It’s a topic that comes up almost every day for Jeff and me. It frustrates finance people and managers. But it is something that we cannot ignore, because donors are wired to give to specific things. Period. There is no way around it, right? Wait. There IS a way around it and that is what I am going to talk about today.
It’s the subject of designated giving.
Finance people hate designated giving because, in their world, designated giving does not cover overhead. So there is always this pressure to “secure undesignated funds.” The MGO is then tasked with going to Mrs. Jones, who just loves helping abandoned or orphaned kids with their education, and talking her into giving general money to the organization – an idea that even Mrs. Jones does not like.
We work so hard at this – so hard. And it is counterproductive.
That is why I was so fascinated with what Brady Josephson of recharity.ca wrote on the importance of tangibility in fundraising. Read his insightful piece at this link. Brady’s findings are from a book titled “The Science of Giving: Experimental Approaches to the Study of Charity.” Joanne Fritz provides a helpful review on the book. But I digress. Back to why specifics matter…
Here is what the science and study of giving is telling us about donors as it relates to the specificity of an ask:

Donors gave almost three times more when the ask had a geographic focus, was specific on how the money would be used, and described the problem being solved.

Seems pretty basic, doesn’t it? Just tell the donor WHERE you will use the money, WHAT the problem is that you are addressing, and WHAT their giving will actually do. Just tell them that, and then ask them for a gift! Basic. To the point.
But hang on. If you do that, how will you cover overhead? And therein lies the dilemma.
That is why Jeff and I have been saying, over and over again, that overhead should not be this stand-alone category that MGOs raise money for. It should be allocated to program. Every program category, no matter how large or small, should carry its share of overhead. Why? Because there is no way you are going to DO the program without infrastructure and support. No way!
I honestly do not understand why it is so hard for many non-profit managers and leaders to understand this concept. There are even donors who do not understand it, demanding that all their money go to program and not overhead.
We have a simple solution:

  1. Take the entire budget of your organization – the whole thing – and uncover the direct program expenses in it. Finance has already likely done this, separating out direct program expenses from fundraising and operations/administration.
  2. Divide all the program expenses down into the smallest categories of work/projects that you can. The objective here is to create a list of all the different types of programs/projects that you can present to donors. Determine what percentage of the total direct program expenses each project is. So, if your total direct program expenses are $1 million dollars and Project X is valued at $26,000, then Project X is 2.6% of your total direct program expenses.
  3. Identify the total overhead amount and allocate it to each program category. So in the example shown in point #2, if the total overhead amount is $250,000, then 2.6% of that ($6,500) should be allocated to Project X, bringing the total cost of Project X to $32,000. Do this for all of your programs and projects. The result will be that all the overhead is allocated.
  4. Present the programs and projects to donors. And if the donor asks if overhead is included in the cost of Project X, say: “Yes it is. We would not be able to do this project if we didn’t have infrastructure and fundraising supporting it.” And that is the truth. If the donor doesn’t want to pay for overhead, you can decide if you want to discount the $6,500.

There are two things I would like for you to remember about this subject:

  1. You need to be specific in what you ask the donor to support. Specifics matter in major gifts. Don’t let your environment and naysayers talk you out of that position.
  2. You need to deal with the overhead issue. There is no way around it. Jeff and I believe you need to love overhead expense as much as you love program expense. Why? Because there is no way – no way – anyone on the face of the planet will run any program of any type without it. It would be like constructing a building without a foundation. It will not stand. Or building it without wires, plumbing, ducting, insulation – the building will not work. Embrace overhead. It is a good thing.

Lastly, take a look at all of your asks and proposals you have in the pipeline. Do they tell the donor what the problem is, where the money will be spent, and how the money will be used? If not, there is work to do.