Almost three years of slipping public confidence in charities has dented their appeals, hurt no less by a weak economy and weaker marketing.
So listen first to the optimist.
“Overall, with the improving economy and consumer confidence, I expect to see total giving increase 2 percent to 3 percent in 2004 and 5 percent to 6 percent in 2005,” said Chip Grizzard, CEO of Grizzard Agency, Atlanta, a leading marketing shop for nonprofit groups.
Planned giving and donations to donor-advised funds will see the largest increase this year, he said. Nonprofits also will test new offers, formats and mediums with telemarketing budgets reallocated to other media because of the public's lack of awareness that those who signed up for the national no-call registry still are liable to get calls from charities and politicians.
Finally, Internet giving will continue to grow. It will stay a small part of the total charity pie, though activist groups like MoveOn.org and the campaign sites of presidential candidates have done their bit to make Web donations more mainstream.
Grizzard has a unique monitor on the Internet's progress as an effective channel for raising money.
“We've noticed a consistent trend around the world that people give to charity in the same method that they pay their monthly bills,” Grizzard said.
Online fundraising gained momentum after the 9/11 tragedy as people responded quickly to appeals. Now, many charities are going beyond Web sites into search engine marketing optimization and e-mails.
Brent Kuhn, president of advertising agency BKV Inc., Atlanta, expects media popular last year – mainly direct mail – will retain their appeal. But nonprofits will have to raise the bar on creativity to use new channels like door-to-door canvassing.
“We believe the overall response rates will be up primarily because they've been down so much the last two years,” Kuhn said. “The really big challenge is to recover from the weakened acquisitions over the last two years. A big chunk of new acquisitions is needed just to replace lost donors.”
No One Is Immune to Downturns
Greg Fox, senior vice president of strategic services at Merkle Direct Marketing, Lanham, MD, blames charities for making unsound decisions when the going started getting rough, oddly, in 1999-2000.
“There was this thinking that nonprofits were immune to downturns, which led them to make short-term business decisions,” he said.
Even nonprofits based in Washington were horrified that, for the first time in many years, government support was waning as the economy shed its excesses.
Response rates were falling from levels of the late 1990s, Fox said. Many retrenched their direct mail programs as they suffered losses from prospecting new donors. Others were cocky that the stock market would lift their boat, too.
Simultaneously, the retention rates of existing donors were declining.
“Organizations were losing their donor base much faster than they were replenishing them,” Fox said. “What we're seeing is that nonprofits are in for several years of difficult times depending on their actions of 2002 or 2003.”
It is not a comforting thought. But new donors and new thinking are precisely the prescription for the United States' 1.5 million charities and the 11 million people they employ.
Topping the list of the sector's afflictions is increasing public skepticism. Charities were slow to respond after 9/11, a new Brookings Institution report noted. The American Red Cross particularly was criticized for being too slow to disburse relief funds collected after the tragedy.
The same study was concerned about proliferating scandals. There were reports of lavish spending at some organizations, improper payments at the United Way of the National Capitol Area and the firing of a president of the Young Women's Christian Association only six months into her job.
Similarly, the press has reported conflicts of interest at The Nature Conservancy. Control of another environment lobby, The Sierra Club, may fall into the hands of anti-immigration proponents. That faction blames a deteriorating environment on the growing U.S. population.
Debate also continues over what percentage of donations should go toward administrative expenses versus actual disbursements to the cause for which they were collected. There is just not enough disclosure.
And attorneys general in California, New York and Minnesota are calling for more charity accountability.
Clearly, trusting consumers are pivotal to a more generous nation.
“Confidence clearly affects the public's willingness to donate time and money, shapes the political and regulatory environment that governs charitable organizations and has at least some influence on morale within the charitable workforce,” Paul C. Light, a professor at New York University and a Brookings senior fellow, said in his report.
The credibility problem has unfortunate timing. Americans already are growing up exposed to scandals in corporations like Enron, Tyco and WorldCom. Even institutions like the Roman Catholic Church, the Anglican-affiliated Episcopal Church and some Muslim charities are blemished. So it comes as no surprise in a recent Harris Interactive phone survey that Americans ages 18 to 34 prefer volunteering time to giving money. However, older Americans have more experience donating money and realize the role of cash to nonprofits.
Shrinking Donor Files
Charities pulled back on acquisition efforts in the past three years because of the economy or poor results. Consequently, their active-donor file size has shrunk. And going to the well too often leads to donor fatigue.
“[This year] is the time for them to be more aggressive in acquisition in order to rebuild their files,” Grizzard said.
Retention marketing is vital to a charity's long life, yet donation seekers must calibrate their overtures to the most responsive names on file. Repeatedly courting best donors risks dissonance. For example, the Metropolitan Museum of New York frequently mails to its member base asking for money to supplement decreasing financial grants from the city, appeals, member upgrades and gift memberships.
The Sierra Club, for its part, constantly seeks extra funds for legal challenges mostly to Republican-controlled federal and state governments. Supporters are urged to become life members. That lump sum goes into an account to help sustain the nonprofit, also trimming renewal mailing costs.
As the market recovers, charities will turn to traditional direct mail techniques. But the smart among them will control costs and test new segmentation strategies to maximize net income. If they are not already doing so, nonprofits must overlay donor files with outside information. Age and wealth factors help unearth donors within files who have more capacity for generosity.
“As an industry, we need to go deeper into who truly our donors are, and we have to understand what their motivations are for giving,” Merkle's Fox said. “Too many organizations throw spaghetti against the wall. Some of it will stick, but we really cannot afford to do that anymore.”
Like Fox, Grizzard advises clients to get to know their best donors. Learn how often they want communication from the charity. Keep them informed about the use of their gifts. Send alerts of special programs, press releases and third-party testimonials. Of course, nonprofits must remember the adage “familiarity breeds contempt.”
With successful outreach comes gratitude to responsive donors. Few nonprofits acknowledge donations, albeit often for reasons of reducing mailing costs. But a thank-you e-mail, if the address is available with permission, will work.
Moreover, acknowledgments build loyalty to the brand that has lost its distinctiveness among the sameness of address labels and notepad premiums in every envelope.
“Giving is not an entitlement,” Grizzard said, “so express your appreciation and get your donors involved in your cause.”
