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.

More on Nonprofit Crowdfunding – Is it leaving the little guy out?

In  my September 13, 2013 post, Crowdfunding for Nonprofits - Hype or Hope, I presented an overview of this form of funding development. This follow-up offers a more in-depth look at how the process is evolving to provide better structure, protection and validation for both donors and nonprofits and some of the pitfalls of that process, particularly for smaller organizations.

The visible problem  

In the above post, after viewing some of the websites catering to this funding model I stated:

 " There didn't seem to be a lot of vetting of the projects and nonprofits for the donor's peace of mind. In some cases, there was no way for the donors to receive an accounting for whether the money actually resulted in tangible gains or completed projects."

Apparently I wasn't the only one who spotted this weak spot. Now there are various approaches to deal with it.

Anything that deals with collecting and spending OPM (other people's money) is generally viewed with some reservations by would-be supporters. There is a good reason why the California legislature is moving forward to pass a law to crack down on what they see as fraudulent fundraising practices in the charity sector.

That's one way to approach the problems of donor exploitation. Another way is for the industry itself to define parameters by which such campaigns can be vetted. It's the old government vs. private enterprise argument. Should government impose a one-size-fits-all regulation, or can the industry police itself?

Public perception vs. reality

Nonprofits on the whole don't want to cheat anyone. Not the donors, not the beneficiaries of their goods or services, and certainly not the nonprofit community as a group. The problem is that one well-publicized bad apple experience taints the whole sector, and no one understands that better than the nonprofits themselves.

The public, perhaps naively but certainly vociferously, demands that nonprofits, like Caesar's wife, be above reproach. They might shrug off insider trading on Clorox as an isolated event, but just let a charity slip up once, and the whole sector gets a black eye.

Then there is the public perception of what constitutes charitable giving. The Nonprofit Times in an article published June 1, 2014 notes that  donors seem to be having trouble differentiating between funding and fundraising.

Measuring honesty

Legitimacy is the keyword, but to have legitimacy, you have to have a standard.

Enter the Accountability Review Wizard as designed and distributed by  the Charities Review Council. This tool seeks to bring uniformity and legitimacy to a rating and certification process.

In a April 16, 2014 posting on the hosting website, the Charities Review Council states that this is the only cloud-based risk and assessment tool currently available. In addition, they promise to provide resources to assist charities to advance to meet the optimum standards.

This fee-based service requires that the charity have the usual documents to verify organizational and financial  legitimacy, and seems fairly reasonably priced, at .02% of the organization's annual operating expenses, rather than total revenue, and ranges at present from $100 to $3,000. That should make it affordable even for smaller charities.

Arguably, someone should also address the vetting of the platforms on which campaigns are posted. Enter the Crowdfunding Bill of Rights developed and sponsored by David Neff and Miriam Kagan and profiled on the Kimbia.com website. For a more in-depth look at this proposed toolkit,  check out the entire article in The Nonprofit Times referenced above. While this is primarily slanted at the donor, it does peripherally note that the fees charged by some of the platforms are quite high.

All this is a step in the right direction. The internet has a well-deserved reputation as a hotbed of scammer activity. Anything that is perceived as or results in reducing the risk for donors or investors is surely better than nothing.

 Or is it?

Are we measuring the right things?

The one problem I see with all of this is the attempt to define what constitutes an acceptable level of administrative costs vs. program investment.

The California legislature ran into this problem when crafting their law. Originally they had a set-in-stone ratio of program spending vs. administrative and fundraising costs. After some educational meetings with nonprofits, they discarded that number.

The problem arises when looking at the vastly different mission requirement costs for nonprofits, and the public perception of what is "good".

No matter who or what agency tries to arrive at that figure, it is going to result in assigning an arbitrary number as the optimum standard. That number will then be the benchmark for the general public to judge which organizations are "good".

This isn't a new problem. Every nonprofit rating website has some sort of arbitrary standard they use to assess nonprofits. That can be anything from a cost ratio tied to the revenue figure of the organization to the dollar figure of the key personnel salaries.

The problem there is that it doesn't necessarily present a total picture of your organization.

A nonprofit delivering a healthcare service may have salary and labor costs in excess of 50% of their operating budget due to the legal requirements to employ highly-trained licensed professionals. A all-volunteer group that collects food, clothing or books for the underprivileged may not have any salary costs, but  does pay out a substantial portion of the budget for fundraising to purchase the items distributed. Very new organizations may have high initial development vs. program  costs.

