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Doing Good Well

Posted by Christopher Dann
Tuesday May 13, 2014
Categories: Uncategorized
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There’s a lot of attention paid these days to seemingly out-sized compensation packages, of corporate CEOs, of professional athletes, of entertainers, and recently of high-ranking executives of nonprofit organizations (CEOs along with star program talent such as medical and artistic directors).

I wish Gretchen Morgenson would take on compensation accountability in the nonprofit sector. The Pulitzer Prize-winning New York Times business columnist has done significant public service drawing attention for nearly a decade to the connections between the fortune-taking of top corporate executives and the good they have or have not done for their shareholders.

Whether it’s in private enterprise, professional sports, medicine, the arts, entertainment, or charity, doing good while doing well needs to be done well to do any good. Whining or ranting about how well anyone does financially is a waste of energy better applied, as Ms. Morgenson demonstrates repeatedly, to assessing the good that they do relative to how well they’re compensated.

As irresponsible as corporate directors have been shown to be in tying C-suite compensation to actual productivity on behalf of shareholders (the good they’re hired to do), so have so many in positions to do the right things in the nonprofit sector been irresponsible about accounting for the good to which their organization’s mission and vision statements aspire.

Brian Fung, writing in the Washington Post April 30 made an important contribution to this discussion. He was reporting on the fact that the tech start-up accelerator Y Combinator has begun assisting start-up nonprofit organizations.

Although he said the inevitable, “The aim is to do good while doing well,” just four paragraphs into his article, Fung’s reporting wasn’t about executive compensation. Rather is was concerned with the business planning that is essential to accounting for good. Y Combinator not only introduces entrepreneurs to financiers – in this case philanthropic financiers – it is determined to set them, whether for-profit or not, on productive courses.

There is much to be skeptical about in the presumptions of Y Combinator’s approach.  As an example, Fung reports Y Combinator’s specific emphasis on “the power of [a nonprofit’s] own business model to survive, rather than on donations…[believing that] weaning nonprofits off constant fundraising will make them leaner and more efficient.”  That’s a short-sighted – albeit common – view of fundraising; but it also seeds opportunity for great mischief if entrepreneurs come to believe that for-profit-forged business models exempt them from keeping their financial wellness commensurate with the good that their organizations do.

Fung did not, of course, write the headline for his article: “Can Silicon Valley Teach Nonprofits How to Save the World?”  But he did write:

…at a time when Americans are growing increasingly distrustful of Silicon Valley’s swagger, the more relevant question may be what engaging nonprofits may hold for a tech industry that’s reached an uncertain adolescence.

Alas, in Silicon Valley more than most places on earth, opportunities abound for doing good, not just with the money being made but with how it is being made.

What’s the Size of the Wallet You’re Trying to Share?

Posted by Christopher Dann
Monday March 24, 2014
Categories: Uncategorized
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American advertising has always been far more enamored of youth than the marketplace of goods and services justifies. It seems that nonprofit fundraising – especially since the emergence of electronic social media and the reintroduction to the United States of canvassing – has been drinking from the same punch bowl.

So disappointment is being heard with greater frequency about the impressive numbers of signers on to causes who prove to be deadbeat donors, or what The Economist years ago presciently dubbed slacktivists.

In other quarters and conversations, there’s mounting concern that the decline of the historically generous American middle class portends grave consequence for certain kinds of nonprofit organizations.

One behalf of our clients (and those we’d very much like to have as clients), we keep exploring sources of information that will help us and them understand how the fundraising environment is changing and how to do more productive fundraising in the new environment.

It was such an exploration that led to The Roles of Discretionary Income in Charitable Giving, a paper we invite you to study and encourage you to critique.

The paper carries the message that while there’s a new way to target donors with greater accuracy and efficiency we need to invest more money and energy in getting the data and information required. For the most part current practices fall woefully short.

