A Time to Thrive

Charities are setting donation records, despite high turnover among fund raisers and trouble attracting repeat gifts

Many charities are setting new fund-raising records, said a survey released at the annual meeting here of the Association of Fundraising Professionals. Seven in 10 charities raised more money last year than in 2005, and nearly a quarter of organizations said they achieved gains of 50 percent or higher.

And the outlook for 2007 is strong, with two-thirds of fund raisers predicting that their organizations would raise more this year than they did in 2006.

But nonprofit groups continue to face challenges, speakers told the 4,000 fund raisers who attended the meeting last week. Many charities are failing to persuade donors to keep giving year after year, and are spending large sums to attract new contributors to replace the ones they lost. And as more charities run increasingly ambitious campaigns to raise private money, turnover among qualified fund raisers has become the biggest source of stress for many nonprofit leaders.

Nonprofit groups also face increasing scrutiny by regulators, especially over the lucrative marketing ventures they have started with many of America’s leading businesses.

What’s more, as the war in Iraq and the fight against terrorism consume government resources, charities must deal with increased pressure to provide services that federal and state agencies are no longer financing — and that means fund raisers need to ratchet up the amount of money they attract for their causes.

Still, the overwhelming message was that fund raising is thriving. Last year’s strong fund-raising results may have been the culmination of several trends that have caused giving to grow strongly in recent years, said Paulette Maehara, president of the association, which polled 450 organizations in the United States and Canada to produce its survey on the giving climate.

“A gradually growing economy, increased public awareness of philanthropy, and a year relatively free of challenges, controversies, and relief campaigns seemed to buoy giving,” she said. “Gifts such as those made by Warren Buffett put philanthropy in a very positive spotlight, which certainly helped the giving environment.”

Because giving has been so strong in recent years, the biggest concerns of fund raisers have changed somewhat, Ms. Maehara said. In the past, when fund raisers were asked to list their top concerns on the survey, they pointed to the possibility that the economy would decline, and the increased competition that arose as more and more charities stepped up efforts to seek private money.

Today, fund raisers said they were most concerned that rapid turnover at their organizations would hurt giving. They also expressed concern that charity leaders still did not pay enough attention to supporting their efforts.

“To me, that says fund raisers are no longer as worried about the external environment and more focused on how their operations can build on the growth” in giving, she said.

Nearly all the techniques charities used last year produced better results than in the previous year, the survey found, with nearly all fund-raising approaches helping charities produce at least 10 percent more than the same approaches did in 2005.

Online donations are growing fast for most organizations: Nearly 88 percent of the groups that raised money online said donations increased last year; in 2005, only 55 percent of the groups that solicited donations online said they raised more than in 2004.

The number of groups that said they raised more money through special events last year increased by 20 percent from 2005, while the number of organizations that did better with direct mail and telemarketing grew by about 15 percent over the previous year.

The final results of the association’s “State of Fundraising Survey 2006″ will be available in May on the organization’s Web site.

While nonprofit groups have been largely effective in attracting new donors, another survey released at the conference shows they have been falling well short in their efforts to keep donors who supported them in the past.

The Fundraising Effectiveness Project — a survey conducted by 12 fund-raising software companies and sponsored by the Association for Fundraising Professionals and the Urban Institute’s Center for Nonprofits and Philanthropy — surveyed 275 nonprofit organizations and charted their fund-raising performance from 2004 to 2005.

The survey found that in 2005 organizations were able to attract $270.6-million in gifts from new donors and from donors who gave more than they had the previous year. That total represented 62.6 percent of the $325.9-million they received from all of their donors the previous year.

But that influx of new donors tells only part of the story, the survey showed.

While they were attracting new donors, they were also losing $169.3-million — or 51.9 percent of their previous year’s donations — from donors who stopped giving or decided to donate less than they had the previous year.

“This is a strong indication, based on the pilot study, that there is an enormous retention problem,” said Bill Levis, project manager and senior associate for the Urban Institute’s Center for Nonprofits and Philanthropy, in Washington. “It’s this message that we need to get out to the sector. The sector needs to say, ‘What are we going to do about it?’”

Mr. Levis said that, on the surface, the numbers would suggest that the nonprofit world is performing well, since overall contributions for the nonprofit groups in the survey increased by 10.6 percent from 2004 to 2005.

But he said charities are falling well short of their potential in terms of retaining donors they had already worked to attract.