The above-noted Accountability Review Wizard, as a part of their method to assign a rating, does attempt to address this by having a range of acceptable program spending levels from 65 to 90 percent,  but even in that framework, they suggest that a 90-10 ratio of program to administrative spending ratio is the most desirable.

That just seems to further the notion that all nonprofits have to be broke to be effective.

And therein lies the problem with crowdfunding, particularly if it is an all-online event.

The strategy, which is growing exponentially year-over-year in dollars invested in charitable giving, needs to be more about educating the public.

That doesn't mean that developing these benchmarking strategies is ineffectual or wrong. They just don't go far enough.

Is there a logical next step?

To address that shortcoming, if you think it is a shortcoming, the nonprofits themselves need to be actively involved in providing educational tools that go beyond dividing numbers attained from the 990 or the financial statements to arrive at ratios.

For instance, should the mid-six figure salary of a CEO whose organization requires the holder that position to have multiple master's or doctoral degrees be equated to the $10,000 salary of a  CEO who oversees a newly-formed  local conservation group? The former may only utilize 1% of the organizations funding, while the latter might currently account for 40% of the revenue. Do the ratios tell the whole story?

What's acceptable should be somehow tied to the type of nonprofit and it's relative chronological development as it relates to effectiveness.

In that way, a donor, whether through crowdfunding or more traditional avenues, could assess whether the effectiveness of the organization is improving with the modifiers of age, growth and revenue. Is bigger better?  Should donors fund  developing management expertise in favor of programs during the first five years of the nonprofit's existence?

What about you?

This is an area that the nonprofits would seem to have to move from passive acceptance of other's standards to active participants in shaping those standards. Larger organizations know that, and some of them are doing it, thereby shaping the dialogue.

Smaller and newer nonprofits have a stake in this too. Crowdfunding is evolving into something much larger than a simple social media posting event. The organizations that stand to benefit the most are the little guys, the ones that can't immediately access large grants.

Your messaging needs to address the issues being debated and codified on a national scale by these larger platforms. Even if you choose not to be evaluated, you ignore current trends in shaping public perception at your peril.

You are the folks that constantly contact me to bemoan the fact that you can't compete in the traditional grant marketplace. This is your chance to make the dialogue about effective outcomes, not financial ratios. Make the most of it.

If you need help crafting a message, contact me at granthelp@ida.net, or visit my website at http://www.cloudlancerwriting.com. 

Do you understand donor retention?

It's funny how blogs work. You post something, people read it that day, and you think OK, that's nice, a bunch of people apparently got something useful from this.

Then out of the blue several weeks or months later you get a comment or email about a post that you had sort of forgotten about.

 So it is with my blog post of April 28, "Marketing Your Mission".

Apparently "Tom" took issue with it. "This is the most stupid thing I've ever read" would tend to indicate that Tom doesn't find the use of the word "marketing" to be congruent with "nonprofit mission".

According to Tom, mission is all about emotional engagement. All that other stuff about being a good "investment" for the donor doesn't matter. People just "know" that you will use their money well, because after all, you're a charity.

In Tom's defense, the emotional characteristic is what drives donors to investigate your charity further. It is the thing that defines the need to give that they want to fill. At some level, they have an interest in helping something or someone. Maybe they Google "animal rescues" or "battered women's shelters" or whatever.

At that point they get thousands, if not millions of returns. So then they add their state or county or town to the search terms, and they get a few to a few dozen more specific returns.

That's still a lot, and it's unlikely they are going to send a check or donate online to all of them. There has to be some way to decide which one to support.

At that point they are probably going to be looking for a website or social media page. Who are you, and what are you all about? What real impact or change are you accomplishing?

That process is exactly the same as it is for someone looking for a product. You want to buy a used car so you search "used cars". At that point you may not know if you want a Chevrolet, or Ford or Toyota or whatever. You get a list of used car dealers that are within your search zone, and then you check to see if they have a website and look at what's for sale. There are dozens of bright, shiny cars that fit your basic criteria to pick from on each site. You don't want to visit, much less drive all of them, so you start looking for a way to zero in on just a few.

What happens next?  Well, I don't know about you, but I start looking for the dealer that is going to give me the best value for my dollar. Is their price lower, do they give you a free gas card if you test drive their car, or do they offer a free oil change for a year? I also look at the general premises if they have a picture of their lot or showroom. Does it look clean, organized and at least somewhat permanent?  Have they been in town for a while? Do they have good online reviews?

In short, why should I  pick one car lot over all the rest?

