I have not seen your specific nonprofit’s budget, annual fundraising efforts, and/or donor lists for the past five years, but I have seen many other organizations’ documents in my work as a nonprofit consultant. The desire to have a stronger annual giving program or a larger endowment fund usually comes from one of three (albeit broad) categories:

1. A new development person gets hired and realizes that continuing on the current path is unsustainable and has to be turned around ASAP
2. For the third (fourth, fifth, sixth) year in a row the board has had to approve a budget that is in the red. Someone finally realizes it’s time to focus on increasing funding instead of reducing programs or staff.
3. A member of leadership (can be staff or volunteer) reads something that sparks the idea that if you increase funding before you are in need, you will be able to grow your organization which can, in turn, increase the number of your prospects and donors.

Not surprisingly, we hope you will consider how to strengthen your annual fund or create a larger endowment when you are not in desperate straits.  How do you know if you need to make a change? Here are some of our client’s experiences that may resonate with you.

• You are dipping into your endowment at a higher rate than is comfortable or even smart.
• Your annual budget relies too heavily on a major fundraiser. Even if you are lucky enough to have an event that is volunteer run and raises significant more than costs, keep in mind that everything seems to work until it doesn’t.  Something as simple as a forced change of venue (a hotel closes or needs to have construction) or a natural disaster (we do believe in global warming) can dramatically alter who attends and donates at your big gala.
• You are losing the same number of donors as you are gaining each year. It may seem like net zero when you are looking at the gross number of supporters to your nonprofit, but those new donors cost more than retaining your current donors in both dollars and human resources. And many of the new donors will be giving at a lower, introductory giving level which may not be the case of those you are losing.
• You are losing donors and/or members at a higher rate than you are acquiring new donors. This seems somewhat obvious but this is unsustainable in the short and long term.  It’s time to look at what is happening, and stop making excuses. Your bottom line doesn’t care if your membership is lower this year or your director of development left midway through the year.
• You rely, largely, on government and corporate support. In today’s world, you have no idea if the government funding will continue in the future or if the corporate support—in an era of mergers and acquisitions-will still be in place in six months or a year. What will the changes do to your budget?

Of course, each organization is unique, but we see trends and know how to change the course for your nonprofit.

For those of you who were hoping this article would be about those who are determining whether they should focus on a Stronger Annual Fund or a Larger Endowment, read on. 

In brief, initially focus on your annual fund. Diversification from a wider base of donors can help your nonprofit thrive in any economic climate.  While a version of Pareto’s Principle still stands (click here to read the recent article on the 90/10 rule,) you want to encourage annual donors, at every level, to give year after year. How? Stewardship, stewardship and more stewardship. You can still work on attracting new donors, but not at the expense of donor retention.

Then, once your annual support is on firm footing, you can consider building your endowment. It is much, much easier to raise money for an endowment (or capital campaign) if you already have a range of donors who view your nonprofit as a philanthropic priority. If you are already engaging with them (through your stewardship), you can shift the focus to establishing a long-term solution that will allow you to continue to serve your mission for years to come. Helping everyone feel good about the path you are on.