What do charitable donors want? The classic answer is: Go ask each one individually. However, recent research provides some insight into donor motivation that can help your nonprofit grow its financial support.
The biennial U.S. Trust® Study of High Net Worth Philanthropy, conducted in partnership with the Indiana University Lilly Family School of Philanthropy, regularly finds that the majority of wealthy donors are primarily motivated by philanthropy. The tax benefits of giving were cited by only 34% of respondents in the latest survey, with most respondents claiming they would give the same amount even if they didn’t receive an income tax deduction for the gift.
However, as the Wall Street Journal pointed out last year, in periods when the charitable deduction was threatened politically, as in 2009, donor responses told a different story. That year, 67% of survey participants asserted they would give less to charity if there were no deduction. That’s up from 47% in 2005, when there was little discussion in Congress of eliminating it. Other studies support this seeming inconsistency, finding that the higher income tax rates rise (and thus the more valuable charitable deductions become), the more donors are willing to give.
On its own, your organization has little control over tax rates or deductions. But by teaming up with other nonprofits, you can exercise considerable influence over tax policy. For example, groups such as the Charitable Giving Coalition were widely credited with helping to defeat the latest Congressional challenges to the charitable deduction. Some nonprofits also partner up to influence state legislation on such issues as charitable giving incentive caps.
One caveat: To preserve your nonprofit’s tax-exempt status, political lobbying generally must be kept to a minimum. Consult your tax advisor if you’re unsure about whether your participation might be considered “excessive” by the IRS.
Of course, your nonprofit’s influence over tax issues ultimately is limited. But other research suggests an opportunity for nonprofits to directly motivate donors to give — and to give larger amounts.
Several surveys have found that donors are just as motivated by matching gifts as they are by tax benefits. For example, a joint Australian and American study gave supporters a choice between a tax rebate and a matching donation to the charity. Donors were evenly split between the two — but those opting for the match gave more generously than those who took the rebate.
In another study, two Yale University researchers partnered with a charity to send fundraising letters to potential donors. Some were offered various levels of matching donations by a wealthy supporter while others were simply asked to donate without the match. The subsidy offer yielded 20% more donations, and yet the actual amount of the subsidy didn’t seem to matter.
Matching gift offers have been a staple of public radio and television station fund drives for years. If your nonprofit hasn’t already tried this approach, it’s worth testing. You’ll need to identify donors who are willing to use their large gift to incentivize others — reliable supporters such as board members or trustees who thoroughly understand your nonprofit’s mission and needs. Consider using their gifts during short-lived fundraisers, where a “ticking clock” lends the matching gift offer greater urgency. If you adopt this strategy, be sure to vet your plans and matching gift sponsors with your legal and financial advisors.
Matching gifts aren’t the only way to enable donors to stretch their giving dollars. Such strategies as gifting appreciated stock or real estate may appeal to major donors who want to make charitable giving a piece of their larger financial plans. As long as the donors meet applicable rules, they can avoid the capital gains tax liability they’d incur if they sold the assets.
Donors can be motivated by many social and emotional, as well as financial, factors. So it’s important not to assume you know how your target audience will respond to certain types of fundraising appeals. Perform some basic research by assembling focus groups representative of your donor base and by asking major donors (and their advisors) about their philanthropic priorities.
Millennials are coming up from behind
Older donors give the largest amounts to charity and accordingly deserve your nonprofit’s attention. But it’s important not to neglect up-and-coming supporters. Younger donors often have different philanthropic priorities and respond to different types of messages than their elders. For example, according to the Case Foundation’s Millennial Impact Reports, Millennials prefer to “do good” and engage in “cause work,” including social entrepreneurship.
Although the 2016 report won’t become available until the end of the year, the Case Foundation is taking advantage of the presidential election season to focus on Millennials’ participation in causes associated with certain candidates and positions. Researchers predict increased online activism and increased traditional activism activities such as donating money and signing petitions.
We welcome the opportunity to serve you. For more information about our services for nonprofit organizations, please contact Carol DiLuzio, CPA, CGMA, at (302) 254-8240.