With grant funding in question, individual donors are more important than ever. And as if fundraising wasn’t hard enough, it’s getting harder; the Fundraising Effectiveness Project (FEP) reports that both retention rates and total donors fell by 5% in 2024.
But you already know it’s a challenging time. We’re here to help, not share information you don’t need.
Drawing on the latest research, this article will make the case that professional accounting infrastructure isn’t a cost, but an investment that will yield dividends while buying you more time to focus on program services.
Let’s dive in.
Pivoting From Grants to Fundraising
If you’re on LinkedIn, the “my employment was terminated because of recent changes” posts have given way to “if I needed to raise $1M in the next 9 months, here’s what I would do…” The initial shock has passed, and nonprofit leaders are reevaluating and expanding their fundraising efforts.
It may feel tempting to grind your way to success, but that’s a recipe for burnout. Make the most of your efforts by answering the following questions first:
- How do donors behave? What motivates them? And once they’ve given, why do they stop?
- What mistakes are other nonprofits making?
- Given that, how can I set my organization up for success?
I used to help a state representative with fundraising. On Saturdays, we’d meet at the local library and call potential donors. The first thing she taught me was: “The best person to ask is someone who has already donated to you.” Likely common knowledge, but the starkness of the contrast between new and loyal donors is worth revisiting.
Just 18% of first-time donors repeat, while a staggering 84% of seven-time donors stay with your organization. A similar pattern separates small and large-dollar donors. Micro givers ($1-$100) stick around just 21% of the time, while major gifts ($5k or more) are repeated in more than 50% of instances.
Yet, there’s a puzzling disconnect in where nonprofits put their effort. Over half of total donors made micro donations, a cohort comprising just 2% of all dollars raised. Similarly, nearly 70% of donors were first-time givers, despite this subsection accounting for just 20% of all dollars raised.
A handful of loyal donors is worth more than an entire room of brand new small-dollar donors, and yet most organizations are putting their attention precisely on the less valuable group.
Why?
It’s tough to say. Organizations certainly need first-time donors to build a base of loyal support, but the pipeline leading to regular and more significant gifts leaks somewhere along the way.
Building Loyal Donor Bases: What Motivates People to Stay?
Monthly recurring pledges are the hallmark of a stable nonprofit. First-time donors are unpredictable, and big picture strategic planning is difficult without a concrete budget. But what motivates donors? Why do some stay, and others leave?
The Lilly focus group can shed some light. For starters, some things are out of our control.
Participants cited explosive current events as catalysts for first-time giving. While you should undoubtedly incorporate news of the moment into fundraising, new wars in Europe, global pandemics, and major protest movements don’t happen every day. Moreover, economic conditions also fluctuate. Wealthy donors, particularly those who give through foundations or donor-advised funds, often base contributions on their performance in the stock market. People prioritize personal stability over philanthropy during bad years.
However, there are things within our power. This is perhaps the most critical information from the study. Emphasis ours:
“Donors expressed a greater desire for nonprofit organizations to communicate the impact of programs and services and to be informed in more engaging and personal ways. People shifted their giving to organizations that demonstrated impact and efficacy, which actively engaged in communication and education, and which personalized donor engagement. – Lilly Family: Understanding How Donors Make Giving Decision.
People give, and keep giving, to nonprofits that clearly communicate how their money is making a difference. This is where accounting infrastructure plays a role. After all, how can you illustrate impact without reliable figures to share?
The report is pretty long, but the desire to see impact and efficacy appeared repeatedly.
- “They appreciated organizations’ efforts to present the impact of donor gifts and planned to continue contributing to organizations with clear and consistent communication.” – page 7
- “This questioning of where the money goes instilled a greater sense of selectivity and caution in most donors, along with a greater desire to engage in research and communication before they commit their support.” – page 16
- “Respondents’ accounts also suggested that a lack of impact or tangibility could be another cause of decreased giving” – page 18
Plus, it’s aggravating to show up in somebody’s inbox only when you’re asking for money. Lilly participants shared frustrations with charities that did this. I’m sure you’ve experienced this yourself— political campaigns are notorious for hit-and-run fundraising.
