Special Report: The Changing Face Of The Donor

June 1, 2006       Paul Clolery      

The donor. It is not easy to determine when and how that “donor,” that enigma, evolves. There are people who have spent a lifetime trying to solve the riddle that opens the door to a donor’s heart and wallet.

Donor motivations are a moving target. There are 1.9 million nonprofits in the naked city. If you don’t catch the donor’s fancy and keep it, someone else will do it. The changing nature of donors was the topic for this edition of Executive Session, held in Atlanta during the annual conference of the Association of Fundraising Professionals.

Participating in the discussion were: Chip Grizzard, CEO, Grizzard, Atlanta; Jon Thorsen, vice president and general manager, education and hospitals in the Washington, D.C. office of San Diego-based  Kintera; Robert E. Carter, CFRE, president, Ketchum, Pittsburgh; Jay Love, president and CEO, eTapestry, Indianapolis. The session was moderated by Paul Clolery, vice president and editorial director of NPT Publishing Group.

Paul Clolery: Everything that we’ve been seeing, from Katrina donations to year-end gifts to any old gifts, the average donor is a 70-year-old white female. Charities are falling over themselves to try to get younger donors. And according to a new study from the Association of Fundraising Professionals, while the majority of fundraisers believe this year will be better than last, there are fewer optimists than last year. Incredibly, the fundraisers are not predicting large gains in online giving and it did not go up in 2005 for those polled, despite everybody saying, “oh, my god, oh, my god, we’re raising a lot of money online.”

What’s happened? Why are these numbers, while there’s an increase, less than glowing?

Chip Grizzard: I’m seeing an increase in overall giving, and I think that there is going to be a continued increase. We think that there are certainly challenges, but with the continued improvement in the economy, charitable giving will increase.

We’ve all heard about the competition for the charitable dollar. One thing that a lot of people are missing is that the fundraisers are getting so much better. That’s creating a lot of opportunity for those organizations that are using more experienced fundraisers to help distinguish them from other organizations.

Jay Love: Just to add to what Chip’s saying, I think maybe what they’re seeing is some drops in the annual area. Take a look at the giving pyramid. At the lower end, you’ve still got direct mail, and a rise in online donations now occurring. As you move on up in the pyramid, we really have seen a much bigger difference in the amount of major gift fundraising. And, of course, I think it’s demonstrable with the figures you were talking about with the planned giving, too.

I think both of those are really on the rise because people are figuring out how to do those better.  And, I’ll echo what Chip’s saying: There are much better-trained fundraisers.

Robert Carter: The year that you’re talking about is 2005, which was an odd year. We had the tsunami. We had Katrina. We had the earthquake that nobody knew about for a while in Pakistan. It was a really unusual time frame. If you look at a rolling 12 months, remarkably, better than 70 percent of our clients got their largest gift ever in that year, which confirms Jay’s point.

Clolery: What type of gift would that be? Would it be to relief or would it be to the general fund?

Carter: Both. It went to their institution, not to relief necessarily, but to their institution. A lot of the fear factor in 2005 was everybody was giving all their money to tsunami and to Katrina and that wasn’t true. People still supported the charities that they believed in.

We’ve seen, I think, the beginning of the first wave of the transfer of wealth giving we’ve been talking about for years. A combination of that and the great wealth that was created during the late 1990s that a lot of people are enjoying now is allowing them to find easier and better ways to transfer that wealth to the charities they like.

Jon Thorsen: And, you’re seeing fundraising campaigns continue to have higher and higher goals with people successfully meeting the goals. Philanthropy has been a growth industry with very few exceptions.

Clolery: Are you seeing the growth rate of gifts matching the rate of growth in the economy?

Grizzard: In the past few years, it’s been less than the rate of growth in the economy. However, going forward, I see at least matching that number. Interest rates going up is a good thing and a bad thing. For savers and donors on a fixed income, it’s a good thing, giving them more discretionary income to support charity.

So I think what your comment referenced was what we’ve seen maybe over the past year, but I think, going forward, it’s going to increase.

Love: That’s such a small sample, just 500 people. Something like the Giving USA report, which is much more comprehensive, might provide otherwise.

I want to piggyback a little bit on what Bob has said there, too. With it being such a strange year with all the disasters, you saw people who used to be just annual fund donors, who maybe were board members, step up. They said, “we’re not going to have as big a base because some discretionary funds have been given elsewhere, and so I’m going to go ahead and make a gift 10 times bigger than what I made before, just to make sure we don’t have any shortfalls for some of the organizations.”

