Investing in Wealthy Donors Pays Off

In our view, the most important point of this study is that maintaining a laser focus and investing in wealthy donors is worth the cost. This article at The Chronicle of Philanthropy on an AHP study caught our eye.  At first glance, the idea that those organizations that spend more money raise more money doesn’t seem to be such earth shattering news.  We can imagine that some nonprofit executives may shrug this off as more of the same, or worse, that the findings don’t apply to them as they can’t afford to spend $900,000 per year on top-notch development staff.   All organizations, no matter what size their development office budget, should ask themselves how they can maintain a more consistent focus on, and a stronger relationship with, their major donors.  Although on a different scale, our own Fund Raising Matters OUTLOOK survey made these same conclusions.  Those organizations that are raising more money are doing so by raising more money from fewer individuals.  It may not be new news, but it is a lesson we need to remember.

January 30, 2014

Investing in Fundraisers Who Cultivate Wealthy Donors Pays Off, Studies Find

By Holly Hall

Nonprofits that spend a lot of money to hire staff members who seek large gifts and tend to loyal supporters fare far better in fundraising than other institutions of similar size, according to two studies commissioned by the Association for Healthcare Philanthropy.

Among the 335 hospitals and medical centers surveyed for the larger study, a subset of 45 kept detailed benchmarking data on their fundraising revenue and expenses from 2007 through 2012. Of those 45, the association identified 12 that raised an average of $10.8-million, even amid the worst years of the recession, 2008 and 2009. Those dozen organizations, which raised more than four times as much as the other 33 hospitals and medical centers, spent an average of $907,000 on salaries and other fundraising expenses. The remaining 33 organizations spent much less, an average of $291,000, on fundraising.

The best-performing institutions devoted a good chunk of that money to hiring fundraisers to focus on attracting big donations, bequests, and other planned gifts: 15 staff members, on average, compared with six among the poorer performers. And the fundraisers at the best-performing organizations had staff members who assisted them in keeping in touch with donors and other administrative tasks: 13, on average, compared with five among the other institutions.

Institutions that did well in reducing fundraiser turnover also fared better. Hospitals with fundraisers who spent a median of five to six years on the job raised far more than institutions whose fundraisers were newer.

Not only were they able to raise more money but they also managed to avoid losing as many donors as other institutions did during hard times. That allowed the hospitals to avoid layoffs and other cost-cutting measures that were common at many hospitals in the recession.

Individual Attention Was Key

Hospitals that spent the most on fundraising were able to conduct more face-to-face visits with donors while paying careful attention to stewardship: thanking supporters and letting them know how their money was used.

“Stewardship is a leading priority,” the researchers wrote. “This is commonly the area where many organizations drop the ball due to staff shortages and a one-dimensional focus on securing larger gifts.”

Many executives and board members do all they can to cut the cost of raising a dollar in hard times, but the research findings show that approach is misguided, said Bill McGinly, the president of the Association for Healthcare Philanthropy.

With seven or more full-time fundraisers meeting with donors and taking other steps to bind donors to the organization, he said, the 12 highest-performing hospitals and medical centers achieved median returns on each dollar spent that were up to six times higher than the more than 300 other hospitals and medical centers surveyed by the association that spent a lot less on fundraising.

But “it’s a big cultural shift” to get executives and trustees who oversee fundraising to understand that, Mr. McGinly said, though he hopes the new data will help convince leaders of hospitals, medical centers, and other nonprofits to grasp the benefits of spending more on fundraising, particularly on efforts to seek large gifts.

“Gone are the days of heavy investment in annual funds and special events as the cornerstones of development operations,” the researchers wrote. “More sophisticated organizations rely on a mix of programs with heavy investment in major gifts and grants raised through individuals, their estates, government funding, and corporation/foundation grants.”

Free copies of both studies, “Characteristics for Sustaining High Performance” and “Optimal Investment Levels in Health Care Fundraising for Chief Development Officers,”  are available for download. The studies are free to the association’s members and anyone else who creates an account on the organization’s website.

Send an e-mail to Holly Hall.