How to Calculate the Number of MGOs You Need

How many do we need?When is it the right time to add a MGO to your organization’s staff, and how many do you need? Jeff and I are often asked for a formula. While there are many variables to consider, it boils down to these 4 points:

What kind of return on investment do you want and need? This is area is tricky because major gifts is considered to be a high-net-revenue fundraising strategy, so uninformed leaders and managers will mistakenly think that the return on a major gift program should be higher than other strategies when the program begins.

For instance, let’s say an organization’s direct mail program is delivering a 4:1 return – $4 is coming back into the organization for every dollar spent. In that environment, it might be difficult for a manager to agree that a major gift program should have a ROI of less than 4:1 in its first year. However, that is exactly what happens. Managers either do not know about the slow startup of a major gift program, or they choose to ignore the fact.

Our experience at Veritus is that a new MGO will have anywhere between a 2:1 to 4:1 ROI in their first year. Why? Because it takes 6-8 months to qualify a caseload of donors. And you cannot get a good ROI while qualifying donors.

Therefore, on the subject of ROI, we suggest you set an expectation of 2:1 in the first year so that you do not put pressure on your new MGO. I know that feels unsustainable and unrealistic. But plan that way, and you will not be disappointed with the progress of your major gift program – which will eventually grow to 4:1 to 6:1 in its second year, and 6:1 to 10:1 in its third year, and even higher than that in the fourth year and beyond. Start small and slow with your economic expectations.

Do you have enough current high-inclination, high-capacity donors to justify adding a MGO? As Jeff and I have mentioned many times, only one third of the donors who meet your major gift criteria will actually want to relate to you. This is a fact. Sometimes this percentage declines to one fourth. So if you are wanting to have a qualified caseload of 150 donors, you will need to start with at least 450 donors who meet your criteria to put in a caseload pool.

In our judgment, you should include any donor who has given at least $1,000 cumulatively in one of the last three calendar years – the current calendar year you are in, and two in the past. Why $1,000 cume? Because it will be hard to hit your ROI expectations if you go any lower, once you include the MGO salary, benefits and operating costs.

Also, pay attention to capacity when selecting donors for the caseload pool, noting that the donor must first meet current giving criteria THEN capacity, not the other way around. Too many major gift programs are built on what a donor could “possibly” give in the future, rather than what he is currently giving now. Big mistake. The measure of inclination is current giving.

Do you have the cash flow to support a start-up? Since it will take 3-4 months to search for and hire a MGO (and that costs money), and since it will take 6-8 months to get a new MGO fully functional, you will have a negative cash flow situation with your new MGO for the better part of the first 12 months of operation.

Can you support that with your current organizational cash flow? You must figure this out and plan for it, so you don’t get into a situation where you are expecting more revenue from the MGO – and then you (or some leader) start to put pressure on the MGO to put pressure on her donors. This is a dead-end street. Do not do this.

Is everyone on board? This is a critical question. If your CFO or your board – or anyone in authority – is not on board with the start-up ROI and the negative cash flow, then forget it. If they are not on board with a slow and deliberate ramp-up, you will have naysayers spreading negative vibes throughout the organization and poisoning the spirit of the MGO. It will not work. So be sure you have set the right expectations with your leadership.

That’s our “formula” for adding MGOs. We would add MGOs at a reasonable rate each year IF the four points above allow it. Remember, a donor with a MGO will give more (and will keep giving) than one without a MGO. So adding MGOs is a good economic decision although it may seem, on the surface, to be expensive and risky.

For our point of view, it is more expensive and more risky NOT to add MGOs as part of your fundraising strategy. Think carefully about this. A one-on-one, personal relationship that manages and drives a donor’s connection to your organization is far more effective than the alternative.

Richard

PS — Ready to hire? Get our free White Paper “Hiring and Retaining Great Major Gift Officers.” You’ll learn how to identify the best MGO candidates, and how to keep them, once hired.

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