Building a Strong Foundation

Fundraising for Nonprofits

Nonprofit organizations have played, and will continue to play, vital roles in nearly every aspect of our lives. In the areas of health and human services, advocacy, and the arts, nonprofits are numerous, and their contributions to the well-being of our nation can hardly be overstated. Although government organizations are increasingly contracting with nonprofits to deliver various services they are mandated to provide, donations from individuals, corporations, and foundations are still critical to the fiscal health of nonprofits.

In 1995 total giving to tax-exempt nonprofits in the United States was estimated to exceed $143.8 billion (Kaplan, 1996). Estimates for 1996 suggest that giving to nonprofits from all sources may reach a new high of $150 billion (Panas, 1996). During recent decades, contributions from individuals, both living and through bequests, and by foundations and corporations made up 2 percent of our nation's gross domestic product (Kaplan, 1995). Private or voluntary contributions from individuals, foundations, and corporations provide approximately 20 percent of the total revenue for all nonprofits combined (Kaplan, 1993). However, many nonprofits, particularly grassroots and smaller organizations, rely more heavily on voluntary contributions. Even larger nonprofits find they must increasingly rely on voluntary or private giving. Nonprofit organizations exist in a rapidly changing environment, one that constantly threatens their financial stability. Individuals will contribute varying amounts to your nonprofit organization, depending on many factors, including how they view their own financial situation. Changes in federal and state budget priorities, with concomitant reductions in spending levels for many areas where nonprofits are involved, such as the arts, education, environment, health, and human services, have created a more competitive environment for philanthropic dollars. To ensure that your nonprofit survives and thrives in the years ahead, you will need to implement multifaceted fundraising strategies that will broaden your base of supporters. By concentrating on building a solid base of donor support, you can enable your nonprofit to gain an important competitive edge.

We believe that fundraising for nonprofits must be approached in a strategic manner that involves a variety of components. In our experience, fundraising is the process that builds a solid foundation for your nonprofit. Fundraising is an investment in your organization's future that will result in a greater degree of permanence and stability.

A primary goal of any good, comprehensive fundraising strategy is to identify and cultivate a network of individual, foundation, and corporate funders. Although you should seek to develop a base of donors who will make annual gifts, you should have major gift fundraising strategies in place as well. Your aim each year should be to maintain most of your regular supporters while at the same time bringing in new donors. As Meyers (1989) suggests, your nonprofit's success in fundraising may be measured by several different yardsticks:

• whether you have reached or exceeded your specific fundraising goals
• whether your nonprofit's visibility has increased
• whether your primary constituencies and potential donor populations have positive reactions to your organization as a result of your fundraising efforts.

Success in fundraising requires time, persistence, and a strong ego to withstand rejections. Many valid requests for funding and many excellent proposals get turned down for a variety of reasons that have little to do with the worth of your cause or the quality of your appeal.

In this chapter, we consider current patterns of giving to nonprofits by individuals, corporations, and foundations, as well as factors that motivate giving. We also address the changing donor demographics and ethical considerations in fundraising.

CURRENT PATTERNS OF GIVING

For you to develop a successful fundraising program, you must first understand the sources of philanthropic dollars. Many people believe that nonprofits get most of their money from corporations and foundations. In reality, foundation and corporate giving makes up only 12.4 percent of giving to nonprofits, with the remaining 87.6 percent provided by individuals (Kaplan, 1996). The total giving for individuals includes gifts that come to nonprofits after a donor's death in the form of bequests (6.8 percent) and gifts from living individuals (80.8 percent). In 1995 the total giving by individuals, including bequests, was $126 billion (Kaplan, 1996). Giving to nonprofits by individuals in the United States is more than seven times that of corporations and foundations. Yet, many nonprofits overlook individuals when they develop their fundraising plans.

Because individuals provide such a high percentage of contributions to nonprofits, you should devote significant attention to developing effective strategies to attract individual donors. At the same time, you should not ignore foundations and corporations. Although foundations and corporations provide only a small percentage of the overall support to nonprofits, they are nonetheless extremely important sources of revenue.

