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Designated Gifts

Some donors prefer to make designated gifts because they want their gifts to help solve a specific problem. They regard overhead and other expenses to be unrelated to the problem or the solution. However, if every donor adopts that method of driving effectiveness, every nonprofit would be forced to close because of a lack of staff, facilities, utilities, etc.

The simple solution is to ask designated-gift donors to trust your management team and board to use the donors’ gifts wisely. Having a few comments from donors about how happy they are with management’s decisions and statistics that show a significant majority of your donors are satisfied can be very compelling.

A more complex solution is to create a catalogue of giving opportunities. One opportunity might be feeding a hungry vet. Let us assume that 10% of the nonprofit’s staff, office and storage space are needed to support the food program. It is logical to assume that 10% of overhead expenses (administration, marketing, utilities, interest, fundraising, etc.) are also necessary for the food program. When you divide the fully burdened cost of the food program by all of the meals provided, it is probably a good meal for an unexpectedly low prices.

If the price of a meal is higher than a donor is likely to find acceptable, there are two choices. One is a frank discussion with donors about the need to create efficiency (improve productivity, increase the number served, etc.) and ask for their support. The second is to redefine the opportunity. In this case, it might be changing the description from ‘feeding a hungry vet’ to ‘a day of housing for a vet’, which of course would include food and many other services. While the price tag might be higher, the total cost might seem more reasonable to the donor.

A third solution would be to make an assumption, based upon past giving patterns, about how much undesignated and general income your nonprofit is likely to receive. Use that number to reduce the overhead burden on the catalogue items. Potentially that will make the prices of various items more attractive.

Regardless of how you calculate the cost of a catalogue item, include an additional percentage of your cost to cover building a reserve. Having a reserve is critical to the sustainability of all of your programing. The only way to be ready for the unexpected is to create a reserve before the need arises. Trusting that the donors will respond in a time of need sounds good but if the need for a reserve affects your donors at the same time as it affects your nonprofit (an economic downturn for example), you may need the reserve to respond to the decline in donor support as well as the economic impact.

Next Step:

Educate your donors about the total cost of services

Use the cost of services to inform your board’s decisions about where efficiencies are needed and how much to invest in raising efficiency

Use your donors’ interests and the reasonability of your costs to inform how you structure your catalogue of giving opportunities using mission-centric wording

Remind your donors to think about the value of your services rather than the costs

When donors understand your value, the cost becomes less important. For example, if it costs $10,000 per year for four years to keep a young man from being incarcerated at a cost of $80,000 per year, the long-term value dwarfs the service’s costs. It is reasonable for donors to encourage the nonprofit to invest in efficiencies to reduce the costs. It is also reasonable for the donors to demand statistics as well as anecdotes that demonstrate the services are effective. If the statistics show that the program is successful 50% of the time, it is very valuable and cost effective. At the same time, it is reasonable for the donors to expect the nonprofit to have a plan for increasing effectiveness. If the nonprofit is willing to continuously invest in increasing effectiveness, it will have increasing sustainability.

What a mission can and does do for clients attracts support and grows generosity. Each catalogue item should be described in mission-centric terms. It addition, the description should tell the donors how the item helps the clients to thrive both in the short term and over time. It is the long-term impact of the item that creates the value that justifies a generous gift.

Take It Further:

Ask donors and other supporters to give feedback on the catalogue descriptions before you finalize them

Review the catalogue descriptions annually with your donors to ensure your descriptions evolve with your donors’ interests

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