Fundraising, Part 2: Healthcare groups invest in capacity

By Todd Cohen

[This article was written for Blackbaud.]

Investment in fundraising capacity continued to pay off in 2013 for hospitals, medical centers and long-term care facilities, says Bill McGinly, president and CEO of the Association for Healthcare Philanthropy, or AHP.

Organizations that raised the most money invested more in staff, in securing major gifts, and in overall fundraising capacity.

“It costs money to bring in money,” McGinly says.

Total giving to AHP’s roughly 5,000 members totaled $8.9 billion in 2013, roughly the same as the previous year.

And over half of fundraising revenue typically comes from an institution’s “family,” including employees, physicians, top executives, major donors, board members, and patients.

An AHP survey that generated responses from 28 percent of its members found median net fundraising grew in sync with spending on fundraising.

Organizations that spent $4.8 million on fundraising, for example, generated over $18 million in median net fundraising revenue.

In comparison, organizations that spent $2 million to $4.8 million on fundraising generated $9 million in median net fundraising revenue, those that that spent $425,000 to $910,000 generated $2.2 million, and those that spent $60,000 to $425,000 generated to $565,000.

Spending on staff was a key investment, McGinly says, with the most successful fundraising taking place at organizations that invested in staff compensation, in hiring experienced fundraising professionals, and in making sure at least one fundraising professional was dedicated to each fundraising program, such as the annual fund, major gifts, planned giving, and events.

“They’re hiring and compensating staff, and bringing staff in that have more  experience,” McGinly says.

Among organizations that performed best in fundraising, even those that posted the most modest results typically spent $800,000 or more on direct expenses for staff.

Organizations with the most effective fundraising operations also focused on their return on investment and recognized that spending on overhead is “essential,” McGinly says.

“You’re not going to raise dollars unless you are hiring people and paying the overhead necessary to support those activities,” he says.

AHP has encouraged its members to develop “dashboards” that track net fundraising revenue, return on investment, and the cost to raise a dollar.

Organizations can use that data to measure gains and successes, providing their executives and boards with information they need to make decisions about fundraising strategies and investment.

While the cost of raising a dollar measures efficiency, McGinly says, investment in overhead is equally important.

“A lot of organizations that are efficient aren’t raising the dollars they need,” he says. “They lose an opportunity because they’re afraid to take a risk or take advantage of something that’s really going to give them a return.”

Next: Higher education cultivates major gifts.

The series:

Part 1: Growth tied to capacity, cultivation, communication.

Part 2: Healthcare groups invest in capacity.

Part 3: Higher education cultivates major gifts.

Part 4: Data key for independent schools.

Part 5: International affairs groups refine message.

Part 6: Religion focuses on fundamentals.

Part 7: Arts and culture groups focus on donors.

Part 8: United Way diversifies.

Part 9: Conservation groups connect with donors.

Part 10: Communication, planning key for human services.

Part 11: Peer-to-peer strategy fuels medical research.

Advertisements

Fundraising success tied to staffing capacity

Investing in fundraising staff generates the biggest return in donated dollars for nonprofit hospitals, systems and health care organizations, two new reports say.

The number of professional staff directly responsible for fundraising, for example, has a “ripple effect,” say the reports from the Association for Healthcare Philanthropy, or AHP.

Increasing the size of the staff increases market penetration, which in turn builds stronger donor relationships leading to larger average gift sizes, all of which increase fundraising revenue, efficiency and effectiveness, AHP says.

“Having the right number of fundraising professionals focused on the right programs makes a huge difference in how much an organization can raise,” William C. McGinly, president and CEO of AHP, says in a statement.

The two reports are based on AHP’s Report on Giving, an annual survey of 335 of its nearly 5,000 members, and on its Performance Benchmarking Service, more in-depth surveys of 45 members.

Optimal staffing levels that yield greater fundraising success total seven or more for U.S. organizations and five or more for Canadian organizations.

The reports also found that well-established major gifts programs increase average gift sizes “tremendously,” AHP says.