Generally, foundations and corporations provide funding for specific programs and activities and less often give unrestricted funds or funds for endowments. Although this method of funding can be limiting, foundation and corporate dollars can be important in augmenting other forms of support for your nonprofit and can, in various ways, help to promote your organizational mission.

Although a small part of the total, donations by foundations have increased dramatically in recent years. During the first half of the current decade, giving by foundations increased at a greater rate than giving by individuals and corporations combined (Kaplan, 1995). This increase in giving is the result of several factors. In recent years, the asset bases of many foundations have increased, providing them with more dollars to allocate. Additionally, more foundations have been created. This trend began during the 1980s when more than 3,000 foundations were created, each with assets of more than $1 million or annual grant budgets that exceeded $100,000. Overall, the assets of foundations increased threefold during the 1980s because of the combined effect of the rise in the value of assets of existing foundations and the creation of new foundations.

In 1995 U.S. foundations made contributions totaling $10.44 billion, whereas giving by corporations and corporate foundations totaled approximately $7.4 billion. However, cutbacks in government funding for nonprofit organizations and the dramatic growth in the number of nonprofits being created to meet societal needs have meant heightened competition for corporate and foundation grants.

A recent survey by The Chronicle of Philanthropy (Gray & Moore, 1996a) suggests that corporate giving to nonprofits is increasing. Although corporate giving rose by an average of only 2.9 percent from 1994 to 1995 (not much more than the rate of inflation during that period), the average increase for 1995 was 7.5 percent, which was far ahead of the rate of inflation. This increase in giving is attributed to significant growth in profits. Although profits are increasing, at the same time many corporations are reducing the size of their philanthropy staffs or contracting with outside companies to administer their philanthropic programs (Gray & Moore, 1996b). Figure 1-1 shows the sources of contributions to nonprofits.

More than 1 million organizations make up the nonprofit sector in the United States (Kaplan, 1995). The major categories of nonprofits receiving voluntary contributions from individuals, foundations, and corporations include religion, education, human services, health, and the arts. Figure 1-2 shows where voluntary contributions went in 1995.

Nonprofit organizations differ in the extent to which they rely on gifts and grants for their revenue. Smaller nonprofits rely most heavily on such contributions. Those organizations with assets of less than $100,000 receive approximately 58 percent of their revenue from such sources, whereas those with assets of more than $50 million rely on such sources for only about 11 percent of their revenue. The larger nonprofits rely heavily on program service revenue. However, even for the largest nonprofits, charitable contributions are critical for certain functions. Thus, whether your nonprofit is large or small, whether it is new or has been in existence for many years, you are likely to need to be involved with fundraising.

UNDERSTANDING WHY PEOPLE GIVE

At its most basic, fundraising involves asking people to give to a particular cause. This is true whether you are dealing with individuals, foundations, or corporations, because the latter two represent collections of individuals. Your primary challenge as a fundraiser "lies in finding sufficient numbers of persons who can be motivated and influenced to give, who are capable of giving the requisite dollars, and who can be interested in the purposes and needs to be served" (Mixer, 1993, p. 3). As shown in Figure 1-3, you need to consider potential donors in terms of capacity, motivation, and opportunity. First, identify those who have sufficient giving capacity. Second, motivate those individuals or philanthropic organizations to give to your particular cause. Finally, give prospective donors the opportunity to contribute. In short, ask prospective donors in a tactful manner to give at an appropriate level. In succeeding chapters, we discuss how to identify prospects with the capacity to make significant gifts and how to implement appropriate strategies to secure those gifts. For now, let us turn our attention to the matter of motivation. Although 28 percent of the U.S. adult population do not give to any charitable or philanthropic causes (Mixer, 1993), 72 percent of all adults do give (Hodgkinson, Weitzman, Noga, & Gorski, 1992). Some of those people may give to a wide range of nonprofit organizations or causes, whereas others give to only one or two.

