In some nonprofits, the fundraising goal is determined by a budget deficit. Expenses are set first, then committed revenues are put in. The deficit is the fundraising goal for the year. For other nonprofits, the annual fundraising goal is last year’s budget increased by whatever percentage. Still other nonprofits are at their wit’s end and desperately trying anything that promises to make them money. None of these methods are ideal to set realistic fundraising goals. 2020 was one unpredictable year, to say the least. Every nonprofit I know suffered lost fundraising revenue last year. 2021 promises to be unpredictable too. How can you adequately financially prepare for the revenue uncertainties of 2021?
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Assess Your Current Financial Situation
We’re now almost a year of living in this pandemic. Where are you financially? Are you losing money, breaking even, or realizing a positive net income? How long has that been the case?
Analyze Internal Trend Data
You will want to look at a year’s worth of monthly trends. Because 2020 was such an off year, I wouldn’t even go back to too many month’s when things were normal. Because we live in a new reality and don’t know what the new normal will look like. Analyze your revenue trends and associate each rise or dip with actions your agency took in response to the declining fundraising income. What worked? What didn’t work? You might want to do more of what worked in this coming year and not do what didn’t work, no matter how beloved that activity is. Because you’re talking your viability now. You just cannot afford to lose any more money.
Account for Total Costs
When you look at your fundraising revenues, look at them at the micro level. And account for total costs, not just direct costs. For example, how much money do your events make after you factor in direct costs, staff, and general and administrative expenses? Most nonprofits lose money on their events after accounting for total costs. What is your real event net income? If it’s not working for you financially, you need to make a change.
Evaluate Economic Trends
In addition to internal financial trends, you need to account for external economic trends. What is the environment we operate in? For example, you need to know that foundation funding is more competitive than ever. And that people are zoomed-out with events. And that while some individuals will not be able to donate this year, others will still give, maybe give more, if you have a good case for support. You may want to grow exponentially, but what really is realistic given the current state of affairs?
Account for Organizational History
Ask too, “What have we been able to achieve in the past?” Again, I would look at a year’s worth of monthly trends. If you raise only $250,000 in fundraising revenues over the past year and budget to raise $500,000 this upcoming year, chances are you will fail. Especially if you’ve reduced your fundraising staff. Or if you have spent time chasing every opportunity that presents itself as possibly bringing in some cash. You must pay attention to your fundraising infrastructure to succeed. About 80 percent of charitable dollars come from individuals. You need a strong case for support to reach them. And decent administrative skills available to keep up with the recordkeeping and stewarding of donors.
Also look at your donor retention rate. On average, it costs six times more to acquire a new donor than retain a current one. And nonprofits are generally poor at retaining donors, with an average first-time donor retention rate hovering just around 25 percent. Increasing your donor retention rate may be the most cost-effective thing you can do to improve net income. Run the numbers. See how much of a difference a small change in your donor retention rate affects your fundraising revenues. You may be surprised.
Determine Your Revenue Goals
Where do you want to be revenue-wise? How long will it take you to get there, given your internal capacity and the current economic environment? What is really feasible this year? Be realistic. Base your goals on organizational capacity and history, not on random percentage increases or budget deficits.
One trick I use is to do my revenue budget before I do my expense budget. That way my operational capacity is line with my income generation capacity. It does me no good to budget unrealistic fundraising income. What I will end with is failure to meet budget, staying on a negative net income trend and getting grief from my board because I am not meeting expectations. It isn’t easy standing your ground when you determine realistic fundraising goals, especially if you are trying new things. Like focusing more on donor retention than donor acquisition. Or building up your infrastructure instead of chasing the next idea for money.
Determine Your Fundraising Program
When you choose what fundraising channels to implement ask, “How related to my mission is this activity? Does this activity build on our organizational strengths? Will my donors appreciate this activity?” If you have declining revenues, the natural inclination is to look at what others are doing to raise money and copy their success. But that method chases the money, not the mission. There is nothing wrong with doing the same type of fundraising as others – as long as it will meet YOUR goals. And by your goals, I mean meeting your mission, utilizing your team’s strengths, and catering to your donors’ preferences.
Stick to Your Mission
To attract new donors, you best stick to your mission. It is fulfillment of mission that motivates the biggest gifts and generates the most donor loyalty. Foundations are all about mission fulfillment. Businesses want to see a strong corporate identity centered around a mission. And individuals want to be part of making mission happen. Probably the biggest mistake I see is nonprofits not adhering to their mission within their fundraising program. Big mistake.
Build on YOUR Strengths
No one nonprofit is exactly like another. We each have our own strengths, weaknesses, and donor bases. Building your fundraising program on your organizational strengths will cost far less to operate. And you will have happier, more productive staff – things you want when morale may be waning due to budget cuts and layoffs. Catering to the needs and preferences of you donor base will increase donor retention, saving you donor acquisition costs. And you will have more satisfied donors who will say good things about you and help you attract more donors. So, only do what someone else is doing after you evaluate the fit with your particular circumstances.
Budget Adequate Resources
If you want your fundraisers to reach their financial goals, they need basic resources to do their jobs. It pays to invest in your fundraising infrastructure.
Donor Management Software
You may be able to manage your donor database in Excel. However, you will not be able to easily pull reports, calculate donor retention and acquisition rates, capture historical and financial trend data, or integrate fundraising and communications campaigns. If you need to cut, do not cut your donor management software costs. The cost of the software more than pays for itself with the time it saves.
Training
Another expense to consider keeping is training. There are many free or low-cost online trainings available, many of them offering additional free or low-cost resources that will leverage your dollars and enhance your team’s efforts. You want to invest in tools that will magnify your team’s impact. Although you may not be able to keep employee training fully funded, make sure you budget something. Even if it is only staff time to attend free trainings.
Administrative Help
In dealing with financial decline, it is important to keep a little administrative help, including for fundraising. You may not be able to employ an assistant solely dedicated to fundraising, but it is important that your development director have some administrative support, even if it’s only help with the getting the mailings out. A good resource for this is volunteers. Volunteers can help with data entry, copying and compiling grant packages, getting mass mailings out, researching donors, planning and implementing a cultivation event, asking donors to contribute, and even recruiting other fundraising volunteers. It is important that the development department have someone in place to help them. Investing in volunteer or paid administrative support is crucial.
Reserves
You don’t always want to be in this position. So. put aside some of your revenues for reserves. No matter how little. Small savings, over time, will add up. Of course, I am assuming that you are budgeting for more than a break-even budget. It is good practice to budget your expenses 5 percent higher than you think they will be and budget revenues 5 percent lower than you think they will be. And still have a budgeted positive net income. I know it’s hard. You need the money now. And organizational capacity needs to increase. Well, one way you are increasing your organizational capacity is by increasing reserves. It’s a balancing game of adding staff, buying equipment, and setting aside some for reserves. Most often money for reserves is not budgeted. And then there is no money for emergencies. The most financially healthy nonprofits make sure to budget money for reserves.
Wrapping It Up
Assess and analyze your current financial situation, including your internal and external trends. Analyze fundraising income at the micro level, taking care to account for full total costs, Stick to your mission, even in choosing your fundraising activities. It is mission fulfillment that attracts and retains donors. Build on YOUR nonprofit’s strengths and donor preferences – not someone else’s. Budget adequate resources for your fundraisers to do their jobs efficiently, leveraging your agency’s resources. And create more than a break-even budget, setting aside a portion of the extra for reserves. Think strategically about your fundraising program, rather than basing it on a budget deficit or random percentage increase. If you want to grow, think carefully about how you’re going to do it.
