Three Possible Fundraising Strategies

This is part 2 of a series on the impact of the worldwide recession on fundraising. Written by Mal Warwick and Dan Doyle, you can find both analysis and suggestions from these seasoned professionals. The introductory post was Fundraising in Tough Times. Here’s part 2, Three Possible Fundraising Strategies:

1. The Defensive Approach

Cost-cutting is paramount. Cancel donor acquisition activities. Reduce the frequency of donor appeals while cutting back on mailing and telemarketing quantities. Eliminate thank-you letters, or at least replace those personalized letters with post cards. Bring gift processing and donor file maintenance   in-house. Cancel all marginally profitable special events.

2. The Selective Approach

Maximize net revenue in the short term and maintain the long-term value of your donor base. Economize on such fair-weather activities as direct mail testing, costly cultivation events, and glossy magazines or newsletters. Strengthen the case for giving to match the reality of the times, and avoid cutting back on solicitations. Instead, increase the frequency of solicitations to those donors who normally generate high net revenue. Examine the long-term value of your donors, ranking the acquisition lists from which they came and favoring those lists that come out on top with re-orders. Step up donor acknowledgment and donor cultivation activities to strengthen your relationships with donors. Find low-cost ways to learn more about the most loyal and generous of your donors, and integrate new information into personalized appeals to them.

3. The Aggressive Approach

Pull out all the stops to take advantage of the opportunity created by the undue caution your competitors are exhibiting. Step up donor acquisition activities, even knowing that response rates will be lower than in the past. Innovate actively, testing new direct mail packages and new appeals online. Push hard for more and bigger gifts from donors while maintaining current stewardship policies without change.

Results of Pursuing Different Fundriaisng Strategies in each of Three Economic Scenarios

Scenario A: Misery Loves Company

Defensive Approach: Survival—for a short time
Selective Approach: Count your blessings
Aggressive Approach: Can you spell “Chapter 11?”

Scenario B: On the Road Again

Defensive: Nothing ventured, nothing gained
Selective: Poised for growth
Aggressive: Get ready to count your losses

Scenario C: Happy Days Are Here Again

Defensive: Survival—but just barely
Selective: Nothing lost
Aggressive: Hindsight is delicious

As you can see in the above, the Defensive Approach will ensure that a nonprofit survives only the early stages of a truly severe economic downturn (“Misery Loves Company”). In Scenario B, “On the Road Again,” the Defensive Approach suggests that an organization will fall behind its competitors as conditions improve. In Scenario C, a defensive strategy is a prescription for decline as less fearful nonprofits pull steadily ahead.

Similarly, the Aggressive Approach is a formula for bankruptcy in Scenario A, “Misery Loves Company.” Should the financial environment look more like the scenario we’ve entitled “On the Road Again,” an aggressive strategy will guarantee losses in the near term, perhaps very substantial ones. Only under Scenario C, “Happy Days Are Here Again,” will the Aggressive Approach appear wise in hindsight.

By contrast, the Selective Approach appears to maximize a nonprofit’s chances of surviving, even flourishing, regardless of the direction the overall economy takes. In Scenario A, the organization’s cost-cutting efforts, combined with continuing emphasis on stewardship, keeps the organization in business for the near term and strong for the long run. For Scenario B, the Selective Approach preserves the organization’s capacity to resume growth as the economy gradually improves. In Scenario C, with conditions rapidly stabilizing, the Selective Approach leaves the organization with the resources to shift strategy as the dire predictions of depression prove unfounded.

Thus, only one of these three broadly construed strategic approaches appears to hold promise under almost any foreseeable economic circumstances. Of course, that is the general case. The impact by sector may well be different, if experience is any guide, with organizations that don’t deliver direct services to poor people (arts, culture, advocacy) taking the strongest hits and social services and animal welfare groups being least affected. Similarly, the effect of economic conditions may vary by channel. Major institutional and individual gifts are likely to contract most quickly, and gifts of smaller size are more resistant to recession. Legacy gifts could remain strong, as they did during the Depression years. However, all of this is speculation, and as you can tell, we’re not in any mood to predict what the future holds.

To be consistent with our intention to explore an approach that holds promise of success no matter what economic conditions we face in the months ahead, let’s turn now to the more specific actions that could characterize an intelligent “selective” approach.

Coming next week: Nine practical steps you can take now.