The reasons people give to nonprofits are multiple and complex, ranging from religious beliefs and guilt to pride and peer pressure (Mixer, 1993). Many experienced fundraisers suggest that donors typically have multiple and varied motivations for giving (Broce, 1986; Huntsinger, 1982; Panas, 1984; Schneiter, 1985). This theory is confirmed by research conducted by the Gallup Organization for the Independent Sector (Hodgkinson et al., 1992) in which respondents listed the 11 motives for giving funds and volunteering their time to nonprofit causes (see Table 1-1).

The various motives given represent three themes. The first four motives relate to a sense of one's personal responsibility to others, whereas the second four are oriented to one's relationships with others. The final three motives relate to personal benefits, such as receiving recognition or tax breaks or pleasing an employer.

Interestingly, and perhaps not surprisingly, volunteering is an important element in giving behavior. Those who volunteer are more likely to give, and more likely to give at higher levels, than those who do not volunteer. In fact, 90 percent of the individuals who volunteer for a nonprofit organization also contribute money to nonprofits, whereas only 59 percent of those who do not volunteer make financial contributions (Kaplan, 1995). The Independent Sector (Hodgkinson et al., 1992) found that households with members who both volunteered and gave money made gifts that averaged two and one-half times the average contributions from households that did not volunteer. This finding suggests that you should find ways to involve prospective donors in your nonprofit so they become invested in it. Such involvement might include recruiting them to serve on boards or committees, help with a special event, or volunteer in some other capacity.

Other factors also influence giving. Socioeconomic status clearly has an impact on giving behavior. Families who have financial worries or concerns give approximately one-third less than those who do not have such concerns. Those who itemize their tax returns, and thus claim tax deductions for charitable contributions, outgive those who do not itemize taxes by about four to one. People who either give a percentage of their incomes or pledge specific amounts give larger sums than those with less systematic giving patterns (Hodgkinson et al., 1992).

In a seminal study of reasons why people make large gifts to nonprofits, Panas (1984) compared the views and attitudes of individuals who made gifts of $1 million with the views of nonprofit professionals. The nonprofit professionals included fundraisers and executives and represented health, education, religious, and cultural organizations, as well as the YMCA and the Salvation Army. For the $1 million donors, the top giving motivators are listed in Table 1-2.

Listed in Table 1-3 are the average ratings of the top motivators as viewed by the fundraising professionals.

Both the $1 million givers and the fundraising professionals viewed "belief in the mission of the institution" as the top motivator for giving. In addition, both groups thought it important to be involved with the recipient institution or organization, and both were concerned with the respect the organization commanded. Panas (1984), however, points out some important differences between the two categories of participants. The $1 million givers, for instance, were highly motivated by a sense of community responsibility and civic pride. They also were concerned about the fiscal stability of the organization and the quality of the organization's staff and volunteer leadership. The professionals, however, believed donors were motivated by their interest in specific programs or activities, were more likely to give if they were involved in the campaign program, or had an adult history of involvement with the institution. Furthermore, the professionals believed that the givers were motivated by memorial opportunities and the influence of the solicitor. What factors the $1 million givers and the professionals saw as less significant also is important, and here we see much common ground. The reasons rated as least important by the $1 million givers are shown in Table 1-4. The reasons rated as least important by professional fundraisers are shown in Table 1-5.

Clearly, guilt feelings and slick campaign materials are not likely to motivate either large or small gifts. In addition, tax considerations are not important motivators for $1 million donors. However, tax considerations are not irrelevant for all major gift prospects. Large gifts are rarely made without some consideration of tax advantages, even though this is not the primary motivation for the gift.

Panas (1984) found that $1 million donors identified another important influence on their giving behavior: "Each donor spoke about the joy they experience in their giving. The magical and glowing ecstasy" (pp. 210­211). Panas suggests that nonprofit organizations too often neglect the "exhilaration and the joy" related to giving. He goes on to say, "no single factor plays the dominant, overriding motivation. It is indeed most often a serendipitous confluence of a number of factors" (p. 211).

