Don't Cut That Budget!

Jeff Schreifels

At Veritus, we're all about relational fundraising, but too often we hear about non-profit leaders making random budget cuts that negatively impact this tried-and-true approach. We know that leaders are under a lot of pressure at their organizations, and times are tight, but it's important for decision makers to understand why these cuts can impact relational fundraising. Today, my colleague Kendra Loper is joining me for an in depth conversation about how leaders can better support their fundraisers' work and when to think twice about slashing parts of the budget. Thanks for listening.

Recorded

Welcome to the Nothing But Major Gifts podcast from Veritus Group featuring Richard Perry and Jeff Schreifels. Twice a month, we bring you the latest and best thinking about major gift fundraising so you can develop authentic relationships with your major donors. Here are your hosts, Richard and Jeff.

Jeff Schreifels

Welcome to the podcast today. I'm Jeff Schreifels, and today I've invited Kendra Loper, our Director of Client Services, to talk about a topic that got some buzz in our company Slack channel recently. So let me kick us off by reading this request that came in from a team member. "Jeff, can you please share something for leaders about making random budget cuts that impact relational fundraising? Just recently, I had a client start a new fiscal year, and a bunch of budget cut decisions were rolled out that will negatively impact fundraising. I would just love for leaders to understand why these kinds of costs make a difference, and how cost-cutting measures can negatively impact fundraising."

Kendra Loper

Oh, that was so hard to read, because it's common, right? We see this over and over, and as we're talking with our clients and with our fundraisers, they're sharing their frustration over budget cuts. Particularly timing of budget cuts and what they're learning. So, yeah, hard. Also, I get it. You know, when budgets are tight, sometimes you do have to make those tough decisions about how we're going to manage cash flow and what will we have to cut if we do and so what we're, you know, obviously, what we're hoping to do today is talk a little bit more about the impact of some of those decisions when they have to be made, and then why you really want to invest in your relational major gifts, especially when things feel pinched.

Jeff Schreifels

Exactly. I mean, I would say just overall right now, even if your budget is tight, the last place I would want to cut at this moment in time is your mid or major gift program, right? Because this is the program that is bringing in your net revenue, the most net revenue that you have, so just overall.

Jeff Schreifels

But then I, you know, here's the other thing to think about, is that a lot of non-profits make this mistake. They are tight on budget, and so instead of really looking at each department and how much, you know, a cut could affect them, and what are the revenue and ramifications of all those things, they just make a decree that says we need to cut 10-15% across the board. So 10% from fundraising overall, 10% from program you know, across the board, without really thinking about what's going on and where that could hurt us or not.

Jeff Schreifels

And so I think if I were speaking to a leader and they were making cuts, the last place I would cut is fundraising, because that's bringing in revenue. That's the revenue generator. Last thing I would cut is fundraising. And then within fundraising, the relationship fundraising, the mid and major gift area, versus other areas of fundraising that may not be bringing in high ROI. But then again, you also have to look at that too, because you don't want to cut off acquisition all too long or too deep, because that'll affect you down the road.

Jeff Schreifels

So, you know, another thing I think about is, okay, what's driving this situation? What's going on with our revenue overall, or why do we make need to make these cuts, you know, do we have the right personnel? Is something happening there? Is that affecting our revenue situation? Or is it the market right now? Is it the economy; what are other organizations experiencing? Is it just us, or is it just across the board? And we're doing all the things right, but, you know, it's something out of our control.

Jeff Schreifels

And then also, then looking at, on the fundraising side, are we talking to our donors correctly or not? What are our individual campaigns that we're sending out? How are they doing compared to last year and all of those things? Have we changed any strategies?

Jeff Schreifels

Those are all things to think about before you just make a random cut. And in development, you have to look at every strategy, what's going on, before you just make across the board cuts in development, because not each strategy is the same as far as what it's producing net revenue wise. ROI, you know. So there's all these things to think about that if we did this cut this means long term, it could take two or three years to recoup. Meaning, I've known a lot of organizations that have just said, "Okay, we're going to cut acquisition because we're losing money. So if we stop acquisition, we can really gain some, you know, initial net revenue, because we're not, we're not going to lose money like we do in acquisition." But then they cut too much, and, you know, then they're two, three years out, then they're realizing, "Oh, we've really now got to invest a bunch of money because we're way behind in the pipeline, and It's not coming in like we thought it would."

Jeff Schreifels

So you really need to step back and look at the big picture before you make any cuts at all, weighing that short and long term, and especially around acquisition. Now, one of the things I want to ask you, Kendra, is we also see some unhealthy responses in organizations where maybe cuts happen, but not to development. And then there's all this pressure that's added to development.

