Although March is still roaring like a lion in some parts of the county, the calendar says we’re on the verge of spring… so it seems like an appropriate time to talk about nest eggs and baskets.
We’re referring, of course, to your nonprofit’s finances.
The inspiration (and source of data) for this conversation is the report Giving USA Philanthropy Spotlight: Benchmarking Giving to Human Services, released late last year.
In it, researchers reveal that the human services organizations actually saw a higher rate of increase in funding over the 10-year period ending in 2015 than any other sector. [See the table below]
This distinction is noteworthy because it covers a period of serious economic drama: the U.S. was hit in 2008 by the largest downtown since the Great Depression, followed by a steep recovery that continues today.
If one sector has successfully weathered this volatility, it certainly makes sense to take a deeper look to determine how.
Let’s start with the basics: You might already know that human services organizations make up more than a third of all nonprofits in the United States.
You might be surprised, however, to learn that human service organizations only receive about 12% of all charitable contributions in the U.S., and that’s up from 9.7% just 10 years ago.
Many of these organizations are less dependent upon charitable contributions because they are heavily reliant upon local, state and federal funding sources. In some cases, government contracts comprise up to 90% of their annual budgets!
In recent years, however, this source of revenue has varied and become unpredictable. While the Great Recession was the original instigator – shrinking the incomes and tax revenues used to fund these services – changing voter and political sentiment promise to limit public funding moving forward.
While it seems these organizations may have amped up their private fundraising efforts to address the times, it also make sense that donors would recognize the impact their dollars would have on people struggling for food, shelter and other basic needs.
What we know: By the numbers
Source – Giving USA Philanthropy Spotlight: Benchmarking Giving to Human Services
How did this happen? It’s all about eggs and baskets…
While some of this could be due to donors moving their donations from their interest areas to basic needs, there seem to be other factors that contributed to this massive uptick in giving to human service organizations. It was no accident that they fared better through the Great Recession.
Think back to how human services organizations are funded: in most cases, primarily government grants alongside financial contributions from private donors. When the recession hit, organizations that were funded solely by private donors suffered massive losses in fundraising dollars. Because the finances of human services organizations were diversified, with a cushion of support from government funding, they had more lead time to regroup and strategize around their fundraising strategy during a crisis. They were able to conduct cost/benefit analyses of different fundraising tactics and move forward with activities that had the best return on investment – like major gifts fundraising efforts, cultivating their top-giving donors, and retaining loyal donors.
Key takeaways for all nonprofits
1) Build up a nest egg for your organization. Having financial reserves helps you weather unexpected financial situations, at least long enough to strategize and not move directly into panic mode. Keep an eye on your operating margins, equity ratio, debt ratio and administrative cost ratio.
2) Don’t keep all of your eggs in one basket. As a long-term strategy, diversifying funding streams can shield you from being vulnerable. This goes for different types of fundraising activities and financing as well as relying on one or two donors for all of your charitable gifts. For human services organizations, this means developing a strong fundraising operation to counterbalance government funding and grants in times of uncertainty.
3) Invest in relationship-based fundraising activities before financial crises hit. Cultivating relationships with donors and engaging them in your work is not only good for your finances – it’s also good for your mission. You stand to gain ideas and connections with community members who care about what you do. Building strong relationships with donors is also a predictor of retention, which means you can count on them if trouble strikes.
4) Make new friends but keep the old – one is silver and the other’s gold. Pay attention to acquiring new donors, but don’t let that be your only focus. Peer to peer and social fundraising efforts and events are appealing to nonprofits, but if they only result in a small “one and done” donation, was it worth it? Part of the reason HSOs’ fundraising performance indicators fared better than other organizations were that these organizations invested in upgrading existing donors and retaining those who had already bought in to their mission. They built a case for supporting the organization’s mission, demonstrated the urgent and immediate need for their programs and services in the communities they served, and stewarded donors to share impact and gratitude.
5) Devote staff resources to build and sustain relationships with donors. If fundraising is considered an “extra” activity, or something someone will get to eventually, or less important than the organization’s direct service activities, how are we surprised when it’s not yielding the results we want to see? If no one is focused on cultivating relationships with donors, how is it possible to retain, upgrade and involve donors?
During a time of great need and crisis, the human services sector professionalized their fundraising operations and infrastructure, as well as their communications and marketing functions, to guarantee their futures.
Are you tracking these types of metrics to see how you compare to the national trends? Could tracking these metrics help you identify where you could beef up your infrastructure and efforts to become more efficient and effective? Can you put these learning into practice to protect your organization (and your clients) from future crises?
Let us know what you think – we’re here to help!