A review of the giving motivations of donors shows that they clearly make contributions both because of internal motivations and external influences. The internal motivations have three dimensions—personal, social, and negative, or what some term the "I", "we," and "they" factors. The personal or "I" factors include such things as self-esteem, achievement, cognitive interest, personal growth, guilt reduction or avoidance, search for meaning or purpose in life, personal gain or benefit, spirituality, sense of immortality, or survival. The social or "we" factors include status, affiliation, group endeavor, interdependence, altruism, family and offspring, and power. The negative or "they" factors include frustration, unknown situations, insecurity, fear and anxiety, and complexity. We find that people are more likely to become donors when they are treated well during the fundraising process, when they are interested in the organization or cause, and when they get rewarded for their support in ways that are consistent with their own values and motivations. Tapping into negative motivations, such as through the use of scare tactics, is an almost certain recipe for failure in fundraising.

External influences also include three dimensions—rewards, stimulations, and situations. Rewards can be recognition and other personal or social benefits. Stimulations are human needs, personal requests, vision, private initiative, efficiency and effectiveness, and tax deductions. Situations may include personal involvement, planning and decision making, peer pressure, networks, family involvement, culture, tradition, role identity, and disposable income. To be successful, you must understand the myriad factors that motivate donors to give and structure your fundraising approaches accordingly.

UNDERSTANDING WHY PEOPLE DO NOT GIVE

As you devise strategies that will enhance or increase donor motivation, you also may find it useful to consider some of the reasons why people do not give. The rationales indicated by household respondents who had stopped giving to a particular charity are given in Table 1-6. When asked their views on why people do not give, several thousand participants in more than 100 fundraising workshops offered a variety of reasons that cluster around four problems of donor­organization relations: (1) personal characteristics and situations; (2) communications; (3) reactions to solicitations; and (4) organizational image (Hodgkinson et al., 1992).

The personal characteristics and situations that can be a detriment to giving include personal preferences, contrary beliefs, dislike of programs, financial considerations, and situational reasons. Personal preferences are such things as higher priorities, lack of concern for or lack of interest in the organization, and lack of involvement. Contrary beliefs include disagreement with the organization's mission, disagreement on policies, and lack of belief in the cause. Dislike of programs includes differences in values and work ethic. Financial considerations include people being unable to afford to give and general economic conditions and tax rates. Situations that adversely affect giving include personal life complexities, competition for limited donor dollars, changing environments, and donors' reluctance to give outside of their geographic area.

The respondents identified two types of communication problems as detrimental to giving: lack of information and ineffective communication. Lack of information is characterized by unfamiliarity with the organization and its mission, lack of support by staff and others, and an unclear record of service or demonstration of financial needs. Ineffective communication includes negative publicity and the perception by the prospective donor that the organization's needs are not clear, its publications are too slick, and its promotions too costly.

Unsuccessful requests or asks can be attributed to such problems as the manner of asking, the solicitor, relations with the prospect, and timing. The manner of asking is a problem when the prospective donor is asked too often or asked the wrong way, when the donor senses that he or she is being manipulated, or when there are too many mailings. Donors tend not to give if they do not like the asker, if they have no sense of obligation to the asker, when organizations use paid solicitors, or when the wrong person makes the ask. Relations with the prospect can be a problem when there is no personal contact, no recognition for past gifts or sense of appreciation, when the prospective donor is not asked to give, or when there is no tradition of giving. Timing is a problem when the donor already gave, is asked too late, or is asked at the wrong time. Finally, organizational image problems include perceptions of poor organizational behavior and issues that relate to management. Perceptions of poor organizational behavior include active mistrust, a perception that the agency is "too rich" or has high administrative costs, a bad experience with the organization, a poor public reputation, a sense that services cost too much, the perception of duplication of services, government involvement, or the perception that taxes pay for services. Management issues include perceptions that gifts are misused, the organization has poor policies and rules, the fundraising costs are high, and the organization has poor leadership. All of the foregoing concerns suggest that you must be concerned about the credibility of your nonprofit and its management staff.