Part One: The impact of the partial federal government shut-down

Posted by Christopher Dann
Thursday October 10, 2013
Categories: Uncategorized
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Nonprofit managers don’t have to concern themselves with how complex the nonprofit sector is until one of the sector’s journals writes about general trends or someone in the general media suggests something like a partial shut-down of the federal government is going to have negative impact on nonprofits.

It seems impossibly hard to get journalists — even those specializing in news of the sector — to understand it is comprised of business models as diverse as those in, say, retailing.

This is part one of a two-part blog. Here we’re going to address the impact of the partial federal government shut-down through the lens of sub-sector diversity. In part two we’ll look at more financial detail.  We’ll be using the latest data from The Urban Institute to help fundraisers and other management — and perhaps even board members — better locate their places in the complexity of the sector.

The question today is how dependent the nonprofit sector is on government. And in answering this question it’s appropriate to look at all government funding since one major area affected by the federal government partial shut-down is state and local government.

While government funding represented 24% of overall revenue for the sector in 2010, according to The Urban Institute’s The Nonprofit Almanac 2012, its shares of revenue across sub-sectors varies from a low of 13% for Arts, Culture and Humanities to 48% for Human Services. For the table below, we have selected three principal sources of revenue to show how their percentages vary across major sub-sectors.

 blog 47

*Reporting charities are those with minimum income of $100,000 in 2010 and were therefore required to file form 990 with the IRS.

Apart from reckoning what the temporary — or perhaps permanent — loss of government funding might do to one’s own organization, there are a number of other points to make about these data.

  • The data well and truly represents a broad diversity of nonprofit business models. No two of these sub-sectors is alike in configuration of sources of revenue. Each has to contend with different degrees of impact, whether directly as a result of curtailed or withdrawn government funding or the indirect but just as powerful influence of legislative activity on the general economy, particularly on how much disposable income people have and what they chose to do with it.
  • It’s ironic that the partial shut-down of the federal government was triggered by an interest in de-funding the Affordable Care Act. In terms of total dollars, the greatest impact of the shut-down is likely to be on healthcare because the Health sub-sector accounts for 60% of all nonprofit sector revenue.
  • Human Services, however, with a 48% dependence on government funding will be hurt the most, as we have already begun to hear. Human Services comprises the largest share (34%) of reporting charities, so the impact will be more broadly felt.
  • The national capitol imbroglio is sure to have impact on consumer confidence squarely in the midst of the season of giving, and that will impact private contributions, subscription sales among performing arts organizations, and fundraising events, all nonprofit sources dependent on household discretionary budgets.

No one ever has to give money

Posted by Christopher Dann
Monday August 12, 2013
Categories: Fundraising, Trends, Uncategorized
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No one ever has to give money. Donations come at donor discretion. So while we have to know a lot about competition within the donor marketplace, we also should know about competition for discretionary money. The former helps us position our fundraising; the latter helps us frame our business model with realistic expectations.

There’s a valuable source of good data for studying trends in discretionary spending. The Bureau of Labor Statistics’ Consumer Expenditure Survey (http://www.bls.gov/cex/) primarily serves to track consumer prices. But it provides an annual trove of data on how much consumers are spending on a wide variety of goods and services.

The editors of The New Strategist Publications draw on all that data and reconfigure its presentation for easy and convenient reference. The Survey is, they have said, “the best source of information about spending behavior of American households.”

The survey also asks about cash contributions and personal tax payments. So it gives us three valuable perspectives on trends affecting charitable giving: changes in cash contributions alone; changes in other areas of discretionary spending; and changes in cash contributions relative to changes in personal tax payments. Here are summary views of each of these three perspectives.

First, we look at trend data for cash contributions in the context of other discretionary spending. For that we’ve selected five items out of the 101 categories and sub-categories New Strategists report in their recently released Who’s Buying – Executive Summary of Household Spending, 8th Edition.

Table 1

We also selected just key fundraising demographics out of the multitude available: age ranges in which discretionary income makes its way into charity, household income and configuration where giving is maximized, and the key threshold of education attainment at which giving also becomes significant.

