How to explain why Regular Giving has never been more important

How can we explain this effectively to our colleagues, so that in troubled times Regular Giving continues to get the resources it needs?

Over the last few weeks, people have been discussing the tension between budget, targets and developing regular giving. It’s been the case with every economic downturn that some institutions have backed away from fundraising and focused on engagement, concerned it was not the time to ask. But a far more worrying trend has been shown by those who have looked at large-scale need, looked at ROI, and decided to concentrate solely on major gifts. The former approach is a wasted opportunity. Giving is the most profound catalyst for engagement there is. The latter can prove immensely damaging to an institution in the short and long term. Short term, it can leave wealthy individuals feeling that advancement has been abandoned and that a begging bowl has replaced it. Long term, five and ten years down the line, the absence of a steadfast regular giving programme leads to a lack of donor qualification and a withering of the culture of giving. 

These effects are not quickly seen. Abandoning caution and asking everyone who has any money to give right now will create a spike in income. But it's a rocket to the sky, a starburst, then nothing but a burnt stick and a patch of charred earth to show for it. However, when times are hard, it’s easy to take shortcuts.

...it seemed worthwhile, at this time, to re-visit the unique nature of educational fundraising and create a short briefing...The challenge Development Directors and Regular Giving Officers face is that they understand all of this, but their colleagues and governance do far less well. As one DD put it the other day, ‘I can see I will have to sit down and write an Educational Philanthropy 101 that, within a couple of sides, lays out how this all works. Otherwise, the tragedy of Covid will also mess up years of great work getting our community to believe in what we do.’

That DD will do a far better job than I. Nonetheless, it seemed worthwhile, at this time, to re-visit the unique nature of educational fundraising and create a short briefing. Such a briefing is intended to both refresh all our thinking and also to serve as a paper that can be given to anyone involved, but not fully engaged day-to-day, so they can better understand what, to a layman, may seem a slightly peculiar process.

So here is my attempt to put across the uniqueness of educational fundraising and why it has to have Regular Giving at its core:

Educational Philanthropy: How it works

Educational fundraising is a branch of not-for-profit fundraising. It is very different from most charitable philanthropy. It’s a bit like saying that Carl Fabergé worked in a branch of metal working. Little would be understood of his activities by watching the manufacture of even the most beautiful car body work, intricate tooling machine or incredible sushi knife. It is not a matter of skill. They are simply very different activities. 

Most charities make an appeal for funds across the population. They attempt to garner sympathy for their cause and ask people to make donations because they particularly wish that charity to undertake beneficial work. Of course, a cancer charity may find it easier to get support from the family of who lost a relative to cancer. But they also have considerable opportunity to ask the general population for support because the threat of cancer hovers over us all. Some charities, with friends groups and memberships, have elements of both. That is acknowledged but does not reduce the general distinction being drawn.

Few doubt that educational establishments provide immense social benefit. Historically, they did obtain massive support from the general population. However, today, institutions are either publicly funded or they are charging fees. Most people are supportive of ‘education’ in a general sense, but they do not see why they should give to a particular institution to which they are unconnected. This means the audience for donations lies with alumni and parents of current students.

It is possible this may change, and some institutions are reaching out further. Some major philanthropists do give to institutions they did not attend but which they believe will deliver social benefits that they support. Some places have achieved success at funding specific projects from such sources. However, the majority of activity in the education sector is getting income from alumni and parents of current and former students.

They are distinct pros and cons:

Pros

• Alumni, because they had a good education, tend to be in the more affluent demographics
• Parents of current students tend also to be affluent. They value education and are driven to see their children succeed. This level of motivation often means they have done well financially themselves.
• Both groups understand the benefits the institution bring
• They want to be part of a network, both socially and for the benefit of their careers.
• They communicate with each other so viral marketing is easy

Cons

• They are a finite resource
• They communicate with each other so viral marketing is easy (so bad news travels fast)
• Financial needs of education are considerable. This means that some individuals need to give very large sums. (Fortunately, the products of private schools and universities are more likely to get rich than the general population. They also have more stable jobs; thus, many will have money at their death they can leave in their Will.)

It is easy to see that the key to educational philanthropy is maintaining and enhancing the relationship between former students (and the parents of students) and the institution. These relationships must be maintained for life. Throughout the period, the institution must give better reasons to stay in touch than simple nostalgia. This can be achieved through career networks, social opportunities, lifelong learning and other programmes.

Engagement is not enough to obtain large donations. Few people will part with significant sums without having great trust in the recipient. Will the institution deliver well on the project being funded? Such trust is most likely to be built through a gradual process. Cornell University found that a donation of over $1m was typically preceded by 13 smaller donations. They found that 80% of the time, the first three donations were less than $250.

We can see therefore that a cycle takes place:

This would all be very simple if:

1)  we could predict at the time people left an institution which ones would get fabulously rich and be able to give or leave large sums to their alma mater

2)  the community was not a gold-fish bowl where the actions of one individual has a bearing on another.

In relation to point 1 above, there is considerable benefit in being able to identify, as early as possible, incubator donors who are likely to turn into major donors. In a sense, this is like going to a yearling horse sale: one cannot know which horse will win the Arc De Triomphe; the skill is being able to recognise the signs and pick well enough that, from the selection of colts and fillies one buys, there is a good chance one champion will emerge.