CHANGING DONOR DEMOGRAPHICS

As a fundraiser, you must be cognizant of the fact that the population is undergoing dramatic demographic and ethnic change. By 2000, 25 percent of the population of the United States is projected to be of Hispanic and African American ancestry. Furthermore, the proportion of the population that is of Asian ancestry will continue to increase, and it will constitute the fastest-growing segment of the population in many communities (Panas, 1996). Many fundraisers believe that members of racial and ethnic groups tend not to be givers. However, evidence is increasing that members of racial and ethnic groups do give to organizations and causes "in which they are involved, where they have an active role, where their voice is truly heard" (Panas, 1996, pp. 15­16). The implications of this are obvious. If your nonprofit is going to be successful in fundraising, you must recognize and respond to changing demographic conditions. As Panas (1996) suggests, this means you must identify and reach out to those who have not traditionally been involved with your nonprofit and find ways to get them involved. In short, you must demonstrate to members of racial and ethnic groups that your nonprofit's mission addresses their concerns and needs and serves their community.

A great deal of wealth in this country will change hands over the next several years. It has been estimated that $11.4 trillion will be passed from one generation to another in the next seven years. Of special note, much of that wealth will be controlled by women (Panas, 1996). Not only are women beginning to control more money, they also are making the decisions about how it will be spent. According to a recent study of women and philanthropy (Sublett & Stone, 1993), an increasing number of women are electing to run family foundations or taking over the helm of family businesses. The report suggests that "a striking picture emerges of women in positions of financial power able for perhaps the first time in this century to become a dominant force in philanthropic activity" (p. 1). During the past 10 years or so, more women than men have earned bachelor's degrees; in fall 1990, more than 1 million more women than men were enrolled in U.S. colleges and universities. Perhaps as a result of greater educational opportunities leading to better jobs, women are giving more than ever before, a trend that can be expected to continue as they assume higher positions of leadership in the corporate and nonprofit sectors. The "graying" of America also will have an impact on your fundraising efforts. The fastest-growing segment of the U.S. population is individuals who are 85 years of age and older. Soon, more than 100,000 men and women will be older than age 100 (Panas, 1996). An issue that may have an impact on their giving is that many of these older Americans are insecure about their finances because of concerns about health care needs and costs. Baby boomers are now entering their 50s and will benefit from the huge wealth transfer that will take place in the next few years. Baby boomers must be approached somewhat differently from their elders. They tend to have less loyalty to a particular cause or organization than did their elders, seek opportunities that provide instant gratification, and want more information and accountability (Nichols, 1990). Although we must interpret these generalities with caution, clearly your nonprofit must be creative in developing strategies to involve this population group.

THE ETHICS OF FUNDRAISING

In recent years, more attention has been paid to ethical issues related to fundraising for nonprofit organizations. Periodic negative publicity regarding fundraising tactics, the costs of fundraising efforts, and the uses of funds raised has led to considerable discussion among those involved in legitimate fundraising activities. Such issues as confidentiality, conflict of interest, proper stewardship of funds, and compensation approaches for fundraisers have been debated extensively by nonprofit fundraisers. Out of these concerns and discussions have come statements of ethical principles that relate to individual fundraisers and donors, as well as to nonprofit organizations that are involved in fundraising.

The National Society of Fund Raising Executives (NSFRE) has adopted a Code of Ethical Principles and Standards of Professional Practice (Figure 1-4). A careful review of the ethical principles and standards included in the NSFRE code is a useful exercise for anyone considering becoming a fundraiser, whether as a professional, nonprofit executive, or nonprofit board member or volunteer. Such a review also can prove beneficial to organizations that are considering hiring a fundraising consultant or firm to assist them with their fundraising activities. We have found these principles and standards to be a helpful checklist as we have interviewed applicants for fundraising jobs or advised nonprofits on their consideration of fundraising consultants.

