Charitable Giving a Contrarian Approach

John Cockerill, President
As we all survive this recession with decreased revenues, margins and sales the same issues are affecting charities. Only for charities the problem is more pronounced and insidious. Examples of this from across the continent;

“Desert Samaritans for the Elderly, Palm Desert: 20 percent decrease in funds raised at the organization’s annual “Good Samaritan of the Year Gala” that took place in November.”
“Salvation Army Dick and Beverly Davis Center, Cathedral City: 10 percent estimated decrease from last year in donations.”
“Guide Dogs of the Desert, Whitewater and Palm Springs: 20 percent employee layoff this year.”
“AIDS Niagara has seen less dollars coming in since 2007, most notably when comparing figures from its major fundraiser. A walk, which raised $35,000 before 2007, now is lucky to raise $15,000”

Fundraisers and executive directors know the math of recentcy frequency and monetary value (RFM); and of the principals of Pareto’s Rule, the 80/20 rule. The rule that predicts that 80 percent of your profits come from 20 percent of the donors. Since these rules of thumb are so well known they blind and bind fundraising behaviour during downturns.
Fundraisers in order to maintain the net revenue and to maximize the donations per dollar spent focus on their largest, most recent donors; and only approach their mid rank donor as and where the fundraising budget permits. This can and is often a grave error for smaller and mid-size charities.

For example a charity did a survey to see where they ranked in their donors mind. A share of mind and wallet study. The hypothesis was that this would confirm the two rules and associated approach described above. Therefore it would justify the continued use and focus on the big and frequent donors.

The survey asked donors to rank their charities from most supported to least supported. They were asked that if in a recession would they stop giving, cut back, or otherwise change their behaviour. The results showed that the majority of donors would continue to give but that the overall amount would drop. And that they would reduce the number of charities they would support. So that instead of giving to 5 to 10 charities they would give to 2 or three. The total amount is reduced but the giving continued as part of their social commitment.

Consider the implications of this finding. A donor who supported 10 charities with a total giving of $20,000 might reduce the total to $10,000 or even $5000; and concentrate those monies to their top 1 to 3 charities. Now this finding is fine if your charity is one of the 1 to 3 and is top of mind for the donor. For the study sponsor this was dire. The ranking of the charities showed that they were ranked in the bottom third by most of top volume and frequent donors. As the recession deepens and people are forced to make hard choices of where to put their money this charity could foresee their top donors stopping donations at a much greater rate than had been previously thought possible. So the charity’s revenue would decline faster then the “average” charity and especially faster than the top and well known charities.

Hidden in the data though was a gem of positive news. That was the surprising strength, size and number of donors who ranked the charity as number one in their minds. This group was in the hidden in the second and third quintiles of the recency, frequency, and value rankings. In other words the charities core donors, their bedrock supporters were not the large value, frequent donors but the smaller and stable believers who had modest means to whom the charity was either their only donation or at most one of two they gave in any period.

While this was not pleasant, especially for the Executive Director, and was unexpected, it did offer an opportunity to understand how and where the charity could focus and best use the resources they had.
It is interesting to note at this point that this revelation of the power of numbers in the donation field is proof and taken up to some length in the books Fortune at the Bottom of the Pyramid, The: Eradicating Poverty Through Profits by C.K. Prahalad and most recently in Yes We Did by Rahaf Harfoush. Both books talk about how to active much larger parts of the society and market than was previously thought possible and more importantly practical. The Fortune at the Bottom of the Pyramid discuss this in the context of package good, financial services and brand design. Yes We Did talks of the extraordinary amounts of money raised by the Obama campaign; and what tools and tactics were used.

What is key and demonstrated in both books is the level of engagement that is significantly different between the different classes of customers or donors; in the case of charities the supporters versus the high value donors.

The focus in customer service, marketing and charities for many years has been to dismiss or migrate supposedly marginal customers because the volume and or margin was below some point. This point was often done using the RFM or 80/20 rules applicable to their specific industry or sector.

Marketing and sales work tirelessly and often at great expense to attract new customers. Often marketing, sales and yes sometimes even fundraisers’ compensation is tied to the number of new customers or donors per period. Once a customer has been secured they are dealt with some lower level of indifference, distain and or dismissed as not having enough value to be a concern to the organization. Meanwhile frontline customer service staff, in commercial firms and fundraisers are told that ‘every customer and donor is valuable’.

As is so often the case with rules of thumb, “A little knowledge is a dangerous thing”. There are exceptions, baseless assumptions that only deep knowledge can help alleviate. While not every charity is the same it is more important than ever today to understand your unique mix of assets, donors, market mix, supporters and where you stand in their minds and wallets.

A little learning is a dangerous thing; drink deep, or taste not the Pierian spring: there shallow draughts intoxicate the brain, and drinking largely sobers us again.
Alexander Pope:

Let us know what you think of this article. Do you agree or have a different point of view share your perspective by sending us an email at [email protected].

Leave a Reply

Your email address will not be published. Required fields are marked *