Carter: Per capita giving has gone up in a lot of our institutions. We’ve seen a number of institutions where the base has shrunk a little bit in that particular time frame, but revenue has gone up.

Of more interest to me would be a three-year trailing report, as opposed to a one-year picture of what happened. When you take that 12-month snapshot, for me, that’s not a trend. You might have some of these anomalies in a given year, but if we looked at a 36-month trailing statistic, we could track in which direction we are going. There could be a dip, but to me, that doesn’t create a trend.

We’ve been in business for 87 years and look at it over a longer period. We can look at it as decades and the trends in the 1970s, ’80s, ’90s that led us to this particular view.

The largest dip in American philanthropy as tracked by Giving USA was 1973 during the Vietnam War when campuses were taken over by students and corporate America stopped giving to universities.  Added to that was the first oil shortage. That was the single largest dip period for our clients.

And so, we watch these things. But in major-gift fundraising, we kept trucking in that year. In broad-based, smaller gift fundraising, there was higher impact.

Thorsen: Donors are getting more sophisticated about how they direct their giving. And at the same time, they’re getting more interested in accountability from the charities. They want to know how the money is being used. But when that works out well, they’ll make that significant investment.

A part of it is what Chip mentioned about professional fundraisers being more astute about tracking donor interest. I think they’re going to push us to be good at what we do as consultants.

Love: Communication is at such a high level, even compared to just 10 years ago, that they expect to get that feedback. Donors are just so much more knowledgeable.

Thorsen: Well, they’re getting it in the other sectors of their life and so they expect it from their charities.

Love: Just look at what is available about a charity now on its Web site. What you had to try to glean out of their annual report, for some of them even just as little as five years ago, now you’ve got everything out there.

Thorsen: Even people who are giving offline are researching online before they make their decisions.

Clolery: It’s funny you should say that. We did a national study with Opinion Research about a year ago, and we asked, “Have you ever gone to a Web site before making a gift by mail?,” and the majority of respondents, 61 percent, said no.

Thorsen: We’re finding more like 60 percent are saying yes. But I do think we might continue to see lower direct mail and telefunds just because more donors are telling us, “talk to me by email.”

Clolery: You said something a minute ago about donors wanting to see more of what’s happening with their money. Are donors getting too caught up in the magic 35 percent number of administrative fees?

They want to feed a child but they don’t want to pay for the truck that gets the food to the child. How do charities communicate to donors that it’s okay to pay for the truck?

Thorsen: It’s much easier at the higher levels because you’re having individual meetings when you have a major-gift donor. I think they tend to understand those distinctions and understand that yes, the food has to get there somehow. It’s harder to be able to individualize that message with $5 donors and $25 donors. People are going to support a mission that they think is being carried out effectively. I think that’s the message that charities need to share.

Grizzard: The statistic is important, but the key is addressing the needs of the changing donor. It used to be they gave because they were supposed to do so. It was their duty. Today’s donor wants results. They want to know, “is my gift going to make this change in the organization, or for the community, or the world?”

The more you can communicate to them in that regard, to show them the difference they’re making and responding to their requests to be more accountable, the organization to be more accountable, the better you’ll be. I think that number, the 65 percent, while important, is not as critical as it used to be if you’re meeting the current needs of that donor.

Clolery: You were saying the larger donors tend to understand the operational side, not just the delivery side. How does that speak to what foundations are doing right now? Charities are having a tough time trying to get foundations, family foundations, to pony up for operating revenue.

Thorsen: That has been a common, constant issue. It used to be an expectation that you could put some overhead costs in a grant. It’s not as easy or automatic as it used to be.

Some foundations have an expectation that you’re going to have an endowment with which you can cover those costs. That’s not an unreasonable expectation. But again, I think you have an opportunity to show that you effectively used the gift and then to go back and say, “this is how it functions. We need to build some of that in. But, we do have an opportunity to build from success.”

Carter: The unrestricted dollar has always been at issue. Working in educational institutions early in my career, we were desperate at Johns Hopkins for unrestricted money during the 1970s.

The truth of the matter is it’s a tough sale, and ultimately in philanthropy, it’s donor-directed. The sizzle of what the institution is all about is what sells most of the time. The other part of that is how creative fundraisers can be in packaging, presenting, and taking projects that are already funded in the operating budget, packaging them and getting program support that ultimately frees up unrestricted money.

Thorsen: If somebody puts their name on a building, take part of that money to keep the building operating.

