While philanthropic giving has started to pick back up over the past several years, total giving to nonprofits has been stuck at around 2 percent of the GDP for the last 40 years.
What’s going on? Why haven’t nonprofits gripped and motivated more Americans to give to their worthy causes?
4 Reasons Giving Has Plateaued That Few Fundraisers Are Discussing
While there may be many factors impacting overall giving, here are four reasons that need to be discussed in more conversations among nonprofit leaders:
Reason #1: No Money for Marketing
Total annual spending on marketing in America is about $730 billion or 5.2 percent of the total economy. Nonprofits currently spend about $7.6 billion of that total, but they would spend five times that much—some $40 billion—if their marketing spending, as a share of total revenue, matched what the rest of the economy invests in marketing and advertising. That sort of underinvestment stalls growth because well-spent marketing dollars are strongly correlated to business expansion.
Reason #2: A Misplaced Focus on Return on Investment
Return on investment is enthroned as the ultimate measure of success in most charitable organizations. But that perspective stifles innovation and can stall growth. For example, if a nonprofit earned just a 2:1 return on its $1 million investment in a new fundraising campaign to help kids with malaria, it might be viewed as a failure. Especially if the target was a 4:1 return. But the net income raised will still help fight malaria. Nonprofits tend to forget that ROI measures efficiency, but net income measures effectiveness.
Reason #3: Incentives That Build Silos
Too often, nonprofits create financial incentives that build silos. Assigning revenue targets at each level of the donor pyramid, from direct mail to major gifts, is one way this is done. But it creates competition between officers at every level, as well as a singular focus on meeting financial targets. In other words, the metrics prevent colleagues from working together across the various giving levels.
Reason #4: A Failure to Tap Big Data
The power of vast amounts of consumer information is a game-changer in modern marketing. It’s enabling businesses to understand customer preferences at a much deeper level than ever before. The same outcome could also be possible for nonprofits, but there’s a problem. The data is usually stored in departmental silos, and thus the power of big data goes untapped.
Do the scattered data-collection hubs inside your organization talk to each other? Is your budget process a silo-creating machine?