On the one hand, it’s a bleak picture, albeit one that shouldn’t surprise. On the other hand it offers us a clearer understanding of why recovery in areas of discretionary spending is so sluggish and extended.

Next, we looked at cash contributions and personal tax payments, knowing that there is a general functional relationship between household tax burden and giving, especially at higher levels of charity and philanthropy: the higher the tax burden, the more those who itemize deductions tend to give.

Table 2

 

Third, just looking at cash contributions alone, we wanted to check on our assumptions of key demographics. We do that by looking at the report’s useful indexing of expenditures. For Table 3, we have selected the two most important demographic indicators of giving, age and education, finding that patterns seen for decades haven’t changed.

Table 3

A Dope Slap

Posted by Christopher Dann
Thursday July 25, 2013
Categories: Uncategorized
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This lead article from the Chronicle of Philanthropy’s e-mailed headlines yesterday:

Philanthropy Today

 

We just had to respond, and here’s what we added to their comments pages:

Once again the Chronicle has reported research developed by a vendor of services the research supports without noting the obvious conflicts of interests. Journalists should do that. More importantly, journalists would investigate carefully the methodologies of all such studies to determine or at least question whether or not conclusions being drawn by the research sponsors can be reliably projected to the universes they claim to be representing. Cursory investigation — just a few questions — would reveal that most of the research the Chronicle reports is based on non-probability sampling that has undisclosed and perhaps unfathomable bias and error.

Quoting a June 2013 report issued by the American Association of Public Opinion Research on non-probability sampling, “Transparency is essential. Whenever non-probability sampling methods are used, there is a higher burden than that carried by probability samples to describe the methods used to draw the sample, collect the data, and make inferences. Too many online surveys consistently fail to include information that is adequate to assess their methodology.”

The nonprofit world’s trade press is a chronic practitioner of press pass-along articles someone wants to be treated as news. And the managing editors appear especially gullible about and vulnerable to research reports.

The nonprofit sector — each sub-sector in particular — has never needed disciplined quantitative research more than it does now.  That means that samples are drawn with the probability that each and every person of the universe (meaning the subject population) being studied has an equal chance of being in the sample. This is hard and increasingly expensive to accomplish. But in a field in which fractions of percentage points have significant financial meaning, buying error-prone, biasing research methods on the cheap is truly a waste of money.

Better to keep guessing.

Insights into a large class of elite donors

Posted by Christopher Dann
Monday June 24, 2013
Categories: Demographics, Fundraising, Research, Statistics, Uncategorized
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…are the major contributions to our understanding of giving found in the Fidelity Charitable Giving Report, 2013 edition recently published through Fidelity’s website.

Fidelity sampled their 94,000 donors connected to nearly 58,000 giving accounts to produce multiple perspectives on who these donors are and how they give.

Their profile underscores a point we have had occasion to make repeatedly, that the prime time age range of giving begins at 55 when household discretionary income tends to have its growth spurt. While the average age of the Fidelity Charitable donor is 62, the average age at which funds are established is 54.

In all the age profile looks very much like that of most donor files we have researched:

Chart1

While the age profile of Fidelity donors varies little or not at all from that of the general donor population, patterns of their giving do vary.  In contrast to the approximate $3,500 the average itemizing tax filing household gives, the Fidelity donor’s average grant was $3,773 in 2012 and they gave an average 7.1 grants.

Here are the variances from norm of the distributions of Fidelity donor grants:

Chart2

*note, giving in response to Sandy increased Human Services sub-sector giving an estimated 1% in 2012

Donor-advised funds such as Fidelity Charitable have become an important sub-sector on their own. While overall individual giving, adjusted for inflation, dropped 11.3% from 2007 to 2012 (despite Sandy), gifts to donor-advised fund accounts grew 17%. While the former is clearly an effect of what’s happened to the economy, the latter seems to be because of economic uncertainly. Donor-advised funds have become a means of a new form of planned giving.