Carter: I’ve just gone through this on the phone today with a very sophisticated client. We need a business plan for a project that’s going to clearly demonstrate that their X-millions of dollars is going to be there and that facility will be functioning a minimum of a decade. They want to know that the operating funds will be supplied from annual giving, or from endowments or whatever.

We very seldom do a capital campaign that doesn’t have an endowment component that’s going to supplant budget for the increased operations.

Grizzard: The transfer is happening and certainly it will pick up dramatically going forward. But what are you seeing in terms of  it being designated into private-family foundations, and is there a different strategy for giving?

Carter: Financial planners have done a much better job than the fundraisers have done in terms of the interception event going on. When we were talking about this great transfer that was going to happen 10 years ago, we said it’s either going to be the IRS or philanthropy that’s going to intercede in this. And as it turns out, the IRS isn’t doing it but the financial planning and family foundations have done a great job. Community foundations are also an important part of that mix.

Thorsen: And donor-advised funds.

Carter: … and donor-advised funds, which are all part of the recipient areas and they have done a good job. That means it wasn’t as easy as we thought, and it means the development professionals have to be better at getting to those families, to those community foundations, making sure that the donor-directed funds are designated to their particular charities.

Again, the fact is that this is all relational. You can’t wait until that transfer is happening to expect it to go to you. The fundraiser’s success is built on the relationships that you already have and are developing.

Love: And I’d like to echo that, too, because if the proper relationship is built, which means knowledge – education is going to spring forth. They’re going to be able to give more to the unrestricted funding.

Case in point: How many times do the board members step up and make sure that their giving is in an unrestricted level? They’re obviously much closer to knowing the operational cost.

We’ve seen, working with some of the small- to medium- size organizations, that they were able to get innovative with finding somebody who, even though they were giving for a project, would match for unrestricted giving in other areas, too. It’s just being a little bit more creative in how you go about it.

Clolery: I have relatives in Sarasota. She’s 79 and he’s 80, I think. They send us jokes by email. Everybody says that the Internet and online giving is for the young. Is a significant portion of the donating public being ignored online?

Love: Well, think about it. The Internet revolution is not about allowing people to make a transaction online. It’s about all the communications that lead up to that. The biggest boon we found in the past couple years was being able to assist the fundraiser. When they’re working on a major gift or a planned gift, that might mean 50 emails to get that gift transacted between the attorney, the financial planner, the CPA. Now all that information is stored where they can go back and refer to it. Those emails are being saved. So, it’s the communication over the Internet, not the fact that someone made a $500 transaction.

If they’re going to make a $1 million transaction, I doubt they’re going to do it over the Internet.

Thorsen: Well, actually, there was one. It had to be broken into 10 gifts because the bank would not accept a transaction that big.

Love: Obviously, a lot of frequent- flyer miles.

Thorsen: It’s a lot of frequent-flyer miles. I think the amount of money given online and the number of gifts made online is going to continue to increase. But I agree that it’s the communication that’s the real opportunity there, being able to individualize stewardship around that mechanism, as well.

Grizzard: We’ve seen one big change in how we’re setting up communication plans for clients. We’ve all heard of the donor-centered approach. We’ve suggested a step further, and it’s called super-pleased donors.

We’re telling organizations to create super-pleased donors where they’re so satisfied with how the organization is communicating with them that they remain loyal, consistent and high-value donors. For our business, the most effective strategy is to move toward a multi-channel, integrated fundraising approach.

If you can do that, you can understand more about your donors and how they want to be communicated with and the more interaction you have, the more valuable they become. That’s where database applications are so critically important, because you can now have all that communication, all that behavior, in one central place. It allows you to design those strategies to better and more effectively communicate with donors today.

Love: It’s such a huge difference. For instance, it used to be like pulling teeth to get even the major-gift fundraisers to record their notes of a conversation or the details of a meeting. The old call reports just weren’t making it into the database. But these emails, which are very detailed, are all going in there.

We’re seeing some organizations adding hundreds of transactions a day into their databases by doing that, and hopefully building an avenue that they can really please the donor, or at least get a very strong profile of what that person likes and dislikes.

Clolery: Let’s get back to major donors for a second. You were talking about educational capital campaigns. Look at Harvard and its $26 billion endowment. We had a gentleman talking this morning about working for a hospital that was going toward a $1 billion capital campaign.