Why would a donor be any different?  There are lots of charities that all focus on the same problem. Their "bright shiny cars" are the stories they tell about who or what they have helped, and 90% of them are going to have good stories, because they really try to do good work.

At that point, two things happen. Maybe one story connects emotionally with the donor more than others, and they just hit the donate button. Those are the "impulse donors". They drop a few bucks and promptly forget about it. Those are "Tom's" donors.

Other visitors do some digging to see how many people have been helped in total and investigate  how much money it takes to help them in a significant way. These can be your long-term supporters.

The latter are probably the people with more money to donate. Nobody misses a single $5 donation even if it is misspent or the charity goes out of business, but if they want to spend $1000 or $10,000 dollars or more, they are going to look under the hood of that bright shiny car. Or maybe they can't afford that much, but they want to send a small donation every payday. They are looking for a connection, not a moment of satisfaction.

And that's where the marketing mindset comes in. The sooner you step out in front and say "We helped change the lives of 100 people for a day at a cost per person of just $10.00/day" the easier it is for the donor to see that $1000 will help one person for more than three months, or all 100 for a day.

Contrast that with the group that says, "You can help more people like Jane. Please give generously". How many more people? What do they really need to help another Jane?  Exactly what is a generous donation? They don't say.

Yes, it does reduce the giving to a dollars-and-cents equation. And yes, the emotional appeal was the catalyst between the donors desire to give and solving your money problem. But the donation was assured by the concrete statement showing the value delivered for the donation. It gives the donor a reason to select your charity to support at a much higher level than just an impulse donation.

Of course, you have to continue to connect with that donor to retain their interest. Maybe through a website, a blog, a newsletter or just by keeping fresh stories on your social media page. But first you have to cultivate the desire for an ongoing relationship.

In the retail world, they call that building brand loyalty. In the nonprofit world, it's donor retention. Whatever you call it, it is all a form of marketing. With all due respect to "Tom" I think you ignore that at your peril.

Need help with your messaging?  Check out my website at http://www.cloudlancerwriting.com

Rating your Grantability

What do grantors look for when choosing a nonprofit to assist?

While the answer to that question can vary regarding specifics, the general profile seems to be fairly standard.

1. Compatibility with, and relevance to, the issuing grantor's mission. That means your program and organization should fit in with the goals and philosophy of the grantor. For instance, while both your organization and the grantor may support keeping youth in school, if the donor organization is supporting STEM education, they are unlikely to support a program for art education. Even the best grant application will fall flat without this component, making grantor  research one of your more important tools.

2. Geographically qualified. Most, if not all foundations, corporations and even government funding sources list the geographic areas they prefer to support. Even grantors that profess to have a national focus usually seem to support certain areas more than others.

3. Stability. Most grants require that the grantee has been in business for at least two years, have good financial records (including audited financials) and a track record of providing quality programs. Most grantors want to see at least two or even three years of long-form 990's, although your local foundations may settle for one year if you have good financial records.

4. Revenue minimums. There is no specific all-inclusive minimum amount of revenue that applies to all grantors, but all of them want the grantee to have enough income, exclusive of the grant money requested, to cover normal non-program operating expenses. That can vary from as little as $25K for a local community foundation to  as much as half a million dollars for a large national foundation. In general, the grantors want to see that the organization can survive without their contribution, since they are normally supporting your program and want to be assured that their funds will be used for that purpose.

5. Management competency. The grantor wants to be assured that the organization can manage both the program and the financial administration to achieve maximum impact from grant funding. Almost all larger grants require at least a short bio or CV for the board and key staff. The more money you want, the more this factors into the decision to fund you.

6. Positive visuals. Does your organization present well in the public eye?  That can cover anything and everything from having a quality website, to your Twitter profile, to being well-regarded in your community  press. While innovation is often prized, outlandish, immature or highly controversial conduct is not. Your reputation will become interwoven with the grantor, and they want that to be a win-win situation.

7. Strong program design. More grantors are beginning to request a program plan that functions like a business plan. They want to see clear, attainable and measurable goals and milestones they can evaluate for effectiveness.

These seven areas seem to be pretty universal throughout the philanthropic community. While each grantor may have their own subjective criteria, such as degree of sustainability, scalability, and impact, all grantors embrace the basic seven factors.

If you would like an inexpensive review of your grantability rating, drop me a line at granthelp@ida.net.

