Wanted: Silver Bullet, Pots of Gold at the End of the Rainbow, Winning Lottery Tickets
Thursday, November 16, 2017
Room40 Group, on 10/25/17
“If only I had ...
... a (bigger) list of wealthy donors.
... better retention of current donors.
... a better donor management system.
... more guests at our gala.”
It’s tempting to think that there is a single answer, a silver bullet, that will make the difference between the constant struggle to raise money and that heavenly place where we hit our targets every time, with full nights of sleep along the way.
It’s natural to focus on tactics and expect that if we perfect our retention rate, have the right appeal, make the perfect pitch to a corporation, submit the perfect grant proposal, we’ll hit our targets. It’s what we can control day-to-day. It’s what we get (and seek) advice on all the time.
We will be the first to agree that tactics are important—if you don’t execute well, it’s hard to be successful. But better tactics won’t help your organization raise more and more money over time. Tactics are necessary, but they are not sufficient.
That’s the bad news.
Here’s the good news.
Systematically aligning your team, understanding your organization’s long-term fundraising potential, and setting a realistic target for the coming year will help you raise more money, more consistently than any rainbow you might chase. Why. Because alignment, a common goal, and achievable short-term targets make teams efficient and create confidence in those around them. These teams make the most of what they have. And when they come up against resource constraints, they are more likely to find their way around them or successfully advocate for the support they need.
As you look ahead to next year, set aside the tactics for a minute. Let’s focus on the team and your goals and set up for a wildly successful 2018.
MONTH 1. ALIGN YOUR TEAM
Ever try to play a game when everyone has a different version of the rules. It’s disorienting and funny at best, frustrating and no fun at worst. In too many ways, fundraising with a team, inside an organization, in collaboration with a board, is similar. Everyone has a different version of the “game”: where the donors are, how to appeal to them, how much they are capable of giving, whether you should focus on retention or new prospects.
No particular perspective is wrong, it’s just that most people have a piece of the picture—and set their priorities based on the piece they know. Maybe the fundraising chair knows that theirher company contributes a lot to philanthropy, but not to your organization—yet. Her enthusiasm for developing capacity to engage corporations isn’t informed by seeing the whole landscape. Your (more complete) view tells you it’s a high-stakes proposition, with only a few major companies in town that are already committed to other organizations. There are higher potential donors to spend your time in. Similar situations play out on all dimensions of raising money.
A shared understanding of your local context is critical for creating achievable targets, a successful strategy, and an effective team. You don’t get to set fundraising targets at your desk, based on your own experience and analysis, and call it done. (Wouldn’t that be nice??. No, it’s an iterative, collaborative process involving understanding programmatic needs, developing targets, advocating for the recommended dollar amount with the nonprofit’s leadership, engaging with the fundraising committee of the board, and, ultimately, defending the recommendation to the full board. Even the most efficient (or abbreviated!) process culminates in board approval.
But subjective knowledge, built up over time, is hard to share. What if you could sit down with objective data, share the local landscape of philanthropy, and use it as a scaffold on which to hang stories of your own to pull out the accumulated knowledge of your team?
We’ve plumbed the depths of data on philanthropy in the United States, pulling together data from a dozen sources to create a snapshot of philanthropy in the top 50 markets around the country. Our data shows how much individuals, corporations, and foundations are giving in your local area. We show it by county and by source. We also highlight the top 10 zip codes, corporations, and foundations.
For markets you know well, this market overview can serve as a quick reference list to tick through and share anecdotes to align your team on the complete picture of the local fundraising landscape. For markets you don’t know, it’s a starting place that puts the size and sources of giving at your fingertips.
The data doesn’t replace your knowledge; it gives you a way to validate and showcase it. Now everyone can see the full picture and you can tell the stories that make it come to life.
MONTH 2. UNDERSTAND YOUR LONG-TERM FUNDRAISING POTENTIAL
Your organization probably has long-term programmatic targets. in 3 years, we will be serving 20 percent (50 percent?) more people than we are today. Accompanying that target is a sense of what it will take. how many staff, in which roles, what sort of physical space or materials, etc. There is a long-term goal and a plan for getting there.
It’s much less common for organizations to have a similar long-term view of their revenue and fundraising activity. Too often, the revenue target is a by-product of the programmatic target. it’s based on need, rather than what is possible or achievable. In reality, the two should be intimately connected. Programmatic growth (impact) fuels fundraising; fundraising potential limits or accelerates programmatic growth.
Figuring out what’s possible on the revenue side is hard. There are lots of organizations out there that will do a piece of it: how much potential is in your current donor base; how to create a public funding strategy; foundations that fund in your programmatic and/or geographic area. It’s like shining a flashlight in the dark. it’s showing you bits and pieces, but not the full picture.
So what’s possible. We look at peers. No other organization is exactly like yours: the mission, the age of the organization, the position in the community, the leadership, the set of donors, the impact, etc. Taken together, though, a dozen organizations provide a good sense of what’s possible and where you stack up today. Over the past few years, we have put together peer groups for many markets. We rely on publicly available data, provided through organizations’ Form 990, as available on GuideStar’s website. We then calculate some key figures:
- Median: Half of the organizations are raising more, half are raising less. A helpful reference point.