Just like horses, it takes time for the potential of a given individual to emerge. If an institution waits until an individual is wealthy, that individual may feel unappreciated. Worse, they may well have developed loyalty to other causes.

In relation to point 2 above, it is important that many of the community give because this grants credence to the institution. It is hard for someone, busy with a large business, to study the everyday activity of their alma mater. As we do in so many things, major donors rely in part on the ‘wisdom of crowds’ to establish that a charity is worthy of support.

Also in relation to point 2, donors wish to feel part of something and to feel appreciated. There is more personal satisfaction in being a leader among a community of donors. There is little joy in being a single donor to a charity no one else bothers to support.

For the above reasons, it is extremely important to get high participation from as many of an institution's community as possible. Given that an institution wishes wealthy individuals to not hesitate when they can make a large gift, the most desirable position is to have people giving regularly, the scale of their donation increasing with loyalty, trust and wealth over time. This makes possible a seamless transition to major giving once the wealth of the individual is sufficiently great.

There are two other key reasons why mass giving matters:

Firstly, whilst institutions do rely heavily on the support of alumni and parents, they do also seek funds from charitable trusts, companies (as well as major philanthropists as mentioned above). All of these donors place value on the level of support from the internal community. If an institution cannot be bothered to ask those people close to it, why should an outside organisation support? The conclusion is easily drawn that it is better to leverage their donation elsewhere, where together with internal support it will create greater public benefit. Further, if internal donors are not giving, what does that say about the institution? Surely the alumni and parents are the best judges of whether an institution is delivering benefit? Without their confidence, why would an external party have any confidence either?

Secondly, modest donations tend to come with no strings attached. This is very important to an institution because fundraising costs money. Most major gifts are for specific projects. This might be a large capital project or it might be an endowment where income is to be earned through investment and, in perpetuity, only income expended to deliver benefit, the principal remaining untouched. Neither case covers the cost of the engagement of the community, the asking or the stewardship to keep such donors onboard. These costs are covered by the institution. Small scale donations offer the chance to recoup this money and to deliver on top an income stream that can be applied to activities at the institution that would be difficult to fund from other sources. For example, whilst a major donor may well wish to build a sports hall, they may well not be interested in simply paying to repair the boiler in the old gymnasium. In raising undesignated income, or income for already budgeted smaller works, or income that assists funding of already committed bursary spend, money is freed up from the year’s budget. This 'free' money can pay for new things; or it simply can relieve the costs of the fundraising operation. This means that mass fundraising, if done well, can have an impact that is more considerable, pound for pound, than big gifts on the daily operation of the institution. 

For these reasons, it is very important to all institutions that mass fundraising to all constituents takes place. This need is not easily delivered as mass fundraising is unwieldy and time consuming. The return per solicitation is modest and the return will never be as good as major gift fundraising. 

For this reason, a constant tension exists between resources and returns. This is true of all ‘lead generation’ activities. Businesses accept that generating leads will have a cost. That cost will be defrayed by the eventual income from sales.

Happily, in educational philanthropy, it is usually the case that the cost of mass fundraising is less than the income it directly produces. Unfortunately, many institutions are unrealistic about how good an ROI is reasonable. Institutions are very capable of finding themselves with an income of ￡5m a year from philanthropy, an office costing ￡500,000 a year, an income that is split ￡500,000 from mass activities, ￡4m from major donations and ￡500,000 from legacies and then do some very strange apportionment of costs. They are quite able to insist that the mass fundraising is taking up most of the time of all but the Director, and thus ￡400,000 of costs are set against ￡500,000 of income.

The fact that the other ￡4.5m would never have happened without that mass fundraising is quietly forgotten. This places great pressure on the regular giving team, continually raises questions whether regular giving is a good idea (the apportionment of costs proves the institution doesn’t understand the relationship between mass giving and major philanthropy) and regular giving is not as effective as it could be. The long term effect, of course, is that major philanthropy is also not as effective.

For these reasons, offices are always trying to make mass giving more effective. This is a good and bad process. It can positively influence activity, honing programmes, creating innovation and removing waste. It can negatively influence through a lack of testing of new ideas (because a small test is almost as expensive as a big one in terms of outlay and the detrimental effect of failure on the institution and community is ignored).

Worse, it can also lead to penny-pinching and corner-cutting. This can often result in a slow but inexorable spiral into poorer and poorer results. Because of the absence of an AB testing of methodology, this is often attributed to something ‘not working anymore’ rather than not been done properly anymore.

What is immensely important is to avoid any ‘race to the bottom’. Institutions should be very mindful that regular giving, well-constituted, can produce undesignated or budget-relieving income well in excess of the cost of raising the sums involved. There is really no excuse, therefore, for limiting this activity. What is required in hard times is excellence of delivery, clear accounting and the discipline to not allow new spend to creep into regular giving aims. If this is done, regular giving can get on with what it does best: providing the future of major giving and legacy income. This happy and important process can operate through any part of the economic cycle, as it should.

Regular giving must continue. And we must constantly seek to improve what we do. Budgets must not be cut in this area, but that does not mean efficiency should not be increased.

This is why at Shared Vision we have been working hard on our new software, Serafina. It will answer many of the challenges and access many of the opportunities described above.

I am always happy to talk through the points in my articles or hear feedback. Call +44 1608 678676 or email [email protected]. There is a lot more information at www.sharedvision.org.uk.