Annual giving: Heart of strategic shift

By Todd Cohen

Annual giving is hot.

Long treated as fundraising’s sparkplug, annual giving in recent years has emerged as its engine, experts say.

“It is designed to build donor relations over time to produce the largest possible outcome, financial and otherwise,” says Karla Williams, principal of The Williams Group in Charlotte, N.C.

“It is not a campaign,” she says. “It is a strategic, dynamic development program that says every donor is an individual and merits a strategy designed to meet their needs and increase their interest in the mission of the organization.”

Since Yale raised $11,000 in 1890 in what Williams believes was the first annual fund, charitable organizations have counted on annual giving to generate unrestricted operating funds, she says.

As the number, needs and fundraising sophistication of charities grew, she says, the annual fund spawned new models that included the annual combined fund campaign and the mini-campaign.

And as their fundraising ambitions escalated, charities increasingly sacrificed the annual fund in the continuing hunt for major gifts and capital-campaign donations.

In recent years, however, market forces have fueled a realignment of traditional fundraising programs.

Driving that realignment, Williams says, has been growing skepticism and donor mistrust of charities, a more business-oriented marketing approach to fundraising, greater professionalism, and a rising focus on fund accounting and accountability.

So instead of a hierarchy of separate fundraising efforts, ranging from annual giving at the low end to major gifts, capital campaigns and planned giving at the high end, a growing number of charities are integrating their various fundraising programs, with annual giving serving as the hub, experts say.

And annual giving has become a year-round strategic business, she says, making the old month-long “annual-fund” campaign obsolete.

Fundraising convergence

As part of its $50 million capital campaign, the YMCA of Greater Charlotte in North Carolina has solicited $13 million in five-year commitments from individual donors for annual giving.

And in a highly competitive and economically uncertain fundraising environment, the Y has encouraged its most loyal donors to consider a capital or endowment gift in addition to their annual giving.

Donors thus get a menu to choose from and do not feel pressured to give to a particular project, and the annual campaign is not sacrificed to the capital and endowment campaign, says Dean Jones, senior vice president for financial development

Because many donors last year made their five-year commitments to the annual campaign, he says, the Y has begun 2006 with $400,000 in pledges for this year.

“We have a huge jump coming out of the gate,” he says.

Nonprofits increasingly are recognizing the value of integrating annual giving into capital campaigns, experts say.

“We were sending the wrong message in the 80s that the annual fund was only important when we weren’t in a campaign,” says Tim Burchill, executive director of the Hendrickson Institute for Ethical Leadership and founder and senior faculty member of the master’s program in philanthropy and development at St. Mary’s University of Minnesota in Winona.

“Now we know that people at the top of the pyramid should be encouraged to maintain their annual giving,” he says, “and in addition to that make a generous pledge.”

At the same time, he says, nonprofits are working harder to “harvest new donors or get other donors to give more to the annual fund.”

As a result, he says, annual funds are growing during capital campaigns, and then growing even more after completion of the capital campaigns.

Annual giving also is becoming more like major-gift and capital-campaign giving, requiring structure, a “case” statement, volunteer engagement, segmentation of the donor base, personalized appeals and face-to-face solicitation.

And a growing number of nonprofits are recognizing that annual giving is more effective than special events to launch a development program, Burchill says.

Special-event fundraising, he says, “is a good way to create visibility and become known in the community, but it’s a horrible way to begin fundraising because it’s just not cost-effective.”

Focus on donors

Five years ago, the Atlanta-based USA Southern Territory of the Salvation Army shifted the focus of its annual-giving program from promoting the organization’s brand to offering donors a menu of its specific marketable services.

In the three months ended last December, annual gifts more than quadruped to $10.9 million from $2.6 million in the same period two years earlier, while the average gift more than doubled to $13,734 from $6,640.

“We offer the specific opportunity for donors to do with their resources what they want to do, which brand fundraising does not allow,” says Bill Lapole, resource development director for the territory, which includes 15 states and the District of Columbia.

And in encouraging donors to designate gifts to specific programs and services, he says, the Salvation Army has worked to strengthen communications with donors, thanking them for previous gifts, and sharing data about the cost of each program per person served.

After an analysis showed that 3,000 mail appeals it distributed every year for five years had generated 863 donors to its camp, a local Salvation Army in Maryland sent future appeals only to those donors, Lapole says.

Of those donors, 572 either doubled their gifts or made substantial increases, he says.

“People want better communication,” he says.

Williams says the focus on annual donors is critical.

“Each donor situation is a campaign unto itself,” she says.

And the growing focus on annual giving yields a range of benefits that keep on giving, she says.

That focus, she says, spurs nonprofits to conduct better research on donors, segment donors into interest groups, select and communicate specific needs to those groups, choose a fundraising vehicle based on the donors’ or segments’ interests or needs, provide case management for each donor, and personalize donor communications, recognition and stewardship.

“Our job is to help donors make highly informed decisions,” Williams says. “Our job is not to raise a small amount of money simply to fill the operating budget. It is to grow and nourish the spirit of philanthropy.”

And donors will give “more money to fewer organizations,” she says, by knowing what their choices are.

“In the new way of annual giving,” she says, “our goal is to help donors see where the money goes, who it benefits, what the outcomes are, as opposed to saying to the donor, we know best, and we’ll spend the money the way we think we should.”

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