A similar sentiment appears in the BoA Study of Affluent Charitable Giving.
When asked about their motivations, the second most prominent response was “because I believe my gift can make a difference.” When asked what matters after making a gift, the top response was “spending the money mostly on program activities,” followed by “demonstrate sound business and operational practices, including full disclosure of financial statements.”
Financial reporting isn’t about making sure you can file an accurate Form 990, though that matters. It’s a powerful tool for building donor trust, proving their dollars are being put to work, and encouraging one-time givers to become longtime supporters.
Trust Signals, Financial Transparency, and Kony 2012
There’s no doubt nonprofits will step up outreach efforts this year. Some executive directors have boards they can lean on for referrals, while others will take to social media or try to reengage an aging email list. Regardless of the tactic, though, what will all potential donors do when they hear about you?
They’ll look you up.
And they all want to know the same three things: are you legitimate, do you use donations effectively, and are you impactful? Maybe they’ll find a blog, or your social media account, or an impact report. But regardless of medium, a persuasive message will do two things:
- Tell an emotionally compelling story.
- Send logical signals that your organization is trustworthy.
Kony 2012 is the perfect example of what happens when you have one and not the other. For those who don’t remember, a nonprofit dedicated to stopping Joseph Kony, a Ugandan warlord, released a documentary-style video that went viral. It was a masterclass in emotional storytelling and racked up 100 million views in just six days.
While the video inspired millions, donors started asking questions they weren’t ready to answer. Where was the money going? Why are they spending so much on filmmaking? Is Kony even relevant anymore? Trust crumbled. Donations stopped. And the nonprofit shut its doors shortly after.
The moral? A good story might convince a donor that your cause is important, but you need to prove trustworthiness too. Accounting infrastructure is a component of that.
Who Does the Accounting in Nonprofits?
Oftentimes, someone who already has a job.
The Center for Effective Philanthropy (CEP) recently surveyed over 400 US nonprofits. In their report, State of Nonprofits 2024: What Funders Need to Know, one leader shared their experience on overwork, saying:
“As an executive director for a smaller nonprofit, I struggle to be the expert in all of the relevant areas. I struggle with working too many hours and not having enough staff or time to do all I want and need to do for my organization.”
Nonprofits operate on notoriously limited budgets. Out of necessity, directors, employees, and volunteers perform multiple roles to keep the organization running. But asking people to take on more work, especially when it’s outside their expertise, can lead to burnout.
When “Making Do” Hurts More Than It Helps
People who work in the nonprofit sector are inspiring. They dedicate their careers to causes that make the world a better place, often working under challenging conditions with limited resources. But despite their versatility and tenacity, they can’t be specialists in everything, and that includes financial management.
Small organizations usually have a bookkeeper, but they’re a volunteer or a part-time employee at best. This keeps expenses to a minimum, but accuracy, timeliness, and report usefulness often suffer. On the other hand, it’s rare to find a midsize or large nonprofit without a full-time staff person handling accounting. Sometimes this person is in-house, but this can be outsourced as well.
It’s more expensive to pay for help than to rely on a volunteer, but the quality, speed, and accuracy can more than offset the added expense. Plus, by outsourcing, an organization can save the annual expense of a full-time employee. It’s a happy medium between free and full-time help.
Outsourcing comes with other distinct advantages as well:
- Scalability: Organizations can adjust services based on needs and budget.
- Expertise: Many outsourced accountants have specialized experience working with nonprofits, ensuring adherence to best practices and compliance.
- Diversity: Because they work with a broad client base, outside firms can bring fresh perspectives and innovative ideas to your organization.
- Time Savings: Freeing up staff and leadership from administrative tasks lets them focus on mission-driven work rather than struggling with spreadsheets.
And of course, donors are more confident in organizations that share clear and accurate financial reports.
We’re indinero, your trusted accounting, tax, and CFO firm. Our expert team transforms financial management into an afterthought, so you can focus more on your mission. When the time is right, contact us for a free consultation. We’d be delighted to learn how we can serve your organization.
