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A Short-Term Solution Can Create a Long-Term Problem
We are all familiar with the stark realities of the recession and continued economic uncertainty over the last several years. From the national budget crisis, to the weakened job and housing markets to our own personal budget woes, many of us have been forced not only to cut the excess from our budgets but also to take a closer look at essentials. In fact, most of us have had to make short-term decisions knowing there will be long-term ramifications, simply because there are few alternatives. Some of us have even adopted a one-day-at-a-time rationale.
For nonprofit organizations in particular, budget cuts have always been part of their standard nomenclature – even more so since 2008. Prolonged economic uncertainty means increasingly fewer philanthropic dollars to compete for. Skeptical donors will not be likely to give generously or consistently until well after the markets stabilize and consumer confidence has rebounded. The one-day-at-a-time approach seems almost logical, given the ever-changing economic landscape.
In the meantime, financial officers and fundraising managers tasked with making hard budget decisions need to come up with creative solutions to balance already strained budgets. So, many nonprofits look at which programs generate revenue and then make decisions based largely on that information.
Unfortunately, acquisition programs are frequently on the chopping block because they generate less revenue or, in many cases, require an investment that might not be recouped for 24-36 months. While it may seem that eliminating a low-revenue program is a workable solution, the implications are far-reaching and put the organization in a precarious financial position for years to come, creating a domino effect.
Organizations that completely cut acquisitions from their fundraising programs find themselves in the most difficult position. Regardless of how well an organization is cultivating and appealing to their current constituents, the economy and file attrition are continuing to eat away at their base. With few new names coming onto their donor file to replenish those falling off, they are severely limiting their ability to generate additional revenue, the results of which they might begin to see within the first 12 to 18 months.
While the initial relief from cutting the program’s expenses may seem to justify the decision, the dominoes have already started to fall. The shrinking pool of donors results in a very basic problem: fewer names in appeals and renewals equals less revenue, and fewer names moved up the giving ladder will have even more significant repercussions, since there will be a smaller pool of donors to solicit for major and planned gifts.
An organization can survive in the short term by cultivating and soliciting core donors, but fatigue and an aging donor file will eventually take their toll. Organizations will ultimately (preferably sooner rather than later) come to the realization that they must re-invigorate or re-build their acquisition programs just to maintain their base. They will need to make major commitments in terms of budget and resources in order to re-grow the base to a viable size that provides the pipeline for major gifts.
A strategic acquisition program is essential to a healthy fundraising program. Although it requires an initial investment, a comprehensive analysis of donors’ long-term value helps make the case for that investment. Adjusting acquisition strategy based on the potential revenue generated from new joins over time, rather than on immediate budget constraints, will serve nonprofits well in the long run.
Schultz & Williams is a national consulting firm based in Philadelphia providing management, fundraising and marketing consulting for nonprofit organizations, along with full-service direct marketing, database and creative/production services.