Kendra Loper

You bet. You know, obviously, we see that quite a bit with our clients, when we're talking to them about, you know, what's going on in your organization? And you know, when cuts happen in other parts of the organization, often that pressure is, you know, on the development team to really raise that additional revenue; to try to shore that up. But without any strategies to do that.

Kendra Loper

Just like we say, you know, if we're going to cut 10% across the board, that feels arbitrary, same measure applies when we're saying, well, we just want you to increase revenue by 10%. What does it really mean? And have we looked at the donor pool and what's happening with our donors? Where do we see opportunity? And you know, you also have to invest on the front end, just like we talked about acquisition, right? Is that, you know, long term mentality to or, you know, getting over the short-term mentality to get to that long-term gain. And sometimes that can feel quite painful.

Kendra Loper

On the front end, right, you're investing in things that you're not going to see an immediate return. But without that investment, you're sure not going to see those increases that you want to see. And, you know, it's never a bad idea to go back, have your fundraisers go back to their caseloads and really review every donor and say, "Okay, if we did x, you know, or if we did y, how could we really raise additional revenue with these particular donors? Where's the opportunity? What's realistic?"

Kendra Loper

And then that team gets overloaded. Maybe we're cutting staff members. Often what can happen, you and I know this, admin support gets cut often, right, as the first step. And when that happens, if our approach is really built on a relationship model, then our fundraisers are pulled back into all these admin tasks, and they have even less time to work with their donors. So what happens, right? Then we lose that momentum we had, and it can really impact what were our plans in terms of how we plan to engage each donor, right?

Kendra Loper

But also, you know, we talk about this all the time, Jeff, we do want to have those stretch goals. That's real and appropriate for every fundraiser and for development team, but it has to be based in reality. It can't just be an across the board, you know, percentage increase without any information that is, you know, driving that decision. And, you know, what happens then, is then our fundraisers get overwhelmed. You know, they have so much on their plates. They already have a lot of pressure about producing the funding needed. They care deeply about these missions and the work that they're doing. And then on top of that, now they have this added pressure that doesn't feel rooted in reality around a budget, you know, budget increase or a budget cut.

Jeff Schreifels

Yeah, definitely. Now, of course, sometimes, especially in the smaller organizations that we've worked with, there's just no way to avoid those budget cuts to development if you have to make those cuts. So what are some other considerations that leaders need to have when doing that?

Kendra Loper

And not to mention the added stress and weight of carrying not only your role, but other roles on the team. And so then, what happens? Fundraisers start looking around at other opportunities. And I would really encourage, you know, organizations who are thinking about budget cuts, and particularly thinking about cutting staff, what does that do to the impact of your team? The morale of your team? And have you measured the cost of an open seat on your team? Not only what it means for the you know, added responsibility to those left, but if someone leaves because of that stress, and you're having to then start to rehire and onboard and reintroduce that fundraiser to donors, think about all the lost time that you have. And so that's sort of an outcropping of what happens sometimes with budget cuts. But it's real.

Kendra Loper

You know, I've worked in both a small shop and a large shop, and of course, we work with small and large shops, and so there's just a big difference between how a budget cut can impact a small organization versus a large organization. Of course, a large organization may have additional resources, they may have a deeper bench of staff, they may have reserves that are available to them, where a small organization may not have that additional support. And so they're really living, you know, budget year to budget year on what they're able to, you know, bring in funding wise. And so if anything changes in that dynamic, all of a sudden, they've got a real cash flow issue.

Kendra Loper

And so, you know, it's tough right to say, like, don't cut development, even though that's your revenue team. But at the same time, you have to really think through, like, what can we deliver? How can we deliver on our promises with limited resources? And again, if you're serious about relationship-based fundraising, you have to really look at your staffing and your personnel and you know, what could you potentially outsource? There are sometimes ways to do that. Direct response is a great area to outsource. There's a lot of experts in that field. And you know, sometimes you may have somebody, you think it may be better to manage that internally, but when you think about all of the costs of having a staff member who is managing that, and also, are they able to stay as up to date with the trends, and, you know, as someone maybe outside so, you know, thinking about outsourcing, what you can...

Jeff Schreifels

I agree, and you know, I would even go further. I would say this, I think just about every non-profit should outsource direct response fundraising. Anything that's what a friend of mine called arm's length fundraising. It's all the stuff that you're doing to either acquire, cultivate small level donors who eventually will, hopefully you'll build up into a real relationship with, but all of those activity... there's so many experts already out there. You don't need to hire that in house and build up a bunch of teams just to do your own direct response. There's so many other outsourced experts out there that could do that for you, and then then you're freed up to really hire good people for your mid and major gift side, because that's where you want to focus, really as a non-profit.