Just as attention to ethical issues related to fundraising professionals and fundraising activities has grown, interest has grown in the rights of donors. This interest led to the development of A Donor Bill of Rights (Figure 1-5). We recommend that careful attention be paid to the rights of donors. Because fundraising is an activity that involves people, we must be concerned about how these people are treated. When donors are treated with respect, when their rights are considered and observed, they will generally feel that they have been well treated. Thus, assiduously observing their rights is not only the proper thing to do, it also will help lead to the ongoing success of an organization's fundraising efforts. Additionally, as seen in Table 1 2, the $1 million donors rated a number of factors related to the institution or organization as strong or important motivators, including belief in the mission of the organization; fiscal stability of the organization; regard for staff leadership; and respect for the institution locally, regionally, and nationally. Finally, when you treat your donors well, they will often want to continue to support your organization or cause. Conversely, when donors are not treated well, they are likely to discontinue their support, and word may get around and have a negative impact on giving by others.

In an effort to aid donors in making informed decisions about organizations, the National Charities Information Bureau (NCIB) has, for more than 75 years, been evaluating charitable organizations. Currently, the NCIB Standards in Philanthropy (NCIB, 1994), which were developed in the late 1980s, are used to rate national charitable organizations in terms of the following components:

• board governance
• purpose
• programs
• information
• financial support
• use of funds
• annual reporting
• accountability
• budget.

NCIB states that it believes the spirit of its standards makes them applicable to all charities, but it suggests that greater flexibility in applying some of the standards is appropriate for small organizations or those that are less than three years old. We concur with that assessment. The NCIB standards can be a useful template for judging how well your organization is structured for its fundraising efforts. In addition, NCIB publishes an informative quarterly newsletter, the Wise Giving Guide. To obtain a sample of the newsletter, a copy of the standards, or both, write to NCIB at 19 Union Square West, New York, NY 10003.

REFERENCES

Broce, T. E. (1986). Fund raising: The guide to raising money from private sources. (2nd ed.). Norman: University of Oklahoma Press.

Gray, S., & Moore, J. (1996a, July 9). Big gifts from big business. The Chronicle of Philanthropy, 7(19), 1, 12­16, 18.

Gray, S., & Moore, J. (1996b, July 9). Corporate-giving departments turn to "outsourcing" to save money. The Chronicle of Philanthropy, 7(19), 18.

Hodgkinson, V. A., Weitzman, M. S., Noga, S. M., & Gorski, H. A. (1992). Giving and volunteering in the United States: Findings from a national survey. Washington, DC: Independent Sector.

Huntsinger, J. (1982). Fund raising letters: A comprehensive study guide to raising money by direct response marketing. Richmond, VA: Emerson.

Kaplan, A. E. (Ed.). (1993). Giving USA—1993. New York: AAFRC Trust for Philanthropy.

Kaplan, A. E. (Ed.). (1995). Giving USA—1995. New York: AAFRC Trust for Philanthropy.

Kaplan, A. E. (Ed.). (1996). Giving USA—1996. New York: AAFRC Trust for Philanthropy.

Meyers, R. S. (1989). Financial management for nonprofit human service agencies. Springfield, IL: Charles C Thomas.

Mixer, J. R. (1993). Principles of professional fundraising: Useful foundations for successful practice. San Francisco: Jossey-Bass.

National Charities Information Bureau. (1994, December). NCIB standards in philanthropy. Wise Giving Guide, p. 7.

National Society of Fund Raising Executives. (1992). NSFRE code of ethical principles and standards of professional practice. Alexandria, VA: Author.

Nichols, J. E. (1990, August). Philanthropic trends for the 1990s. Fund Raising Management, 21(6), 45­46.

Panas, J. (1984). Megagifts: Who gives them, who gets them. Chicago: Pluribus Press.

Panas, J. (1996, August). The sky is falling, the sky is falling: But don't worry, it could be philanthropy raining down. Contributions, 10(4), 1, 15­16, 19, 29, 31.

Schneiter, P. H. (1985). The art of asking: How to solicit philanthropic gifts. Amber, PA: Fund Raising Institute.

Sublett, D., & Stone, K. (1993). The UCLA women and philanthropy focus groups, 1992. Los Angeles: University of California Development Office.