We’re seeing more and more multi-hundred-million dollar campaigns over not three or five years but over 10 to 15 years. At what point are donors going to say, “A billion dollars? Do you really need a billion? Do you really need $25 billion?” How do you say to your donor, “We really do need your $1 million on that $25 billion?”

Carter: I joke sometimes about my alma mater, Johns Hopkins, because they announced a $2 billion campaign and got to $1.7 billion so fast, they added another $1 billion or more campaign on top of it. You used to get invited to dinner for $1 million, and now you get breakfast for $1 million. So, the game has changed. We have created some great institutions of quality in this country that are hungry to be fed, and we have to feed them. The difficulty is getting the fundraisers, the presidents, the trustees and others who are the top leadership of the institutions to recognize that unless they nurture and feed the donor base at the middle, they cannot sustain these initiatives.

Some of these donors get ignored because the gifts are $10 million and up that make the difference. They’re not paying their dues yet, but, at some point, they will. They do need $20,000 and $10,000 and $50,000 donors to feed up into the next creation that’s going to happen.

Thorsen: I agree.

Carter: People give in a context in which I make my personal gift of X-thousands of dollars, is one in which I want to see it have impact. When you come to me with a $2 billion objective and say, “Bob, we’re asking you for $100,000,” and I say “yes,” I feel my gift is washed out. So you’ve got to work harder as a fundraiser to make me feel good about my little piece of the action that’s going on at that level.

As a fundraising consultant, when you have those kinds of objectives, you stretch the imagination of your top donors. People give in a context. They don’t give in a vacuum. A $100 million donor makes that gift to a large cause, not a small one.

Grizzard: In general, universities are great at cultivating donors at the high end. But they are missing out at the bottom. I think they are overlooking the acquisition and cultivation of new donors and feeding them up the pyramid. It’s almost perceived like a waste of time because all of the focus is on that $50 million/$100 million gift.

Thorsen: We have clients now who come to us after very successful campaigns and say, “we need a better alumni engagement strategy, because the vast majority of our alumni are not engaged with the organization.” It’s all about the top of the pyramid. But to answer your original question, Paul, people saying, “well, how much more do you need?,” I think that goes back to the relationship that the organization builds with its students.

When I was working at Princeton, they celebrated fundraising success. The chair of the annual fund would get up at events and talk during alumni day and share the good news. With a spirit like that, they’re not going to have any trouble, no matter what that endowment becomes.

Clolery: I don’t think we finished the chat about online giving and online donors. Maybe we can move all of this into a broader discussion of the age-driven bequest and ask. What are your clients doing to drive down that average age? You want to get in people’s wills. But what are they doing right now to nurture me at age 46?

Love: Well, even earlier than you. If you want to nurture and build the relationships with the younger folks — and I’m talking 20s and 30s — even before you get into the 40s, you enable discussion among themselves. If you can enable that, something as unsophisticated as volunteer activities and sharing of time, and then something a little bit more sophisticated from a technology standpoint — discussion groups, sharing of information electronically, that’s going to build a bond. It will carry over into the relationship building with the fundraising officer, who probably does not have the time or the ability to deal with all those folks at that lower end of the pyramid.

Thorsen: If you combine those strategies with some screening, you know, find people who have multiple properties, appreciated securities, et cetera, you can start planned-giving discussions very early on. And, it’s not the late ’90s anymore where people are becoming billionaires overnight.

Love: They should be engaged in that planned giving discussion when they buy their first life insurance policy because there’s probably going to be some things asked to be noted there. I doubt if very many people did like I did when I bought my first policy at 21 years of age, I denoted two charities. I have to be probably one of the exceptions.

Clolery: You must have had a great job at 21. I could barely afford to eat, let alone pay for an insurance policy at 21.

Carter: But if you have kids, you have to have insurance. That’s what drove me to it. And, I’m likely an exception. About 28, I had my second policy, and I remember saying (and by that time, I was in the philanthropy field) I will designate some of my estate to charity. This need to engage earlier and have dialogue is vital.

Love: Well, don’t you agree that the alumni love to — and I hate to use the word “alumni” because certainly that’s more of an educational institution — groups that have had a similar experience —

Carter: Affinity groups?

Love: — yeah, that they’ve all been to a camp together. That group, whether if it’s a faith-based group and they’ve had a mission experience, that group wants to keep talking about it.

Carter: They love to re-engage.

Love: Those discussion boards are very active.

Thorsen: Yes. And you know, the online world makes community-building a lot easier and sustainable.

