Wednesday, February 20, 2013

Cultivating Repeat Donors with Financial Transparency

Perhaps a more daunting task for nonprofits than finding new donors is convincing such donors to give again.  It is often the case that an emotional appeal and/or strong interest in an organization’s mission can kick start a donor’s initial interest.  However, in my view, follow-up donations are often more cerebral in their motivation.  With this view in mind, I offer my suggestion for how to generate more repeat donations – superior financial transparency.  Let me elaborate on what this means to me …

(1) Offer more useful financial information.
It is now quite en vogue to provide donors with just the financial basics: percentage of expenses on programs, BBB accreditation, etc.  However, as discussed previously in this blog, donors can feel misled when they infer program expenses mean one thing only to find out later they mean something else.  For this reason, providing not just the functional breakdown of expenses but also the split of program expenses by type can be quite helpful in telling donors where their money goes.  Fortunately, the statement of functional expenses makes this information readily available for dissemination.  Take, for instance, the cases of The Wounded Warrior Project and the Injured Marine Semper Fi Fund, both of whom have similar missions to help wounded vets, and both spend substantial percentages of their funds on programs.  The detailed expense breakdowns for the most recent financial statements of each are presented below.

Wounded Warrior Project

Injured Marine Semper Fi Fund

Note that the pie charts presented on the left are consistent with the information the organizations provide publicly, each rightly touting their high program expense ratio.  However, this information fails to tell the full story to donors; a further breakdown of program expenses can be very informative, as can be seen from the charts on the right.  A donor seeking to provide financial assistance (grants) to wounded veterans and their families would view the two organizations very differently than one seeking to help expand public awareness.  If this information is not made readily available to donors, a mismatch is much more likely.  In my opinion, a program expense breakdown like this improves transparency and helps assure the best fit with donor intent.  And, if an organization wants to cultivate long-term donor relationships, it is important to ensure that donor objectives are a good fit with the organization’s actions.

(2) Offer objective financial information.
Not only are charities seemingly reluctant to provide full financial details, but they also tend to sugar coat the information they do provide.  Most often, this takes the form of cherry-picking pieces of information that provide a favorable picture of their efforts.  In my opinion, a charity that presents both the good and the bad is more likely to gain donor trust and repeat donations.  Of course, a charity should tout its successes, but it should also be up front on areas of improvement.  For example, if fundraising expenses are too high, revealing this financial information, the organization's belief about what caused the problem, and the organization’s efforts to fix it can go a long way in convincing donors to stay.  In other words, present the same information consistently each year, not just information tailored to that year’s successes.

(3) Avoid information overload.
Efforts to offer more useful and more objective information should not culminate in a decision to offer all information.  Simply dumping the organization’s form 990 on unwitting donors does little to instill a desire to donate again.  While efforts to be open (and make the 990 easily available) are helpful, the 990 itself is too much work for most donors to decipher.  On a related note, charities often view sending emails and/or tweets to their donor base as a costless activity, but if donors feel overloaded with such information, they are likely to ignore it (at best) or develop a distaste for the sender (at worst).  In other words, it is important to cultivate an atmosphere of transparency for donors without inundating them with information.

In short, my view is that efforts to engage donors with more transparent financial information (along the lines outlined above) can go a long way in instilling the trust necessary to generate repeat donations.

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