Working harder to get government dollars

According to an article on a report published by the Urban Institute, over half of all nonprofits reported lower payments and difficulties with nonprofit/government funding partnerships in a survey conducted in 2013. Some reported that funding simply dried up while the programs were still ongoing.

Considering that government at all levels was funding over 56,000 nonprofits through over 350,000 grants and contracts  and was spending over $137 billion dollars doing so, that has an impact.

Governments don't create wealth themselves. They collect wealth by means of the taxes they collect or the fees they charge, and redistribute it.

Without getting too far off into the political weeds, the simple answer is that there is less money available and the government has never been particularly good at working with the people they give it to at any level. Add in the bad publicity they have created through failed programs and scandal-plagued, sloppy accountability and the money supply is bound to get even tighter.

Governments are not going to stop handing out money. Not only is it the way they garner support (votes) for their initiatives, but they aren't supposed to just sit on the money they receive.

Still, with the national debt still rising, unemployment still a problem, and workers contributing less taxes due to working fewer hours, the money supply is going to get tighter.

The savvy nonprofit will have to tighten up their operations and their belts to get by, and consider diversifying their funding plans. Since late and reduced payments were a problem for many organizations, increasing cash on hand and developing alternate income strategies should be in the forefront of coping strategies.

In the aforementioned report it is noted that nonprofits coped with funding shortfalls by reducing staff, freezing wages or drawing down reserves. It may also behoove them to take a look at reducing the scope of their programs as well. If program and financial reporting can be tightened up to reflect greater oversight and increased effectiveness, now would certainly be the time to implement those new controls.

Basic business and strategic operational planning will be more important than ever in at least  the next decade. Scaling back programs or accessing more foundation and corporate funding may have to figure more prominently in that planning that it has in the past.

If you haven't already done so, consider a re-assessment of your current business and funding plans.  Better to help a little less than go out of business and help no one.

If you need help, either with research or program narratives and reporting, drop me a line at granthelp@ida.net

Understanding Logic Models

Many grant applications require a formally presented logic model. Beyond that, logic models should be developed for every program as an in-house quality control tool. They can even be used to qualify prospective grant partners.

What is a logic model?

 

The easiest way I have found to explain it is that it is your program development blueprint or roadmap. Essentially, it provides a visible model of how your program efforts will result in reaching or supporting your mission goals.

There are many physical formats for the visual presentation. Documents, flow charts, spreadsheets  and slideshow-style presentations are the most common. I have found that the easiest way for most people to start is with an outline format in a word document. The visuals may be defined by a grantor in a different manner but any word document will generally translate well to any format

Content is king.

Regardless of what visual format you use, the content is the key ingredient. A beautiful picture frame with nothing more than a dirty piece of cloth in it doesn't usually rank highly as art.

The key element of a logic model is to show that your program is achievable, measurable and verifiable as to outcomes and impacts. It is nothing more than a step-by-step explanation of how your program will function.

Most logic models start with the resources and inputs needed to operate the program. That can include both monetary and human resources. For instance, you may need $10,000 dollars for materials, but you may also need trained personnel. It is nothing more than a list of what you have on hand or need to acquire to run the program. It is usually structured by defining what you will do and what you need to begin, and then provides criteria for measuring results.

What sections do you need?

The first section (Input) defines what you need just to get started. The following sections deal with what happens once you have that input secured. An outline for a program could look like this:

Program Name:   Remedial reading assistance for grade-school students

1. Required Inputs to provide tutorial assistance to 30 students per school year

·         Human resources = 10 qualified volunteer tutors

·         Monetary resources = $10,000 for books and paper supplies, rent, transportation and background checks

·         Suitable area for tutoring – minimum 600 square feet rented or donated

·         A curriculum for reading improvement

In other words, you need these things before you can go on to the next step, the activities that will be provided.  At this first step you might want to note or sub-list influencing factors, i.e. obstacles or assets such as whether you need to apply for grant funding, whether that funding will coincide with the start of the school year, should you approach the community for donated space or rent space and can you  recruit qualified volunteers. Obviously, if you don't have the means to go forward, that would be your immediate focus.

The next step would be to outline the activities that will be used to achieve your desired outcome.

2.  Activities (also called plan of action):

·         Assess each child's level of competency and divide into groups of three.

·         Assign the appropriate curriculum and tutor to address each groups need.

·         Hold twice-weekly one-hour sessions after school on Tuesdays and Thursdays

·         Relate reading activities to every-day life by having children read labels, signs or simple directions.

·         Have children real aloud for once each week.