“High performing organizations know the importance of investments in people and programs, including sophisticated research programs, major gift initiatives (including well-managed campaigns), planned giving, corporate sponsorships, grant writing, and identification of opportunities for major funding from partners such as foundations, and local, state and federal government agencies,” AHP says.

The reports also say more staff requires larger budgets for salaries, and that professional tenure is linked to compensation.

The optimal budget for professional salaries totals $800,000 or more for U.S. organizations, or average salary and benefits totaling $114,285 for a staff of seven, and $500,000 for Canadian organizations, or average salary and benefits for a staff of five.

More staff focused on major gifts “means that donor relationships are more genuinely cultivated and sustained,” AHP says, and results improve when fundraising professionals have been on staff for five years or more.

Higher average gift sizes generate a higher yield in “bottom-line fundraising revenue,” AHP says.

Larger gifts are “directly tied to  net production revenues,” it says, “and also can be considered a ripple effect of employing and retaining an optimal number of professional staff.”

High bottom-line returns are linked with average gift sizes of $535 or more for U.S. organizations and $650 or more for Canadian organizations.

Todd Cohen

Fundraising flat at hospitals, health systems

Nonprofit hospitals and health care systems in the U.S. raised over $8.9 billion in fiscal 2012, unchanged from a year earlier and 7 percent more than in fiscal 2010, a new report says.

The biggest sources of philanthropy in fiscal 2012 for those institutions were major gifts, grants from corporations and foundations, and annual giving, with each of those strategies generating about 20 percent of donated dollars, says the 2012 AHP Report on Giving from the Association for Healthcare Philanthropy.

Special events accounted for 14.9 percent of donations, and planned giving accounted for 9.5 percent.

Four of five organizations with fundraising expenses of at least $2 million, and organizations that employed seven or more full-time direct fundraising staff, were in the top 25 percent of health care organizations based on total fundraising “production,” says the report, which was based on a survey of nearly 1,700 institutions.

Among the most successful development programs, it says, major gifts accounted for nearly a third of all donations, annual giving accounted for less than a fifth of all donations, and contributions from corporations and foundations accounted for 24.1 percent.

For every dollar spent on fundraising programs, the median return on investment was $3.22 in fiscal 2012, down 2 cents from fiscal 2011.

The cost to raise a dollar was flat at a median of 31 cents.

Among all institutions surveyed, roughly 25 percent of funds contributed were used to pay for construction and renovation projects, compared to 21 percent for patient care programs, 12.9 percent for capital equipment purchases, and 10.8 percent for  general operations.

At teaching and academic hospitals and children’s hospitals, 16 cents for every dollar raised went toward medical research, compared to less than 6 cents per dollar among all institutions surveyed.

Among all institutions, 4.2 percent of donations, on average, were spent on charitable care, compared to 10.3 percent at children’s hospitals, 5.5 percent at tertiary hospitals, and 4.4 percent at community hospitals.

Todd Cohen

Fundraising, Part 2: Healthcare groups invest in development capacity

By Todd Cohen

[Note: This article is from a report written for Blackbaud, which asked me to look at fundraising strategies that nonprofits have found to be effective.]

The continuing recovery of the economy has helped fuel strong growth in giving to the more than 5,000 members of the Association for Healthcare Philanthropy since a slight drop in 2009, says Bill McGinly, the Association’s president.

Overall giving to nonprofit healthcare providers, including hospitals, medical centers, long-term care organizations, hospices and children’s facilities, grew to nearly $9 billion in 2011 from $8.3 billion in 2010, and that trend continued in 2012, he says.

While much of that growth has been tied to the economic recovery,  it also reflects “more stimulation and activity in planned and major gifts, and the commitments people are making,” he says,

Fundraising performance is the direct result of investment in fundraising capacity, McGinly says, including the size of the fundraising staff.

Organizations that had 10 or more full-time direct fundraising professionals and were among the highest performing organizations raised a median of $9.4 million, a median that was double that of organizations in all other performance levels based on total dollars raised.

High performers also had more “maturity” in their fundraising programs, and a bigger variety of programs or ways to give.

