Is your charity meeting donor expectations?

Given the high trust level that charities are expected to measure up to, could you look a donor in the eye and swear that all their donations will go to the mission?  More importantly, should you?

Donor confidence is not just important to your nonprofit, it is critical. If donors get even a faint whiff of something a little off, it can take years to regain that confidence.

In an article on 9/11 of this year, the Huffington Post noted that  even the venerable Red Cross took a hit for misleading donors after 9/11/01. The article noted that in the wake of the problem, donor and public confidence in charities in general dropped from 25% approval in July 2001 to 18% by May of 2002.

Charities that lose donor confidence don't survive intact. Some may not survive at all. The above-referenced article also noted that out of about 300 9/11-related charities started after 9/11, only five were surviving by 2006.

The best way to retain donor confidence is to be able to prove effectiveness and be up-front with the donors regarding the use of funds.

Given what I do, i.e. grant writing and funding research, I see this statement a lot.

"Once we get some grant money coming in, we can use part of it to pay you."

Ah…no, you can't. Nor can you pay the back rent or the overdue power bill. Almost every RFP plainly states that funds may not be used to pay debts incurred prior to the grant award. This is known as "restricted" funding, i.e. the use of the funds is restricted by the donor to certain costs for defined programs.

Most of them also state that "usual and customary expenses unrelated to the delivery of mission-related goods and services" (or words to that effect) are not eligible to be paid out of grant funds. The exception would be any grant funds received that state the use of the funds is unrestricted, or may be used for "general operating support".

But what about those individual donors?  The ones that chip in a few dollars every month, or write one check a year?  Of course you would never outright lie, but should you sort of gloss over the fact that you are paying the utility bills with their money? After all, shouldn't they just know that you have to pay some administrative expenses out of donations?

Maybe they should, but they don't. However naïve it may be, casual donors think that every dollar buys a meal, a coat, a bag of dog food, or whatever else your appeal is highlighting.

The best way to avoid that is to either define the percentage of each donated dollar that goes to the charitable purpose, or state in the appeal that funds received are used for both general and program support.

In the beginning, that administrative percentage could be 50% or more. Once you have your infrastructure in place, it should be reflected in your program-to-administrative cost ratio.

Just don't over-promise. It is usually unrealistic to claim that your administrative expense-to-mission allocation goal is five or ten percent of total donations. If you've done a proper business plan, you should have at least a rough idea of what percentage of the money will eventually be used for organizational support versus program expenses.

Be sure to let donors know about the good things their money has purchased. If your food pantry  fed 100 people every Wednesday of the last year, put it in your year-end report and plaster it all over your website and social media accounts. If your program participants are willing, tell a few personal stories. Have an animal rescue?  Along with all the animals needing homes, have a page for those that found their forever homes.

Like your Mom always said…honesty is the best policy. 

Growing your unrestricted funding.

Grants, whether government or privately funded, normally do not allow their funds to be used  for ongoing administrative costs, i.e. overhead. While that may seem somewhat shortsighted on the part of the grantors, it is nonetheless a fact of nonprofit life. Grants usually support programs, not organizations. They are booked as restricted funding, meaning that you can't use it to pay the rent or fund the administrative staff salaries.

So, where does the money come from to keep the lights on and pay the staff?

From unrestricted donations, i.e. donors that designate their gifts as "general support" for your organization.

Some very few foundation grantors do say that their donations can be used at least in part for general support, but mostly, these donors originate from two sources.

Who gives unrestricted donations?

First, the ones that donate small amounts of money or support an event simply because they believe in your overall mission strategy. Secondly, from individual  donors that commit large sums in the form of endowments or a single big donation or bequest.

When designing your fundraising plan, courting these donor categories is at least as important as mapping out a grant strategy. Nationally, over fifty per cent of all nonprofit funding not related to fee-based services comes from individuals. Less than fifteen percent comes from grants.

That should tell you that donor development at the individual level should be at the top of your fundraising priorities.

Tired of the grant rat race?

If I could recommend a few things that nonprofits can do to end the grant rat race, it would be to go out and shake hands, speak at applicable venues, and just generally actively recruit donors that will write "general support" on the memo line of their check.

Take the case of a community event. When you advertise it, be up front with the allocation of the funds received. Tell your donors that while you need money for program Y, that program will not exist, much less accomplish its goal, if your organization ceases to exist. If you feel that the program is the major draw for the event, you could say that funds generated will be used 70% for the program and 30% for overhead.

Relate general support to the donors everyday existence. If you equate your need for general support to the donor's need to keep your organization viable to accomplish your mission, they'll get it.

Honesty pays dividends

Honesty is definitely the best policy. Donors that think their ten dollar donation is going to buy ten meals for the hungry feel ripped off when they find out that three dollars went toward your rent or mortgage payment. If they understand in advance that you will have no place to put the food if you can't pay the rent on your warehouse, they are generally fine with that.

The same thing goes for your major gifts strategy (you do have one, right?). You have to educate the prospective donor so that person understands that while your mission may be rescuing animals, you can only accomplish that if you can pay your day-to-day operating costs, and that includes paying the receptionist that takes the initial call or keeping the lights on in the kennels.

Don't beg. Educate!

Educating the donor community regarding where nonprofit funding comes from is just as important as the feel-good stories about who or what got helped. Ask most ordinary citizens where nonprofits get the money to operate, and they are going to say grants or events as often as they will say "from people like me".

That's at least partially because nonprofits only get in the news when they get a huge donation from a foundation or a big government grant. If that's the only time the general public hears about your organization, who can blame them for thinking you don't need their money?

Tell the whole story, tell it well and tell it often.

Unrestricted funding is the key to your organization's survival. Learning how to develop it should be a top priority.