- 25th percentile (bottom quartile): 25 percent of organizations are raising below this amount.
- 75th percentile (top quartile): 25 percent of organizations are raising above this amount.
- Standard deviations: an indication of how tightly the organizations are clustered and which are the true outliers
Take a look at the example below. It shows six cities, with a set of peers for each city. We have included some organizations that operate in all cities, as well as organizations that only work in the one city. Imagine your organization is the red dot, and operates at the median in Boston.
Here are some interesting things this tells us:
- We all know New York City is a huge market, but in this sample, it’s not so terribly different from Dallas. The medians are the same ($4.4M), and the top and bottom quartile aren’t too different from each other. Yes, it looks like there is a lot of money in New York, but there is also a lot of competition. At the top end is where we see the difference: if you’re able to outperform and break away from the pack in New York, there’s a lot of upside potential.
- In all cities, we are performing at or below the median. There are probably good reasons for this. in Chicago, we’re new on the scene; in San Francisco, we’ve been focused on programmatic innovation over fundraising. The data gives our position; it doesn’t tell us why.
- There is potential! If we were to perform at the median of our peers, we would pick up anywhere from $0.1M to $2.7M in each market. That’s significant in any one market and even more significant when you add it all up; it totals $5.4M.
Doing what we’ve been doing has worked reasonably well—we’re outperforming peers in every market, but we’re not in the top half of performers in any. Now that we know what’s possible, we can set our sights higher and resource ourselves accordingly.
MONTH 3. SET A REALISTIC TARGET FOR 2018
Growing from where you are today to achieving your potential won’t happen overnight. It probably won’t even happen in a year. It will take a multi-year effort, based on a plan developed through more research and thinking to figure out how your revenue mix may need to change to raise significantly more money. With an understanding of that, you’ll need to figure out how to resource it: what staff, systems, and support will you need?
Even without a full plan, we can start by using our understanding of our potential to set a reasonable target for next year. We like to use a revenue target framework with four factors:
- Potential—amount you can raise based on the peer median
- Pipeline—who we know, at what stage of cultivation, specific amount, and probability
- Capacity—number of fundraising full-time equivalents (FTE)
- Competence—effectiveness of development strategy, talent, infrastructure
Let’s take each in turn. First, we established our potential in the prior section. We can figure out potential based on one market or multiple markets. Ultimately, we want to set an overall revenue target for all markets and a local target for each individual market. We’ll focus on Chicago for this exercise. We are new to Chicago, so outperforming some peers is actually a tremendous accomplishment. We are raising $2M annually. The median is $2.7M, so our potential is $0.7M. Closing that gap in one year would be a big stretch for the team. Let’s look at the other factors to get a better sense of how achievable this target would be.
Our pipeline is a key piece of information. This is the tally of all the potential donations we anticipate receiving from identified donors, with some discounting for how likely it is that the donations will come in. Once we have this number, we divide it by our potential to see how close we are. In our experience, we want our pipeline to cover at least 90 percent of our target. Our pipeline in Chicago has been growing and is now $2.1M, resulting in 78 percent of our potential. That suggests that the potential target may be slightly out of reach for our current relationships and level of activity.
Next, we take into account capacity. Count up the time directly spent on fundraising by the people in your organization. These are the people in development, but also those who support your asks—most likely some portion of your executive director or CEO’s time. For our exercise, let’s assume your team is 3.3 people: 3 on development and 0.3 of your ED.
Lastly, we look at competence. Most organizations generate somewhere between $750k and $1.5M per full-time equivalent. Given your team, you should expect to raise $2.475M to $4.95M. Yes, that’s a wide range, because there are many other factors at play beyond the amount of staff time dedicated to the effort: systems, experience, donor base, etc. With this range, our long-term potential is well within reach.
These factors, taken together give us this information:
- Our potential is $2.7M.
- Our pipeline covers 78 percent of that potential.
- Our capacity and competence suggest that $2.475M - $4.95M is a realistic expectation from the current team.
Based on these factors, our potential in Chicago is a good longer-term target, but not realistic for this year. For 2018, we will set our sights more modestly, at $2.5M, which is significantly higher than this past year (an increase of 25 percent), a pipeline that covers 84 percet of the target, but keeps us at the lower end of expectations of revenue per FTE. It’s aggressive, but we have some good reasons to think that we are capable of achieving it.
As you’re doing this analysis of what you can raise now, it also helps you see how you will need to invest to boost that number over time.
That was a whirlwind tour of a different approach to raising more money. aligning your team, assessing your potential, and setting an achievable target for the coming year. It’s not a silver bullet. It’s a process that will take time and effort. If you want a more step-by-step guide, or the market snapshot data, check out our report, The Map of Opportunity: A Practical Guide to Philanthropy in the U.S.
Want to learn more? View a live recording or the presentation from our November 9, 2017, webinar with GuideStar.
And if you’d just prefer to talk through it, don’t hesitate to reach out: email@example.com.
The Room40 Group is a consulting and advisory group that works with the leadership of nonprofits to help their organizations improve, grow, and change. It takes its inspiration from a real place created during World War I to understand and break codes. Like its namesake, Room40 is a place where smart people come together to collaborate and work hard at analyzing data, uncovering meaning, and progressing toward a greater good.
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