A Ginormous 501(c)(3)

Posted by Christopher Dann
Wednesday February 6, 2013
Categories: Uncategorized
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One 501(c)(3) will be accounting for more than 10% of all giving in 2012 and all that giving will have come from individuals. For the year ending June 30, 2012, Fidelity Charitable Gift Fund reported that donor contributions received amounted to $3.3 billion. Because of the uncertainty of charitable deductibility in 2013, surely the calendar year’s giving to Fidelity will be even greater.

The numbers are staggering and impressive. Contributions to the Fund increased 89% from FY2011 to FY2012 and the Fund’s accounts — its donor base, as it were — increased almost 5%. Yet Fidelity donor grants to charitable organizations increased only 2.4%. So the excess of contributions over grants amounted to 61% of contributions.

Clearly uncertainty over the charitable deduction is one big reason for these fantastic statistics. Surely another cause is the dominance of Boomers in the donor marketplace.

In 2012, Boomers were between 48 and 66, both the leading and core cohorts well within the prime age range of giving. They’ve been expected to take greater control of their giving than their predecessors, and donor advised funds like Fidelity’s are perfectly suited to that inclination. That inclination is also manifest in direct giving through what we called charity facilitators in our January 31 post (link to white paper: Mananging Disruptive and Transformative Changes in the Media of Fundraising) and in increasing anecdotes of challenges about how institutions are handling donors’ major gifts.

At the same time, as more Boomers approach retirement, many are also likely inclined to amass funds for charitable giving post retirement.

What has so suddenly become phenomenal is the enormity of assets awaiting giving decisions. One assumes that the “reserves” created at Fidelity are matched in magnitude at Schwab, Vanguard, and community funds across the land. This phenomenon gives new definitions to the terms planned giving and deferred giving and interesting new challenges and opportunities for fundraisers.

The 2012 Annual Report of the Fidelity Charitable Gift Fund shows that as the fund has grown, the average donor gift has declined 34%, adjusted for inflation, and the decline began well before the Great Recession. This is a trend that one would expect in the realm of donor advised funds and likely speaks more to declining giving capacity of the average donor than declining donor generosity.

In any case, the average Fidelity Fund grant in 2012 was $3,294 — we wish we knew the mean — and that offers a guide to assumption of how the reserved fund may play out over time.

Trends in Public Support

Posted by Christopher Dann
Thursday January 3, 2013
Categories: Fundraising, Statistics, Trends, Uncategorized
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In a November posting Fiscal Chasm we reported and commented on data from the Urban Institute Press Nonprofit Almanac 2012 showing, across a selection of sub-sectors, the disparities between increases in the numbers of organizations from 2000 to 2010 and increases in income.

We referenced total income in that posting. That is useful for CEOs. For CDOs it’s more useful to look just at income that comes from fundraising. The Urban Institute combines private contributions and government grants into data labeled public support. If we look at the disparity between sub-sector growth and percentage change in public support, we see a different picture. Then, if we add reference to each sub-sectors share of overall public support, we get an assessment of the fundraising competition for each sub-sector.

Changes in numbers of orgs Jan 3 2013

That is what is shown in the table for a selection of sub-sectors. The data pertain to those 366,086 organizations in 2010 classified as reporting public charities. These are nonprofit organizations with charitable purpose that had $50,000 or more in gross receipts in 2010, were required to and did file 990s. While we can’t ignore the 613,815 additional public charities that were registered with the IRS in 2010, focusing on reporting public charities gives us more solid analytical standing.

Figures here showing shares of public support are different than what one regularly sees in GivingUSA annual reports. The data here are based strictly on IRS filings of reporting organizations while GivingUSA data are based on tabulations of tax data as well as econometric analyses of data and information from a variety of sources. Urban Institute data reflect only reporting religion-related nonprofits, substantially understating religious giving, which GivingUSA addresses through special (unpublished) methods.