After health care giving fell roughly $1 billion in 2008, health care organizations also have seen expanded revenue from  special events and annual giving programs, while funds from major and planned gifts plunged in 2008 and 2009 because of a “lack of confidence related to the economy,” McGinly says.

Organizations that kept fundraising staff instead of cutting positions were able to work on maintaining relationships with major donors or those interested in planned giving, and giving in those programs has rebounded more quickly, he says.

Contributing to that recovery, in addition to the revival in the economy and donor confidence, McGinly says, has been greater awareness on the part of donors about the importance of health care philanthropy as a result of the national debate on health care reform.

Health care organizations that have been effective at fundraising also have provided ongoing training for fundraising staff; hosted activities that get donors to their facilities; engaged their volunteer and executive leaders; heightened the level of contact with donors through more meetings and appeals; and reignited capital campaigns.

More recently, annual campaigns often are involving three appeals, not just one.

High performing organizations had direct fundraising staff that outnumbered all their counterparts by three to one.

And organizations that relied on multiple activities, such as special events, annual campaigns and invitations to visit the facility, performed much better in their fundraising than organizations that had fewer activities.

The result was that high performing fundraising organizations raised nearly 11 times more in net fundraising production after costs, including cash and pledges, than all their counterparts.

Key to effective fundraising, McGinly says, is a strong culture of philanthropy within an organization.

“Fundraisers need to hold their bosses accountable and step up and take the lead in making sure that philanthropy is an integral part of the financial picture of their organization,” he says, “and that it can be depended upon, and that is it crucial in building what the future of their organization will be.”

Next: Human services groups focus on direct response marketing

The series:

Fundraising, Part 1: Basics key as economy starts to recover

Fundraising, Part 2: Health care groups invest in development capacity

Fundraising, Part 3: Human services groups focus on direct response marketing

Fundraising, Part 4: Museums aim to diversify donor base

Fundraising, Part 5: Major gifts a focus of environmental group

Fundraising, Part 6: Direct marketing a key for public society benefit group

Fundraising, Part 7: International affairs group aims to show

Fundraising, Part 8: Faith-based groups count on direct mail

Fundraising, Part 9: Independent school partners with parent volunteers

Fundraising, Part 1: Basics key as economy starts to recover

By Todd Cohen

[Note: This article is from a report written for Blackbaud, which asked me to look at fundraising strategies that nonprofits have found to be effective.]

With the struggling economy beginning to show some life again, and donors regaining some confidence, nonprofits need to be focusing on fundraising fundamentals.

That is the view of fundraising professionals in nine fields of interest.

“The primary tactic that seems to work most effectively is to ask people for money,” says John Taylor, associate vice chancellor for advancement services at North Carolina State University.

“So many organizations I have worked with just kind of sit back and watch the money come in the door, and expect the same dollars from the same donors every year, and fail to recognize that the philanthropic climate is changing,” he says.

Bill McGinly, president of the Association for Healthcare Philanthropy, says building a “culture of philanthropy” within a nonprofit is critical, as is building the capacity of the nonprofit’s fundraising operation.

“Until fundraising is recognized as a strategic partner in planning for today and for the future of the organization,” he says, “you’re going to struggle a bit more in order to build or grow philanthropy.”

From engaging donors and volunteers and demonstrating impact to effective branding, direct-response marketing and back-office operations, fundraising professionals say, nonprofits need to invest in their fundraising programs and operations if they expect to produce results.

This series looks at some strategies that fundraising professionals say are working in their fields of interest, starting with higher education.

Higher education

When John Taylor joined N.C. State University as associate vice chancellor for advancement services in November 2008, just after the economy collapsed, the school’s advancement operation had less than a handful of prospect researchers and roughly 1,300 rated prospects coming out of its most recent campaign.

Today, the school employs three people in its prospect management department and another six in its prospect research department, and has 21,000 rated prospects in its database, Taylor says.

That is one result of a “complete reengineering process” of its fundraising operation that N.C. State launched at about the time Taylor joined the university.

Spurring that overhaul have been not only the ailing economy but also heightened competition for philanthropic dollars, huge growth in the number of nonprofits, and the added challenge of catastrophic disasters like Hurricane Sandy, he says.