Adrian Sargeant, a fund-raising professor at the Indiana University Center on Philanthropy, pointed to the survey results as evidence that charities need to hone their efforts to keep their loyal donors happy.

“Retention is the single biggest issue we face as a sector today,” Mr. Sargeant said. “The retention rates we have are pretty poor. There is a really big opportunity for us to improve on those.”

He pointed out that a 10-percent improvement in the number of donors who give year after year can make a significant difference in a charity’s long-term fund-raising performance — improving returns by as much as 200 percent.

A charity that achieves such an increase — and manages to keep its traditional efforts to win new donors working well — will see its fund-raising returns double every five years, Mr. Levis said. Currently, based on the average national growth rate in giving of 7.5 percent, charities are doubling their returns every 10 years.

Additional data from the Fundraising Effectiveness Survey are expected to be available in the fall. The survey is available online.

State charity regulators are becoming increasingly leery of charities’ marketing partnerships with companies and may soon crack down on improper arrangements, a New York lawyer warned fund raisers here.

“Cause-related marketing will become more regulated quite soon,” predicted the lawyer, Seth Perlman, who represents numerous charities. “We’re starting to see the states get more active.”

While some states consider enacting new laws that would more strictly regulate such deals, Mr. Perlman said, states in some cases can also apply broader anti-fraud statutes.

Most states haven’t done so until now because the scale of the problem was relatively small, he said. But that has been changing since Hurricanes Katrina and Rita struck the southeastern United States in 2005. Regulators in Louisiana and Mississippi have charged several businesses with fraud, alleging that they did not donate money they claimed to be collecting for charity.

With the number of charity-business marketing ventures exploding in recent years, states are concerned that many companies fail to disclose exactly how much money a charity will receive from the donor’s purchase of a good or service, even though they are required to do so, Mr. Perlman said.

“It’s really not acceptable to say that ‘a portion of the proceeds’ will go to charity,” he warned.

Companies have gotten away with ignoring the laws, but regulators in several states plan to penalize companies that don’t disclose how much money they will eventually give to charity as a result of their promotions, Mr. Perlman said.

The resulting negative publicity will hurt not only businesses but also charities that are involved in what consumers will consider efforts to dupe them into making purchases in the false belief that they are supporting good causes, he said.

Mr. Perlman urged charities to be cautious about letting any company use their organization’s name in a promotion.

“It’s very important that you have a contract that spells out what you get, when you get it, and that you have the right to review the books and records of the company to make sure you are receiving your share,” he said. In 20 states, such a contract is required by law, but even in other states it’s a good idea to have one to protect the charity’s good name, he said.

Mr. Perlman said more and more states and localities are requiring charities to register their organizations and provide audited financial reports in each state where they solicit money.

Michael S. DeLucia, senior assistant attorney general in New Hampshire, told fund raisers his state has already began scrutinizing charities more closely.

New Hampshire now registers about 500 new charities a year, he said. With such an increase, the attorney general wondered, “Who is educating board members on their fiduciary responsibilities?”

Mr. DeLucia said that states became more concerned about regulating nonprofit groups in the wake of the federal Sarbanes-Oxley law that more strictly regulates businesses.

“There’s scrutiny of for-profits in Sarbanes-Oxley, but there’s no similar statement for nonprofits,” Mr. DeLucia said. Until there is clear federal regulation, states will step up scrutiny on their own, he said.

The cycling champion Lance Armstrong told conference participants that the war in Iraq is draining government money and attention away from charities that work to promote public health. As a result, charities face new pressure to increase private donations so they can keep up with demand for their services.

Mr. Armstrong in 1997 created the Lance Armstrong Foundation in Austin, Texas, an organization that raises money for cancer research and other health causes. He created the foundation while fighting testicular cancer — a disease that threatened to end his cycling career and his life.

In his speech, Mr. Armstrong said he was concerned that because federal aid was going to the war, many health programs run by government, as well as those run by charities with government subsidies, were getting less attention and money.

“Things are being forgotten. Things are being neglected,” he said. “Things we know how to do, we are not doing.”

To illustrate that point, Mr. Armstrong said that of the estimated 600,000 cancer-related deaths in the United States each year, roughly 200,000 could have been prevented if those patients had been able to get access to routine screenings and treatments. Given its wealth, the United States has a moral responsibility to prevent such deaths, Mr. Armstrong said.

Because terrorism and the war have pulled the federal government’s attention away from domestic problems, he said, charity leaders need to speak out about the people who have been left behind and the causes that are not getting sufficient support.