There are only three sub-sectors where change in public support between 2000 and 2010 exceeded growth in the number of reporting organizations.

  • The extraordinary 190.2% increase in public support in the Human Services/Public Safety & Disaster sub-sector reflects the Haiti earthquake in 2010 and the lack of a major, high-profile disaster in 2000.  It’s an anomaly.
  • The 101.7% increase in International & Foreign Affairs is likely also reflecting response to Haiti channeled through organizations not classified as public safety and disaster responders. But we should also be mindful of the growing emphasis on impact investing and other forms of human health and welfare giving in the developing world, particularly by online charity facilitators such as GiveWell and GlobalGiving.
  • And in the Education sub-sector, it’s worth a contemplative pause to think about what’s happened in elementary and secondary education where public support increased 84.1%. Undoubtedly we are seeing evidence of both increasing numbers of charter schools as well as public schools’ increasing dependence on charity to supplement tax-based funding.

In all other cases, expansion of the sub-sector over the decade exceeded expansion of its public support. More organizations are competing for fewer dollars in grants and the contributions of individual donors. One or more of three things is likely happening to organizations as a consequence of these trends: they are reducing their program expenditures; they are financing deficits from endowments or reserves; or they are building sources of non-charitable funding.

The best course for building sources of non-charitable funding is in fees for services that are program related. Developing program-related service revenue not only avoids unrelated business income tax but takes advantage of skills and resources organizations already employ. It also often opens opportunities for beginning relationships with customers (or subscribers or patrons) that can later be expanded to charitable donor relationships. As smart as this course is it needs to be pursued with very careful attention to integrating strategies between the two areas of income development and between the marketing efforts for each of them. Because, as this blog often reiterates, all giving is voluntary, the downside of uncoordinated strategy is far greater for charitable support than it is for program service income.

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

Swiss Army Knife – Part 2

Posted by Christopher Dann
Wednesday April 18, 2012
Categories: Fundraising, Modeling, Target Analysis, Uncategorized
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The Swiss Army knife is Target Analytics’ new Loyalty Insights modeling utility described in our last post. It’s a utility with a host of varied potential applications to both on-the-ground fundraising campaigns and, as explained in the last post, to individual support business modeling.

We had Target Analytics model donor bases across a variety of sub-sectors: health, human services, public broadcasting, conservation, and cultural-humanities. That there would be differences was predictable. But the nature of the differences was intriguing and truly demonstrated how different individual support models are.

Our next step was to validate the Loyalty Insights model, and we are doing this in several ways.

First, we compared modeling results across that spectrum of organization donor bases to prior research. Those who remember our ground-breaking demonstrations of altruist and values paradigms (if you haven’t or if you have but want a refresher, click here to download a copy), would expect we’d refer back to the findings of that massive data analysis undertaken with Target Analysis six years ago. Four of the seven Loyalty Insight model groups and those organization types that can inarguably be characterized as altruist or values donor-oriented again demonstrated our hypotheses that altruist donors retain less well and provide less value over time than values donors.

Second, we validated a selection of the donor bases modeled through our Donor Base Trend Analysis (DBTA). DBTA gives us very comprehensive assessments of donor base values and trends across six years. It also has capacity for such special analyses as comparative valuations of discrete groups within a donor base.  In this way we have been able to verify Loyalty Insights typecasting through measures of donor loyalty and giving across eleven years of data. We could see, for example, that donors characterized by Loyalty Insights as, to use their terms, “Truly Connected” and “Best of the Best,” had the highest values in terms both of retention and annual cumulative giving, and that the two could be distinguished between them. On the other hand, those characterized as perpetually low-dollar donors could be shown over the years to have deserved that label.

We have begun to validate the model through fundraising campaigns and will have that data in due course. Validation through fundraising campaigns is a two step process. The first step is to simply examine campaign response from the perspective of the Loyalty Insight model’s seven group typecasting. This step is underway in spring and summer campaigns, and it will be followed by tests specific to each of the Loyalty Insight model groups.

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.