“You just can’t rely on those same dollars from those same donors,” he says.

Key to N.C. State’s strategy has been support for engaging its donors, including “more focused suggestions,” renewals of annual gifts, “more targeted” asks, and solicitation of eight-figure gifts.

And that has paid off: In the first six months of the fiscal year that began July 1, N.C. State raised $82.4 million, up from $26.9 million in the same period a year earlier.

The school is working with donors not just to renew the gifts they make every year, but to make “much more substantive, transformational gifts,” Taylor says.

Its prospect management meetings, for example, feature “focused conversations about strategies for approaching donors, prospect assignments, and making sure the assignments are fairly distributed” across the range of donor categories.

Those categories include initial “discovery” of prospects and whether they are viable as donors; “stewardship” of donors who have made a gift; “emerging” prospects who will be asked to make a gift within three years; and “top prospect” donors who will be solicited within 12 to 18 months.

The advancement office also sets expectations for major gift officers on the size of their portfolio, and on the number of asks and visits they should make, and uses that information to show their progress and evaluate their performance.

It also has invested heavily in infrastructure, increasing its advancement services staff by 50 percent to just over 30 people, and converting its operating system and development software system.

And it has been “asking people for money, and in particular for more money,” Taylor says.

In the six months through Dec. 31, 2012, annual giving totaled $1 million, up from $837,000 in the same period a year earlier.

And the number of households giving $1,000 or more has grown 25 percent.

“The most important tactic,” Taylor says, “is engagement of your constituency.”

Next: Healthcare groups invest in development capacity

The series:

Fundraising, Part 1: Basics key as economy starts to recover

Fundraising, Part 2: Health care groups invest in development capacity

Fundraising, Part 3: Human services groups focus on direct response marketing

Fundraising, Part 4: Museums aim to diversify donor base

Fundraising, Part 5: Major gifts a focus of environmental group

Fundraising, Part 6: Direct marketing a key for public society benefit group

Fundraising, Part 7: International affairs group aims to show

Fundraising, Part 8: Faith-based groups count on direct mail

Fundraising, Part 9: Independent school partners with parent volunteers

Giving to health care grows

Donations to U.S. nonprofit hospitals and health care systems grew 8.2 percent to $8.94 billion in fiscal 2011, while the cost of raising those dollars hovered near post-recession highs, a new report says.

The total raised in cash plus pledges was up 4 percent from $8.59 billion in fiscal 2008, the previous record-high set before the economy collapsed, and represented the second year of growth since fiscal 2009, went it fell to $7.64 billion, says the AHP Report on Giving from the Association for Healthcare Philanthropy.

Cash accounted for 71.2 percent of the funds raised in fiscal  2011, down from 75.1 percent in fiscal 2010, while pledges represented 28.8 percent, says the report, based on a web-based survey that generated 469 usable responses in April.

The number of donors grew over 2 percent in fiscal 2011, while the number of gifts grew 4 percent.

Institutions responding to the survey raised a median $3.24 for each dollar spent, up 19 cents from fiscal 2010, with academic institutions raising a median $7.58 per dollar spent, the highest of any subgroup.

The overall return on investment was down from $4.22 raised per dollar spent in fiscal 2004 and $4.17 in fiscal 2006.

Fundraising costs grew less than 3 percent in fiscal 2011, down slightly from an increase of 4 percent in fiscal 2010

The cost to raise a dollar fell to 31 cents, down 2 cents from fiscal 2010 but still above the pre-recession level of 29 cents in fiscal 2007.

Fundraising productivity higher at bigger organizations.

Organizations with seven or more full-time employees raised a median $4.33 for each dollar spent, compared to $2.60 for those with only one employee.

Organizations that were 10 to 15 years old raised a median $4.40 for each dollar spent, compared to $3.22 for programs older than 15 years old, and $1.77 for programs five years old or younger.

Philanthropic resources most often funded construction and renovations, equipment purchases and general operations.

Community benefit programs and charitable care received nearly 19 percent of all donated dollars, compared to 8 percent for research and teaching.

Todd Cohen