Recently, the CEO of a hospital commented quite matter-of-factly, “At this point in my career, I’m not concerned about future gifts. I’ve got four more years before I retire, so I’m only worried about raising cash.” Raising cash is a good thing and so is understanding one’s own timeframe. However, this CEO had abandoned any effort to maintain a balance between current and future giving. As he was congratulating himself for his own sense of clarity and purpose, I was thinking, “How deep of a hole will he dig for his successor in the next four years?”

It reminded me of a college football coach who after many years got slack on recruiting. The program deteriorated, and the newly hired coach arrived only to discover that the cupboard was bare of quality players. The old coach lost his commitment to long-term program success and just rode the program as far as it would take him. It happens all the time with coaches, and it can also happen with fundraising executives.

THE FUTURE IS NOW (and vice versa)
Future gifts are usually gifts from net worth while annual giving is typically in the form of cash from discretionary income. As you all know, soliciting funds from discretionary income means you’re in competition with the mortgage, family vacation, college tuition, and maintenance on the house(s). We also know that in order to create long-term sustainability in our organizations, we have to maintain a balance between annual giving from discretionary income and future gifts from net worth.

For twenty-five years, Thompson & Associates’ Representatives have continually met with select donors of client organizations to offer estate planning services. Here is the paradox I see almost every single day. Though these organizations are typically staffed by experienced and deeply dedicated fundraising professionals, on average less than five percent of their donors have planned for any kind of gift from their net worth. Only a very few have future gifts designated to the sponsoring organization. By the end of the Thompson & Associates’ planning process, however, almost 90% of those donors initate some kind of future gift, most often to that same client organization.

I have a lot of thoughts on why there’s such a gap between future gift potential and future gifts secured. A few of those observations are below:

1. Compartmentalized Fundraising Departments
The really sophisticated development shops understand that the primary objective is not just securing the gift. Securing a relationship is far more important because they’re not just appealing for the gift today but a gift tomorrow. Every time they contact a donor or make an appeal, their objective is to strengthen the relationship and plant seeds for the ultimate lifetime gift.

The really sophisticated development shops understand that the primary objective is not just securing the gift.

Soliciting current gifts and soliciting future gifts are not separate activities. However, fundraisers are often segmented into teams focusing exclusively on annual giving, major gifts, capital campaigns, or planned gifts. Those same executives are recognized, rewarded, and promoted by how they perform in their respective areas.

That corporate model makes sense in terms of sales but when it comes to cultivating donor relations and increased donor giving, the compartmentalized structure and compensation system can become obstacles. Since there’s a disincentive to cultivate gifts in another fundraiser’s category, annual gift and major gift fundraisers are not as alert to, or interested in, future gift possibilities.

2. Metric Disincentives
“What you measure and monitor improves,” is a well worn business axiom. I would add to that: “How you measure and monitor success shapes the future of your organization.” Many nonprofits chase “Cost to Raise a Dollar” (CTRD) as a key to the fundraising metric, feeling that the-lower-the-better in the eyes of potential donors. But that’s not always true. Professional grant-makers and strategic donors tend to be just as concerned about organizational growth and sustainability as they are CTRD. The disincentive to development departments investing time and resources in future gifts is that future gifts from net worth are not calculated into the CTRD percentage reported on Form 990s.

Another byproduct of being overly concerned about CTRD metric is missed opportunities for building relations that will result in planned gifts. From a previous blog post: INSTITUTIONAL SUSTAINABILITY: Transitioning from “Hunter Gatherer” to a Cultivation-Based Fund Development Strategy:

In an initial survey of a client organization, it revealed that they had 1,100 donors who had each given more than $5,000. The organization employed only one major gift officer, who had the capacity to manage and personally contact about 175 donors. Our client was thinking, “Wow, look what we have been able to do with only one major gift officer (look at our low CTRD)!”

Our analysis: “Wow, there are 1,100 donors who have given over $5,000, and you are not cultivating them. Think of how much money you are leaving on the table!”

The board took our advice, made a significant investment in the fundraising budget and hired additional staff. Total revenue quickly surpassed the additional fundraising investments, and the fundraising expense percentage actually went down.

It’s too soon to see how many planned gifts will result from their increased efforts in donor relations. However, the number of meaningful conversations with major donors is way up. I have no doubt this will result in an increase in all types of gifts.

3. The Myth of Future Gift Potential
There is a pyramid on the wall, in the computer, or in the perceptions of most nonprofit development teams. It’s our way of categorizing donors by their giving history — gift frequency, gift size, and/or gift type. I’m not suggesting we get rid of the pyramids because they are a valuable tool for organizing our time and efforts. What we need to discard is the myth that gets associated with the pyramid. The assumption is that first-time donors are most likely to graduate to regular donors, those regulars are our potential major donors, and the major donors are our best candidates for planned gifts. That is true to a certain extent. However, the myth is that current giving history is a good predictor of planned giving potential. I see this myth debunked on a weekly basis.

The myth is that current giving history is a good predictor of planned giving potential. I see this myth debunked on a weekly basis.

A great many donors we have helped plan future gifts of net worth have never been categorized as major donors. Though they may have given regularly to the annual fund, and for many years, they always gave from a limited discretionary income. Then one day, SHAZAM! An institution-changing planned gift from their net worth appeared on the organization’s doorstep. The same conservatism that enabled them to accumulate significant net worth also kept their annual gifts comparatively low.

From The Case for Organization Sponsored Charitable Estate Planning: Top Ten Hesitations.

I was meeting with an employee of a nonprofit institution who had worked there over thirty years. She was single, had no children, drove an old car, and lived with her parents. Though she had never made over $50,000 per year, she asked if we could help with her estate plan.

One of the executives at the organization said, “I don’t know if there is a lot there. She is not wealthy, so it might not be a good use of the limited amount of time we have you with us.” He decided to move forward nonetheless. On the last of eight meetings with the employee, we invited that same organization executive to join us.

“I would like to set up a fund to provide scholarships for continuing education,” the employee said.

The executive replied, “That’s really thoughtful of you, but it’s very expensive.”

“Will $6 million do it?” she asked. Of the estate valued at about $6.2 million, she had decided to give $6 million to that organization.

STAY TUNED FOR A FUTURE POST in which I hope to offer some suggestions on how to overcome these organizational obstacles and disincentives, turning future gift potential into future-gifts secured.

Eddie Thompson, Ed.D.

Copyright 2014, R. Edward Thompson