Knowing Who Can Afford What

May 15, 2009       Mark Hrywna      

If your organization’s budget quadrupled from one year to the next, where would you get the money to support your mission? Two words: prospect research. That was the predicament faced by Operation Homefront, which provides emergency assistance for members of the military and their families. "Our budget has just skyrocketed because of programming. It has taken us to a new level of need for how much we have to raise," said Barbara Moore, Operation Homefront’s director of individual giving. "Growth is absolutely why we’re in prospect research. We don’t have a choice," she said.

A budget of just $3.5 million in 2006 had become almost $13 million by 2007. Much of the programming income comes in as in-kind contributions, Moore said, such as car repairs and other services for military families and wounded veterans, along with emergency assistance of all kinds.

Two years ago, Homefront was operating nationally with a staff of 10, and only two of those in development. Today, there are more than two dozen staff, including three major development positions, Moore said. "We’re becoming more focused on who we contact and for what," she said. "With the economy, we’ve seen our caseload double, so we had to hire more programming people to help with the level of need there is with military families."

Originally founded in Santa Ana, Calif., just after military operations began following the Sept. 11, 2001 terrorist attacks, Operation Homefront has relocated its corporate office to San Antonio, Texas, because of the larger military presence there. Moore works from Tucson, Ariz., and the organization has 30 chapters nationwide, including an office in Washington, D.C. "We knew we couldn’t just continue to raise money as we had been doing in the past, we had to get very aggressive and reorganize structurally," Moore said, and that entailed hiring staff to handle corporate, major gifts and special events.

The best efforts, as in any business, are always more efficient when focused on current constituents, said Robert Wahlers, senior director of major and planned gifts for the American Cancer Society, Eastern Division, Inc. "It costs far more to get new customers than to maintain and build relationships with current customers," he said, adding that he knows several professional advisors who have done well in this economic climate because they have reached out to new customers who aren’t hearing from their own advisors. "The lesson here is that we need to speak with our known supporters while reaching out to new people with positive, but realistic, information,"ÊWahlers said.

Oftentimes, those who have been supporters of special events and annual giving, that "might be the only way you touch them and they contact your organization," Wahlers said. "Some profiling of those people would make a lot of sense, to spend dollars there to know your own people better," he said. Conversations and focus groups might help to introduce those donors to a new way of supporting your organization. "Getting annual donors to become major gift donors, profiling can be helpful in that," Wahlers said.

Since Homefront doesn’t have a decade of background data, having only started prospect research in April 2008, Moore described much of the process as a sort of guesswork or making a judgment call on donors. "Our real success has been in discovering prospect research and being able to be a better recipient of donors’ needs or what they want to do with their money," she said.

A nonprofit’s best prospects before a recession are probably still the best prospects during a recession, said David Lamb, senior consultant, Blackbaud, Target Analytics Division. Three components make a great prospect:ÊThey care about the mission, they believe in the organization’s leadership, and they are engaged with what you do. If a donor has those three but is less wealthy than others, they still might try to support what you do, Lamb said. He defines a major prospect as one who a development officer would cultivate personally to make an ask. "That could be $1,000 level, but you still prefer to have those conversations and develop relationships with the millionaires," he said.

"The best time to raise money is not when the economy is sailing along without problems but rather when your organization needs it," Lamb said.

Daily activity for a typical researcher will be examining prospects one at a time, Lamb said, taking basic information and trying to find out what sources of wealth that person has that might contribute to their ability to make a gift.

During a recession, organizations might want to look at things they didn’t before, with an eye toward recession-proof businesses. A prospect in the real estate, automotive or banking industries should raise a red flag, he said, and might not be ready to make a gift right now.

"Although there are those in the banking and real estate industry doing well, people who have cash are the ones who are able to take advantage of these lower prices. But, that’s often difficult to tell. There’s no source to tell how much cash someone has," he said. As a general rule, Lamb said look for other industries that might be prospering in a poor economy, such as supermarkets, energy and defense, or the beverage industry.

Stock, real estate and private company ownership are the foundations of wealth research. Private company ownership is very difficult to estimate because it’s private, but there are certain tools for estimating it, Lamb said.

For real estate wealth, the most commonly used sources are Lexis-Nexis and Dataquick. "The challenge in using sources like this is that they are always behind reality," he said, so reported values might be prior to the recession. In that case, researchers sometimes need to go the extra mile to estimate the current value of property, such as paying a visit to a county assessor’s office for a current valuation. Another thing to look for, Lamb said, are comparable sales similar to the properties you’re looking at and try to update the value that way.

For many years, having real estate holdings valued at more than $1 million would mean something to a donor’s ability to give. Those properties still are valuable today, Lamb said, but it does have implications on what their ability to give might be. Researchers need to be looking at what it’s worth today but also what it was worth a year or two years ago. There are properties that were worth $1 million in 2007 that are worth half that today. "It’s still nothing to sneeze at but it makes those people feel poorer," he said.

Real estate, however, is more a gauge of a person’s overall wealth, and not so much about the source for a potential gift. "If someone has a lot of real estate, you can make certain assumptions about what the rest of their wealth profile might look like," Lamb said. "Those assumptions are a little shakier now than they were before," he said, and real estate cannot be considered as big a proportion of wealth.

Nonprofits should consider that if real estate was a quarter of someone’s overall wealth before the recession, it now could be one-fifth or one-sixth. Like their stock portfolios, donors’ real estate holdings could be less valuable but that doesn’t mean they’re worthless.

"Unfortunately, there are not really a lot of other options for replacing real estate as a gauge with something else because source information is so hard to get," Lamb said.

He offers the same advice when looking at a donor’s stock holdings: compare what that portfolio is worth today versus a year ago. Donors might still have millions, but they’re feeling poorer now that their net worth has dropped along with the stock market.

Lamb’s best advice: "If you’re looking for new major gifts prospects, you’re not likely to pick one up off the street. You’d be much better off by prospecting with your list, people who already indicated interest in what your organization does, either making a gift or attending an event," he said.

Even if a donor’s wealth has dropped, research still makes sense to help focus on those with a greater potential than others to make a gift. Start with those who show up with wealth, Lamb said, and for some that might mean reducing their capacity to give once you look at them in depth.

Prospect research can offer a donor at the national level the opportunity to get involved with a local project, said Operation Homefront’s Moore, otherwise it might be difficult for a national donor to get involved in a local chapter’s activity. "Originally, it was to identify any of our donors who had the capacity to be major donors," she said. When Moore was hired two years ago, she began reorganizing the database and finding ways to better use it and speak to donors. "For us, it’s been a real eye-opening experience, to move into a more high-tech management of donors to their benefit," she said.

Through prospect research, Homefront realized that one donor in its list was a major owner in a software production company, Moore said. Today, they’re brainstorming how to get the corporation involved with the nonprofit. "That kind of information provides us to be a better organization, and more responsive to donors," she said.

One difference Moore has noticed within the data is that contributions to other organizations appear to be fewer than in the past. "It could be the people I’m running into just don’t make that many different contributions, but when we first started out, I was seeing a larger list of contributions," she said.

"With good prospect research and good strategies in place, organizations of all kinds can think bigger about the place that some prospects or current donors can have with that institution," said Larry Jerome, senior vice president at The Angeletti Group in New Vernon, N.J. Be on the lookout for where connecting points are or where they could be. "The best information you get is by listening and having open and honest conversations about what their interests are," Jerome said.

Moore said one of the most exciting things to come out of prospect research have been accessibility and information. "You can make a real connection to a donor without seeing them one on one," she said. "We’re learning wonderful new ways to reach donors." NPT