Jeff Schreifels

And, you know, the direct response stuff that's... it's a whole science and art that so many people already know from the outside that you don't need inside.

Kendra Loper

You bet.

Jeff Schreifels

Sorry, I just had to go on that little rant.

Kendra Loper

No, no, it's good, right? I mean, that's really where the rubber meets the road. And I think, you know, being able to have some tangible things you can really dig into. Look at your budget to say, "Where does it make sense for us to manage this internally versus something we can do externally?" You know, obviously that's where we come in with a lot of our clients. And you know, we often step in when maybe there's a Director of Development transition, and we can step in and help manage the team in the interim, while you are hiring, and so that can be some additional support. You know, obviously, when we're working with clients, we're focused on that improved retention. And so we're really coaching our fundraisers to be laser focused on that work.

Kendra Loper

And so as you know, as a team at Veritus, what we can do when we come in and do that is really... sometimes fundraisers in the midst of transition, even in the midst of a significant budget cut, can get really lost, and not really know what should... what's the most important work for me to focus on, to to help us shore up these revenue shortfalls? And that's what I think we do really well, is to come in and say, "Okay, let's look at your donor pool. Let's look at your caseload to see where the opportunities lie. And how can we focus you on really bringing those donors in deeper or back to the work, if they're, you know, lapse, significant lapses there." And so that's part of what we do when we're working with our clients every day, and that can really help support in times of lean budgets as well.

Jeff Schreifels

Yeah. I mean, I look at some of the examples, you know, in our Slack channel, we get where this original message came from to kind of spur this particular podcast. Here's just some of the crazy cuts, especially done at the end of the year, or even, like, after they make the budget, then they realize, "Oh, we gotta cut like..." They cut out business cards of major gift officers, you know. And so now the major gift officers don't have something to put into their letters, and we gotta write everything out.

Jeff Schreifels

Another was like, no more stamps on envelopes. You have to go and just send it out with the regular mail through, you know, the machine. Little things like that that are very personal to the donor and will get opened for a donor. The manager is not even thinking, or taking away cell phones, you know, from the MGO. Just stuff like that. Managers and leaders think, "Oh, that's just a small thing," but they don't realize how it actually will affect donors.

Kendra Loper

Like we start walking back all of the strategies that, you know, healthy donor strategies we put in place around personalizing, deepening that relationship. We start to walk all of this back all of a sudden when there's a budget cut which is going to take us even further in the wrong direction. So it's really getting disciplined and learning how to be a good advocate around the the pieces of this work that really matter, that move the needle.

Jeff Schreifels

That's right.

Kendra Loper

So, you know, some of the things I think you have to think creatively, right? If you have to have abudget cut, how can you think creatively about where you can have some cost savings but also still achieve your goals, right? So, you know, can we go digital on our annual report and save that in cost? I mean, those are things that I think organizations are already doing, looking for efficiencies, and certainly, donors expect that from us. They don't want us spending a lot of money on things that aren't really going to help the organization move the needle forward. So, you know, sometimes we get caught up in, well, what's our gift back to the donor this year, if they make this level of gift. And most donors really don't want that, right? They want to see your mission able to move forward. They care deeply about the work, and they want to know that the money that they're donating, that they're, you know, investing in this work, is going to its highest cause.

Kendra Loper

So thinking through, like every piece of your donor engagement plan, what really matters? You know, actual stamps do matter. We know that that matters. But maybe something else along the line, maybe a printed version of this isn't where we want to spend our money. We can go digital or, you know, in our meetings with donors, can we really be more strategic around if I'm going to travel to a location and use those travel dollars, how do I use them as wisely as I can? How can I make sure I meet with as many donors you know, all of those pieces that you would hope you're doing every day, but really, in a budget crunch, they get kind of lifted to the top to say, "Okay, I want to really make sure that we are spending the dollars that we have available to us in really impactful ways."

Jeff Schreifels

Yeah. Well, Kendra, thank you so much for joining me today, and I hope each of you listening got some information that will help you think differently about budget cuts and advocate for investing in relational major gifts. If you'd like to learn more about the opportunity you have in mid-level and major gifts if you invest in these critical areas, I'd highly recommend applying for our free Donor File Assessment. This assessment will give you revenue projections for if you continue on your existing trajectory, and projections for what is possible with your file. You can apply to get started at the link in the show notes or on our website. Thank you for joining us, and we'll see you next time.

Recorded

Thank you for joining us for the Nothing But Major Gifts podcast from Veritus Group. Richard and Jeff also write an ongoing blog that you can subscribe to for free at veritusgroup.com. Please join us again next time.