In addition to alumni, I think you’re seeing a lot of it in political organizations, too, where you get people to take advocacy actions and they can report back on that. It’s something facilitated online very easily. People build up communities, shared interests, and so on.

Grizzard: Let’s go back to your question of attracting younger donors. The typical direct mail donor had been in the 65-plus age range. But new donors coming into the file through direct mail right now are a lot younger. It’s 10 to 15 years younger. And the more we can communicate through different channels, we attract more donors, younger donors and donors who give larger and more frequent gifts.

Clolery: Have you done any studies on the starting point for a donor then versus now in comparable dollars? Is the average gift starting higher in real dollars now than it was then 10 years ago?

Grizzard: If you adjusted for inflation, it’s probably close for the new donor coming in by direct mail. But the more we can drive that response through online mechanisms or even inbound call centers, the average gifts are about three times what it is if they respond by direct mail.

A lot of our strategies are designed to push these other methods and generate the response that way.

Thorsen: Particularly, if that’s what people are telling us they want. I don’t want anybody phoning me. I do all my giving online. And when they send me a letter after that, I’m like, why are you doing this?

Grizzard: Many organizations aren’t listening to their donors. That’s back to the super-pleased donor. They need to understand that that’s who you are.

Clolery: There was a consensus here that the inter-generational transfer of wealth is beginning. Almost14 years ago, my wife and I bought our first house. When we came onto the block we brought the average age down to 70. Now we’re among the oldest on the block. There are a lot of young families on the block. And if my house, which is one of the smallest on the street, is worth three times what I paid for it, I know that the other houses are going for a fortune. I know where my neighbors work. They’re not millionaires. One works for a pharmaceutical firm in marketing, he probably makes $85,000 or $90,000 a year. These people cannot afford these houses without the help of their parents.

So is that intergenerational transfer of wealth going to skip a generation because of this real estate bubble that’s in this country right now?

Love: It doesn’t necessarily have to be that. I think it’s a matter of starting in the right place.

Carter: This has been going on for a long time. You know, I bought a three-bedroom house in 1968 for $19,000, and 30 months later sold it for $40,000 because, in the Baltimore metropolitan area, there was a big real estate boom. I bought another one for $47,000 and sold it for $80,000 just 30 months after that. So I leveraged my little $2,500 down-payment up to $50,000 in the bank in the early ’70s. So this doesn’t surprise me. Everybody has a starting point. I don’t think that’s a great obstacle. And there have always been grandparents who paid college tuition. There’s nothing new about that. There’s nothing new about their paying for parochial or independent schools. There’s nothing new about grandparents who take care of a lot of expenses because their top expense years are gone, and they have disposable dollars. I don’t have a great fear of that.

Thorsen: People have always helped out their kids and there’s a lot of money left over after that.

Love: If their stock portfolio has done as well as their real estate portfolio, there’s going to be a lot there.

Carter: Now, there is a great opportunity in that marketplace you’re talking about. I talk to the institutions in Florida about this. People are sitting on homes they bought years ago for $150,000 that now might be worth $1.5 million if they’re anywhere adjacent to water or anything like that. The taxes have accelerated with some of these fixed-income families to the point where they can’t afford to live there any more because their taxes are so high.

They can give those homes to the aquarium, to the university or whatever, and get life use and then have those institutions then sell those pieces of real estate.

That’s a huge market that not all fundraisers are tuned into but they should be.

Clolery: Gentlemen, we’ve come to near the end of the discussion. Is there anything that we’ve missed that you might want to add?

Love: Well, I would end by saying that the changing face of the donor, in my opinion, is a more informed, more educated, better open-to-communications individual, which I hope benefits the whole sector before it’s all said and done. It’s just a matter of making sure we facilitate that the right way.

Carter: I think the changing face of the donor is an exciting concept because it’s a good change. As Jay just said, I believe the best prospect is a better-informed one. We see that young major-gift donors — and there are a lot of them — are more engaged. They want to know outcomes. They like to be on the committee. They like to see what’s happening. They’re a bit more trouble for the development officer, but I frankly think that’s healthy. They will improve the profession.

On the issue of restricting gifts, on the one hand, you love the unrestricted money.

On the other hand, restricted gifts give you opportunities to steward more individually, in a more sort of detailed way.

I also think we’re seeing more diversity in donor pools, which is definitely good. Some of the big events, like Katrina, certainly helped that happen.

Grizzard: The outlook is positive. The opportunity is there, but many organizations are going to have to change their communication strategy. Those that meet the needs of this new donor will prosper.    NPT

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