The next sections of the logic model deal with results. Typically the next three headings would be Outputs, Outcomes and Impact, in that order. For instance, outputs would be how many of the target group of 30 signed up, and how many completed the program. Outcomes would be how many met or exceeded current grade-level proficiency. Impact would be following up with the students to see if they continued to progress and maintained grade-level  proficiency in the next school year or beyond.

Other benefits

At each step, the logic model should provide a chance to develop  some sort of" if>then" scenario. If we only get $8,000 then we can only enroll 20 students. If we only get 50% of the students to grade-level, then we need to evaluate the curriculum and the tutors. If we only get five qualified tutors then we need to do more community outreach and recruitment. In other industries, this is called contingency or variability planning.

Why you can't ignore the process

The larger the grant and the more competition there is, the more important a logic model will become. If you are chasing a relatively small local family foundation for less than $5,000, you may be able to condense a formal model into a few paragraphs or headings. The more zeroes you add, the more detail is required.

While these five categories usually cover the basic structure of a logic model, some grantors will also require that you document the contingency planning for a new program. The models can also be weighted  toward theory, activities and outcomes.

 

Beyond the obvious relationship to money, producing a program logic model will serve to keep your organization focused and efficient. Far too many people come to me with only step 2 and 3 developed. I can't present that to a grantor, so then we have to assemble the rest of the pieces. Why not do it before you need the money?  If you need help, you can contact me at granthelp@ida.net.

Coming Soon! "When should you consider Federal grants?" A new handout for growing nonprofits. 

What comes after your URL?

For the third time this week, research on a nonprofit that contacted me for fundraising help landed me on a website that says nothing and more importantly, does nothing to help me learn about the organization. Two of them were simply a link to their Facebook page.

I wonder why some nonprofit websites tend to be so ineffective. Is it because the staff thinks that no one goes to websites anymore?  Do they think the sites are too expensive to develop? Do they take too much time to update?  I asked everyone of those three nonprofits for a comment

.

Only one got back to me, saying that they believe that Millennial/Gen Y donors are mostly on social media, so the website is superfluous. I don't think that demographic is the only one they should be pursuing, but for the sake of argument, let's accept that as a parameter.

Maybe websites were less important for a little while, but new research shows that  18-34 year-olds now prefer to visit websites before committing to a donation. Along with all the convenience of  mobile connections comes a healthy dose of risk, a problem that is getting worse after all the recent data breaches, and that may be driving donor behavior toward learning more before they donate.

Text-to-give was a big deal for awhile, but has since tailed off,  with only 15% of Millennials reporting that they donate in that way. Seventy percent report they do prefer to donate online, which means making your website and its donation feature both user and mobile-friendly is important.

As it is for most individual donors, mission is still the most important facet in that age group. Donors want to see your mission clearly described. "We help low-income mothers with daily challenges" isn't enough.

The first place most people go after the landing page is the "About Us" page. With the proliferation  of Smartphone users, that would seem to indicate that your landing page and "about" page should be one and the same. There has to be a reason for them to click through to the rest of the website.

Like their older siblings and parents, Millennials care about what you are doing with their donations. How and whether you are accomplishing your mission is important to them. Millennials tend to give smaller amounts, but they donate more often. If they are establishing a relationship with your nonprofit through your website, then the old saw that you only "get one chance to make a first impression" really rings true.

Short-form social media is excellent at doing what it was meant to do, which is up-to-minute dialogue and reporting. It's a fine way to announce events,  tell folks about the great new supporter you just got, or converse socially with your group. People of all ages and backgrounds use it and follow it.

It also has built-in limitations. Because it is meant to be informal, current  and colloquial, it may not be the best way to present your organization to potential new supporters.

Going beyond the Millennials, people in general are just a lot more aware of how they spend money now. They want to see things like links to annual reports and 990 returns. They want to know who else is supporting you. They want to know about your board and key personnel, and they are likely to look them up on the web for connections beyond your organization. They want to see some type of personalization, such as multi-year outcome reports or a story following someone who is benefiting from donor support.

You just can't get that much detail or present the historical context of your organization through the short form social media formats. Websites can often incorporate blogs that educate and inform both existing and new donors and keeps them connected to you.

    

 Your website shouldn't read like an e-book, but it does have to go beyond 140 characters, and it needs to project competence as well as compassion.

In some ways, an effective website is similar to a well done grant application. It should engage  on an emotional level,  but it also needs to inform and showcase your organization as the professional operation that you have created.

Need help with a website or other communications?  Email me and let's talk!