Drakes Bay Fundraising
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Archive for November, 2012

Fiscal Chasms

Posted by Christopher Dann
Monday November 26, 2012
Categories: Fundraising, Statistics, Uncategorized
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For all concerned with piloting nonprofit organizations through the cross-currents immediately ahead of us, the new edition of the Urban Institute Press Nonprofit Almanac 2102 has arrived just in time. It’s been four turbulent years since the last edition, and we are in bad need of new points of reckoning.

The Urban Institute smartly focuses its attention on “reporting public charities,” 501(c)(3) organizations that file 990s with the IRS, not including religious organizations and congregations or those with income less than $50,000 in 2010 ($25,000 in prior years).  These criteria allow us to focus on organizations vying for financial support through service fees or charity.

One thing we looked forward to the new report enabling us to do was checking on donor market competition. Both fundraising performance data and the anecdotal experiences of clients indicate competition has been intensifying. The data show long-term erosion of donor retention rates, and the most troubling anecdotal experience is increasing incidence of donor complaints in response to solicitations which we believe have a lot to do with marketplace din.

The Urban Institute’s data certainly explain these observations. But, more importantly, they call attention to the need to do forward resource development planning beyond the bounds of fundraising strategy. That’s because there is no exception to the observation that the expansion of the nonprofit sector, sub-sector by sub-sector, has been exceeding the expansion of revenue in general, and giving in particular. And while we are these days staring like head-lighted deer at sundry propositions for changing charitable deductions, we need to think about how competition could get worse.

While giving through bequests and from foundations and corporations increased from 2000 to 2010, individual giving — apart from bequests — declined. The overall decline was 4% and the per capita decline was 12%. And while individual giving – again apart from bequests – accounted for 76% of all giving in 2000 and a lesser 73% in 2010, it remains dominant. It is also the most complex and expensive source to develop.

The sub-sectors vary in their appeals to and their calls on the donor marketplace. Of those selected to list below, higher education and disease-specific health organizations depend to far lesser degrees on individual charitable support than do environment and human services organizations. Yet whenever there is pressure on total revenue, it is certain there will be pressure on fundraising. We have heard and read a lot over the past few months, for example, about the tensions in the business models of both private and public universities with expenses outstripping revenue capacities of tuition and fees, government funding of public universities and endowment funding of private universities (to say nothing of athletics where that has become a big business).

The data for animal-related nonprofit organizations offer a preview of what we believe is most likely to befall human services organizations in the years immediately ahead. Community animal welfare has been dominated by a tax-supported business model, as the vast majority of animal welfare organizations have been operating under government contract to conduct what are called animal control services. As municipal budgets have become increasingly strained (they must balance their budgets), that funding has been reduced and the services provided have become increasingly limited. The result has been an explosion in nonprofit organizations such as breed-specific rescue groups to take up the slack.

While the Urban Institute keeps tabs as no other entity does on the nonprofit sector community by community, their Nonprofit Almanacs do not offer data more refined than by states. It is pretty clear, anyway, that the expansion of the nonprofit sector has been predominantly with community-based organizations. This means, in part, that increased competition for income is having greatest impact on organizations that have least opportunity to respond because their markets are limited.

When we take such information into account, as well as what will soon come our way out of successful or failed negotiations in Washington, we can imagine a nonprofit sector at 2020 that looks an awful lot different than what it looked like in 2000 and 2010. When we consider how fast the last ten years flew by and – being honest about it – how few business model changes organizations made, we realize how urgently we must attend to necessary change. We can anticipate:

  • Mergers of organizations within sub-sectors, especially in large metro areas, and by state in rural-dominant areas
  • Regional or national collaborations in program services, financial asset management, and in fundraising and supporting services
  • Increased incidence of national raider organizations consuming the lunches of community organizations, especially through electronic media
  • A mass of organizations in one phase or another of failure

Next Generation Fundraising and Drakes Bay Fundraising merged in the fall of 2013, bringing the longstanding professional acquaintances of their four principals – Tim Oleary, Carol Leister, Cindy Germain, and Christopher Dann – into a single company and combining the special resources and experiences of each to provide clients greater breadth and depth of service.

For more information about Next Generation Fundraising, click here.