can take a long time — at least longer than expected. And most nonprofits underestimate the amount of time it'll take (as well as the infrastructure level and strain on resources).
Of course, capital campaign consulting firms realize it. So, one of the techniques they like to use is to bring in their team of consultants to work for the duration of the capital campaign. That takes more money, and the proposal and contract always include a payment plan for the nonprofit. Unfortunately, many organizations struggle with how best to pay the fees. I've heard too many times about fees paid over a long period with no results, and that creates skepticism in the nonprofit space about a consultant’s ability to succeed.
Regardless of how much the campaign makes, the consulting company always wins first irrespective of the outcome. Don't misunderstand me, as I have done many successful campaigns, but on terms within a client’s budget and with respect to each organization’s unique needs. I have to be mindful of culture, capacity, and human and financial resources.
The return on investment (ROI) is the goal of any capital campaign. By design, consultants always get paid. But, regardless of what consultants tell nonprofits — such as that they will recoup their investment in their services — at best, it can be a big and unnecessary expense. At worst, it's not what the nonprofit needs and isn't a good use of its resources. You could spend years receiving pledges (and there will be slippage in any campaign amount pledged) and recouping your investment — regardless of whether you made your financial campaign goal.
You’ll Get Fundraising and Not Development
If you hire a consulting firm to conduct a capital campaign, you must realize that often it’s getting to the goal. Fundraising, in this case, is very transactional, and as I like to say, "It’s easy to count what you raise, but hard to count what was left on the table.” When you hire a capital campaign consultant, you may well end up with a short-term team. You have to own the relationships with donors and not the consultant. Those relationships are best stewarded by a strong development or advancement office.
Ask yourself a question: Do you think your donors want to be asked for large sums of money no matter what? Many firms tell you that donors love the idea of giving to vision. And, yes, that’s true. But nonprofits must realize that capital campaign fundraising is a process; ultimately, it becomes all about money. It’s not unheard of to end up with donors turned off by the transactional nature of the process.
Consultants can be helpful in certain situations — depending on the nonprofit's size, budget and infrastructure. Sure, they’ve spent years practicing and mastering their field, so they have valuable information and insights to share (at least that’s what you hope). But it's easy to think of the big-name consultants and assume that's what you need. For most, it's an excessive cost.
With big firms come the hefty consulting fees, which can start at $30,000 a month and exceed $70,000 per month. The rule of thumb some consultants use is between 5% and 10% of the goal. On a $10,000,000 campaign, the consultant can make fees of more than $500,000. Think about it. Do your donors want you to spend the money on external consultants when there is a need for internal fundraising capacity?
How to Make an Informed Decision
Now you have all the information you need to decide why you don’t want to do a feasibility study or capital campaign. You now know a bit of the risk of these two processes. There are safer, more secure ways to fund your project, and they’re probably a lot easier (and less costly!) than launching a study and capital campaign.
For the record, I'm not saying you shouldn't pay consultants. Of course not. People need to be paid equitably for their work. But, when equity is a big topic of discussion, we should also discuss how some capital campaign firms have been getting a good ride for decades, making their executives wealthy — at the expense of nonprofits and donors.
Unfortunately, telling nonprofits they need to do a study and capital campaign is the easy go-to position for fundraising consultants. And it doesn't best serve the interests of nonprofits or their supporters. Again, these elements are tools in the toolbox, but you needn't always use the one tool in your toolbox for something that takes another, more practical means.
Paul D’Alessandro, J.D., CFRE, is the author of "The Future of Fundraising: How Philanthropy’s Future is Here with Donors Dictating the Terms." He’s the founder and chairman of High Impact Nonprofit Advisors (HNA), and also D'Alessandro Inc. (DAI), which is a fundraising and strategic management consulting company with more than 30 years of experience in the philanthropic sector.
He has worked with hundreds of nonprofits to raise over a billion dollars for his clients in the U.S. and abroad. In addition, as a nonprofit and business expert — who is also a practicing attorney — Paul has worked with high-level global philanthropists, vetting and negotiating their strategic gifts to charitable causes. Paul understands that today's environment requires innovation and fresh thinking, which is why he launched HNA to train and coach leaders who want to make a difference in the world.