“To me, homeland security is about making sure we all have the best health care,” Mr. Armstrong said.

He said charity leaders would be more likely to get results if they also mobilized their supporters to speak out about domestic needs that had been neglected.

He noted that his organization had benefited from the sale of 65 million yellow “Livestrong” bracelets since 2004.

The bracelets, which sold for $1, not only raised significant money for his charity, but also became a symbol of grass-roots support for fighting prostate cancer.

According to its 2005 annual report — the most recent available — the foundation raised $18.6-million in donations, and another $24.5-million in merchandise sales, and had $64.4-million in assets.

As the bracelets reached the height of their popularity, Mr. Armstrong said, he realized that if the foundation could mobilize 5 percent of those who had purchased the bracelets to vote for candidates who had favorable records of supporting cancer research and treatment, that would be three million people who would be able to help influence the public agenda.

To that end, the foundation has created the Livestrong Army — a group of supporters who are encouraged to learn the voting records of federal lawmakers on key cancer-related issues and to participate in advocacy events that draw attention to the foundation’s cause.

Mr. Armstrong, who has retired from competive cycling and now devotes most of his time to the foundation, said he believes that the number of bracelets sold and worn is one reason that he has been able to meet with candidates for the Democratic and Republican presidential nominations.

He has also had private meetings with President Bush about government support of cancer research — meetings that have allowed him to campaign for more federal money, though he said the president has not altered his spending priorities for cancer research.

Charity officials too often fail to clearly convey the importance of their work to potential donors and other outsiders, said a professor of organizational behavior at Stanford University.

The professor, Chip Heath, said fund raisers and other nonprofit leaders can stimulate gifts and assistance if they can learn to convey messages that are “sticky,” meaning that people not only understand the charity’s message when they hear it, but also remember it later.

Mr. Heath and his brother, Dan, studied urban legends, business ideas, and other concepts that have fired the public imagination, such as President John F. Kennedy’s promise to “put a man on the moon within a decade,” to understand what made those messages sticky. They have compiled many of their findings in a new book, Made to Stick: Why Some Ideas Survive and Others Die.

The problem for charity leaders, who are often experts in their fields, is that they fall prey to “the curse of knowledge,” Mr. Heath said: The more they know about a subject, the less capable they are of explaining it to outsiders. They become fascinated by “complexity and nuance,” he said, but simplicity is the best way to reach people unfamiliar with a topic.

Often that means people outside an organization can better describe its work than people within the charity, Mr. Heath said.

Mr. Heath described a social-science experiment in which passersby gave twice as much money to a charity when they were asked to help a starving child who was identified by name than when they were asked to alleviate the hunger of 21 million anonymous people. “Find the concrete example that allows people to establish a connection and begin to care about your organization,” Mr. Heath told fund raisers.

Too many traditional charities are caught in a cycle of continually raising money to maintain their operations. As a result, they are not spending enough time building their operations to promote true change, said David Bornstein, author of How to Change the World: Social Entrepreneurs and the Power of New Ideas.

Mr. Bornstein said the traditional ways charities operate — in which nonprofit groups expend considerable time and energy chasing grants and donations — have taken the emphasis away from finding innovative solutions to major problems such as poverty, urban education, and the lack of health care for the poor.

“We have to invent new institutions and we have to improve the ones we have, because we are going to see a major drop in the living standards of Americans if we don’t,” he said.

He added: “No organization can become excellent if you’re spending 80 percent of your money just trying to get funding. You just can’t do it.”

Philanthropy will be more effective, he said, if foundations and others who provide money to nonprofit groups look at themselves like venture capitalists who make investments in the potential of businesses — rather than in what those businesses have already accomplished.

“Why can’t we develop solutions that work that way? We need new institutions and we need to change institutions that have become old and stodgy,” Mr. Bornstein said.

Fund raisers at traditional charities can learn from these new approaches, he said. Rather than focusing largely on telling stories about past successes, fund raisers should begin to talk to prospective donors about the potential of their organizations. In turn, they can focus on attracting a larger pool of money that can be used to support larger-scale efforts to produce change.

“Sell the vision,” he said. “The storytelling approach is about what you can do in the future. If you had this money, wow, look at what you could achieve.”

To hear interviews with Mr. Heath and Mr. Bornstein in which they offer details about their views, go online to http://philanthropy.com/extras.