“Look,” the CEO said. “I really don’t care that donors are more apt to give to a specific thing they’re interested in. What we need are unrestricted funds. So focus on that.”
We’ve heard this statement hundreds (if not thousands) of times over the years. It reflects a lack of understanding of a non-profit’s economy and the core drivers of donor giving. The result is that donors don’t give to their capacity, there is high donor and value attrition, and the non-profit’s economy suffers.
If you’re a MGO reading this, you’ve most certainly faced that pressure to secure unrestricted funds – while your qualified caseload donors yearn to support those areas of your organization they’re interested in.
Here’s why this is happening.
Managers and leaders would love to accept restricted funds if:
- They had a good way to cover overhead, which is on average, 25-35% of the total organization budget. This is no small point. Think about it. A $10 million non-profit has to find $3 million of unrestricted monies to deal with the overhead issue. Add some zeros to the gross revenue line for larger organizations and you can see that this becomes quite a mountain to climb. Not easy.
- They had a good way to deal with programs and projects that were over-funded. Sure, it would be nice to let donors pick those organizational programs and projects that they’re passionate about. But what do you do if the total budget for program A is $1 million, and several donors give a total of $1.5 million? Huge problem.
Here’s the good news. There are relatively easy solutions to both situations. I say relatively because once you have set this all up – which is a rather detailed and labor-intensive venture in the setup phase – it’s almost effortless to maintain.
Here’s what you need to do:
1. Deal with the overhead issue by allocating all of it to program categories and subcategories. This means you take the entire organizational budget and reframe it into all the program activities (categories) that the nonprofit is organized to do. Now to be clear, this is not a simple thing. And we here at Veritus have a whole system to help you do it. It’s called the Donor Impact Portfolio (DIP). Plus we’ve written about this in detail in a free white paper. Take a look at this resource to get acquainted with how this works.
Here’s the point: a nonprofit’s budget, at its most basic level, is an economic expression of the nonprofit’s mission. That’s the only reason the budget exists – to fulfill the mission of the organization. This means that every cent of that budget has something to do with (either directly or indirectly) the mission of the organization.
That’s why it makes sense to present the budget in this way to donors.
Think about it this way. Your organization is a retail store. It’s the (INSERT MISSION) retail store. Inside the store are rows of shelves all stocked with all the products (think programs) of the organization. Each product has a price tag on it – some are “expensive” – others are lower-priced. But the sum of all the products in that retail store equals the total budget of the organization. And the donor gets to go into that store and “buy” what she wants. The great thing is that all the overhead is included in the retail price of the product. Brilliant – and practical.
When frontline fundraisers can go out into the marketplace and present things this way, donors will give more, and they’ll give more frequently. And their relationship with you will be more satisfying and fulfilling. Why? Because they’re expressing their deepest desires and yearnings for the planet through their giving, and it’s an especially rewarding and meaningful investment.
So this is the first thing you need to do to deal with the restricted-money dilemma. The second thing is this:
2. When you’re asking the donor to fund that program category that they love, be sure to have a plan for over-funding in your ask. And this point is not that complicated. My friend and colleague, Jeff Brooks, addresses this area in great detail in his blog titled How to make your fundraising unrestricted. Take a look at that post for some great and practical ideas.
So ask the donor to give to what she is most interested in. It’s a fact that donors will give more and find more satisfaction in their relationship to you, when your ask perfectly matches their passions and interests. So do that, as long as you’ve allocated overhead to the program category as addressed above. AND you’ve asked the donor for permission to use her gift in a more general way – if the program category or project she’s giving to is over-funded.
Let me illustrate this point. Let’s assume that the donor is interested in clean water development in Ethiopia, and the program has a budget of $750,000, all costs in. The donor has already stated that she’ll give $250,000 to the project. The MGO is now confirming the details. Here’s what it sounds like:
“Donor Name, we’ve been talking about the clean water development project in Ethiopia that you’re interested in. And you said that you’d like to contribute $250,000 to the $750,000 budget for this project. There’s one other item I’d like to talk to you about. We’ve been discussing this project with several other donors over the last few months. If the project is over-funded, do we have your permission to use some or all of your gift to fund clean water development in Africa? And, if for some reason that larger category of expense is also overfunded, would it be OK with you if we allocate your giving to our worldwide health programs?”
In our experience this type of clear and transparent asking for permission to use the gift for a larger category is always met with: “Look MGO, I’m fine with that. Just be sure that I get all the detailed reporting on how that Ethiopia clean water development project is doing.”
The gift is then given. The MGO memorializes the agreement in a letter or email and everything is fine.
Donors are reasonable people. And they understand and accept that overfunding can and will occur. (Tweet it!) It’s just a matter of being open about it and seeking their permission to use the funds for the larger category that the project belongs to or even a category above that.
If you adopt these two practices in your organization, you won’t be facing the restricted/unrestricted funds dilemma. Try it, and you’ll find that your caseload donors will give more. And they’ll have a much more satisfying relationship with you.