Sell Your Major Donors ‘Psychic Rewards’

A mythical Silicon Valley billionaire just spent $100 million on a palatial home, two getaway retreats, a collection of antique cars, and some bling for his wife. Charities that may have targeted him as a donor just lost a $100 million order, although they would call it a donation.

Fundraisers might have captured a significant portion of that $100 million if they had better understood the mythical billionaire’s mindset and created a philanthropic offering or “product” to satisfy his emotional needs and address his passions.

Charities lose many “big orders” like these because they:

• Do not understand their market.
• Fail to mount targeted marketing and sales efforts to develop the market.
• Do not offer the right philanthropic products.

Shockingly, nonprofits miss out on 80 percent of available dollars, according to my estimates.

Here’s what organizations that rely on major donors need to know to become more successful at attracting big gifts.

Marketing’s Most Valuable Concept

Fifty years ago, I first heard a 13-word quote from Dale Carnegie, the author of How to Win Friends and Influence People. I still remember the day. I was sitting in a Larry Wilson Sales Sonics class, certain I would learn nothing.

Then I heard the words that have served as a guiding light during my career in marketing: “People do things for their reasons, not ours. So, find out their reasons.”

This fundamental truth is the basis for all great sales and marketing campaigns. And it is the first key to raising large amounts of money: You must discover those major donors whose reasons align with your reasons.

Next, development departments ought to do the following four things well.

1. Identify appropriate segments of the donor market.

2. Create philanthropic products that meet the needs of the donors and the institutions.

3. Mount effective marketing and sales efforts to develop those market segments.

4. Cultivate donors in personal ways.

This article focuses on the first step listed above, and the remaining steps are addressed in later articles in the tool kit. But first, let’s examine the motivations of major donors.

Motivations of Major Donors

It’s important to understand why and how wealthy people use their money. They use it to purchase psychic rewards — things that make them feel good about themselves.

A fraction of their expenditures provide “premium” necessities like excellent food, first-class health care, and an extremely comfortable home. Saving large amounts of money also carries a psychic reward. People enjoy feeling wealthy and over-insuring the security of future generations.

Wealthy individuals spend the bulk of their fortunes pursuing their passions. They may spend money on beautiful art because they enjoy owning it and admiring it, or because they are passionate about a particular genre. They splurge on a red chunk of iron ― a Ferrari ― to drive to work in slow traffic because they want others to know they are successful, or because they love the adrenaline rush that comes with a burst of acceleration. They go on exotic vacations and safaris because these experiences are fascinating, make great topics for conversations, and boost one’s self esteem.

Charities are in the psychic-reward business, just like manufacturers of luxury goods. Manufacturers sell material bling while charities supply self-esteem bling.

Donors want to help relieve suffering, put a smile on a child’s face, or create a great cultural institution that will improve the community or the world. Some crave the recognition that comes from putting their name on a symphony hall, museum, or hospital. No matter the cause, they want to feel good about what they have done, which makes them feel good about themselves.

Organizations should aspire to capture the psychic-reward market, and be prepared to compete head-on with safaris, antique-car collections, and third vacation homes. The biggest donations will occur when nonprofits offer donors an opportunity to purchase “philanthropic products” they are passionate about.

The Market of Major Donors

Organizations that depend on major donors almost universally underestimate the size of their potential donor base or markets. The estimates may be off by a factor of two or three, or even more. Because there is little relevant market research available, trustees and development professionals believe they are doing a great job when they hit ambitious targets. In reality, they often seriously underperform.

How big is the market? In 2017, the total earned income of the top one percent of Americans was about $3.6 trillion, and donors (including foundations) made $390 billion in charitable donations.

Between 1943 and 1983, the top one percent of Americans earned about 10 percent of all income. It’s worth noting that these wealthy folks ate excellent food, had access to first-class health care, and lived in extremely comfortable homes.

During the next 40 years, the percentage of income earned by the wealthiest Americans climbed to around 20 percent of all income. Because the wealthiest Americans in the post-WWII period lived very well, one could argue that the 10-percent increase in their share of earned income since then (about $1.8 trillion) is potentially available for charitable giving.

Therefore, what we in industry call the “Total Available Market” is $390 billion plus $1.8 trillion, or $2.2 trillion.

Examples of Real-World Success

It is one thing to talk about statistics and another to prove they have meaning in the real world. For example, if you told me 20 years ago that development professionals at the charities I worked with were underperforming by a factor of two, I wouldn’t have believed you.

However, we now have some examples that support this claim. The University of California, San Francisco, where I serve as a trustee, and Caltech both hired heads of development who had transformational effects. UCSF recruited John Ford, former head of development at Stanford, in 2012. Figure 1 shows the results.

Before Ford arrived at UCSF, we board members thought we were doing a great job raising $300 million per year. We knew we could do some things better, but we had no idea what the effect of “doing a few things better” would be. Today, UCSF seems on track to raise about $600 million a year, putting it in a class with fundraising powerhouses Harvard, Stanford, and Princeton. (In 2017 and 2018 two $500 million gifts took revenue levels above that $600 million base rate.)

When Brian Lee arrived at Caltech in 2012, the university was raising about $125 million a year. Under Lee’s leadership, the organization began providing better “psychic rewards” to a larger pool of potential donors.

As a result of efforts by Lee and others, Caltech now raises about $250 million annually, with 70 percent of the dollars coming from non-alumni.

What did Ford and Lee do differently to attract so much more support? Read Create ‘Philanthropic Products’ to learn more.

Bill Davidow, a former corporate marketing executive, serves on several nonprofit boards, and his new book, “The Autonomous Civilization: Reclaiming the Future We’ve Sold to Machines” will be published in 2020.