CREATING MARGIN: First Step Toward a Systematic Cultivation of Planned Giving Opportunities

house-water-badThere’s an irrefutable law of nonprofit leadership: Consistent growth and long-term sustainability are largely dependent on an organization’s ability to monitor and maintain a healthy balance between 1) solicitation of gifts from discretionary income and 2) solicitation of planned gifts from net worth. It’s the latter that usually lags far behind the former. Among organizational donors at all levels, there’s an enormous gap between planned gift potential and planned gifts secured. As I continually meet with donors of client organizations, I see this demonstrated on a weekly basis—often in the most dramatic ways.

Last month I talked about the reasons for that gap. This month I will offer a few common sense suggestions on closing it.

1. If you don’t sow, you won’t reap. It would be naïve to assume that organizations and their development departments can significantly increase the ratio of net worth giving to discretionary income giving by simply wishing it to be so. If it were that easy, more organizations would have already done it. The hard truth is that organizational leaders need to deliberately create margins in their time and budgets, enabling development professionals to cultivate gifts from net worth.

cliff-edge-warningMargin is simply how close you choose to live to the edge. Whether it’s a margin of safety, margin of error, or margin of finances; it’s a measurement of how many things can go wrong before you go over the edge. Organizations that operate almost exclusively on gifts from discretionary income are not set up for long-term sustainability. In other words, they are living close to the edge, often much closer than they realize. Even if they grow quickly, they’re much like the weeds in the Parable of the Sower. Because they have “no deep roots in themselves” (i.e., endowment built from gifts of net worth), in seasons of prolonged heat or cold, they are likely to wither and die.

Though newly hired nonprofit executives often inherit organizations with little or no margin, those margins are usually the result of a series of leadership choices. In other words, margins are ususally created by choice, not by circumstances.

SUGGESTION: The long-term sustainability of any organization is largely dependent on the foresight and ability of organizational leaders to build margin into their strategic plan and to use that margin to secure the future by cultivating donor relationships.

2. Creating margin is a lot easier said than done. One reason is that some fundraising leaders are quick to make a case against it. Though the argument is weak and shortsighted, it goes like this: When evaluating the development department’s effectiveness in terms of current dollars, it’s hard to justify investing time and money in planned gifts of net worth. Return on investment (ROI) is usually not immediate and is unpredictable. You can’t calculate unknown bequests, and it’s difficult to predict how long donors will live. Consequently, planned giving efforts are moved far down the list of priorities.

The Association for Healthcare Philanthropy (AHP) Standards Manual recommends two metrics for measuring fundraising effectiveness. The cash method is simply cash revenue divided by fundraising expenses, the result being the Cost to Raise a Dollar (CTRD). The Productivity method combines all new commitments for the fiscal year — cash, pledges, letters of intent for revocable gifts, and current value of new irrevocable planned gifts.

Both measurements are important. Since, however, the CASH METHOD metric is the only reported measurement of effectiveness (Form 990), nonprofits tend to manage (and consequently, create margin) almost exclusively by this metric.

SUGGESTION: Don’t be enslaved to measuring fundraising effectiveness by current dollars alone. Just because the Internal Revenue Service reports only this number, doesn’t mean you have to do so. Get out in front of the IRS by aggressively reporting to donors on long-term fundraising effectiveness in terms of overall PRODUCTION.

As I wrote in the previous article, “How you measure and monitor success shapes the future of your organization.” Long-term perspective leads to long-term monitoring and vice versa.

Many organizations will only be able to recognize made or missed opportunities in the context of the margin they create for themselves and their staff.

3. All margin is not created equal. Carving out additional margin from current time and budget allocations does not necessarily increase overall PRODUCTION. It all depends on what staff does with that time and those resources. This is not about hanging out for hours at Starbucks or donor-junkets to the Caribbean at the organization’s expense. The number of planned gifts and the percentage of giving from net worth increases as a result of focused time and quality communications with current and potential donors.

SUGGESTION: Use margin to talk with lower level donors. Your future major donors will come from this group. In a previous blog I made the case for evaluating fundraising effectiveness by how well the organization communicates with their third- and forth-level donor groups.

SUGGESTION: Spend some time talking to donors without making a funding solicitation. Two of the most frequently expressed anxieties from major donors with whom I regularly speak with are 1) they feel hunted, and 2) they wonder if the organization would be as appreciative for their previous giving if they stopped.

4. You don’t know what you’re missing. Creating margin not only enables you to cultivate known potential, it enables you to recognize opportunities you would have otherwise missed. If there’s no spare time on your calendar, you are unlikely to look for additional things to do. In the same way, if your personal budget is stretched to the maximum, what’s the use in looking into the next great investment opportunity. It’s hard to convince people they’re actually missing planned giving opportunities. If they have been aware of the opportunity, they wouldn’t have missed it. However, with lots of pressing responsibilities and little or no margin, they’ll pass by those opportunities like ships in the night —never knowing how close they came. Many organizations will only be able to recognize made or missed opportunities in the context of the margin they create for themselves and their staff.

SUGGESTION: Use additional time and resources talking with donors face to face about the organization, the impact of their previous gifts, their long-term goals, and their charitable motivations.

Gary Bukowski, CFRE, commented on the previous post:

“Eddie, your post was spot-on. Our organization recently received a $250,000 bequest from a man who never gave a gift to our NPO. Just think what he might have done if someone worked with him ten years earlier.”

Gary comment highlights two important realities: 1) that past giving (or lack of giving) is not a reliable predictor of planned-gift potential, and 2) organization-changing gifts are ususally the result of long-term cultivation.

Eddie Thompson, Ed.D.

Copyright 2014, R. Edward Thompson
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3 Responses to CREATING MARGIN: First Step Toward a Systematic Cultivation of Planned Giving Opportunities

  1. tqnelson says:

    Great article. I call them now and later gifts. An MGO who misses the discussion on estate gifts is not serving their org or their donor.

  2. Pingback: A GENERAL THEORY OF FUND-DEVELOPMENT: Five Decisions that Keep Your Organization on the Front Side of the Momentum Curve | The Fundraising Executive

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