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Money for Good: deeply understanding the donor mindset By David Ehrlichman / December 2012 / Leave a comment

Hope Consulting, in conjunction with GuideStar, recently released their third report on donor behavior and charitable giving in the social sector. The motivation behind the original Money for Good (MFG1) report in early 2010 was to “seek the voice of the customer for charitable giving” and to better understand the emergence of impact investing.  Building on the existing fact base gathered by MFG1’s comprehensive study on donor behavior, motivations, and preferences for charitable giving, the second report, Money for Good II (MFG2), looked at ways in which nonprofits and foundations could influence giving behaviors to support their own mission. The

newest publication, titled More Money for More Good, is a guidebook to help nonprofit organizations understand how to collect the information that donors want, communicate it to donors in the manner they want to receive it, and connect with current and prospective donors. We recently spoke with co-author Greg Ulrich about his report and the state of giving in the social sector:

From your earlier research you identified six segments of donors, each with different motivations for giving, including Repayer, Casual Giver, High Impact, Faith Based, See the Difference, and Personal Ties. Have you seen any recent shifts in US philanthropy towards or away from one particular segment? Why is it important to see your donors as belonging to a particular segment rather than by their demographic information?

GREG ULRICH: Charitable giving is a very personal experience. Understanding the underlying motivations different donors have for their giving can help nonprofits understand which segments are most appropriate for them, and then communicate with their target donors in a manner that speaks to the donors’ core drivers for giving. We have not done any trend research, but I would not imagine that there has been any noticeable shift recently. Giving motivations are deep-seated, and while I personally would like to see more donors ultimately care about the impact a nonprofit is having (a core motivation of the “high impact” segment), I believe that progress on that dimension will be slow. Moving this market is like the analogy of moving an ocean liner, not a speed boat.

 From MFG1 you found that only 35% of donors ever do research before they give, and most of those only do research to validate their existing beliefs. Why do you believe so few people adequately research where their money is going? What would change their behavior?

People research things like computers, mutual funds, and restaurants because the quality of the ultimate product or service is critical. You want your computer to work well, your mutual fund to outperform, and the restaurant to deliver a great experience. People approach charitable giving differently. They want to give to an organization that is aligned with a cause they believe in, and for that money to do some good. The bar is different. Donors are more concerned about a nonprofit not “wasting” their donation than they are about a nonprofit maximizing its impact. So, people don’t research because it isn’t seen as necessary to their ultimate goal for giving.

From MFG2 you noted that effectiveness and impact data were the areas with the biggest unmet needs. Have there been any advancements in the quality of this kind of data available today? What portals or resources do you recommend for donors to research the effectiveness and impact of social organizations?

This has been, and continues to be, a gap in the sector. Fortunately, there are many organizations doing increasingly good work here. I can’t possibly name them all, but a few worth noting are:

  • Philanthropedia, which polls “experts” (e.g., academics, foundation officers) in a cause area to find the best nonprofits. The model has the ability to scale, which is a challenge for some other services.
  • GiveWell conducts very in-depth studies of nonprofits, based on all of the available research, to find those that are having a proven difference and have room for more funding. They typically only recommend a few nonprofits (they currently support two), but donors can be rather confident that dollars given to those organizations will have a real social impact.
  • Nonprofit Investor is a new organization. I don’t know them as well, but they are producing some interesting “analyst reports” on nonprofits. They rely on volunteers to evaluate organizations, giving them a “buy”, “hold”, or “sell” rating.
  • And of course there is Charity Navigator. What I like about Charity Navigator is how hard they work to find a way to rate a large number of organizations on increasingly relevant matters. They already incorporate accountability and transparency into their ratings (in addition to financials, which has been their core approach for years), and are moving to evaluate organizations on their impact reporting. They currently cover 6,000 nonprofits (representing 50% of all gifts) and they aim to cover 10,000 soon.

What is the most effective medium or best way for social organizations to push out information on their own effectiveness and impact to donors?

For now, it’s right on their website. Our research and others’ reveals that this is the primary place that donors look. It is also important to include these achievements in appeals and outbound communications. In the future, getting this information to nonprofit portals will be increasingly important as portals become more ubiquitous. This is where donors “want” to get info – most just don’t yet know that services like GuideStar exist.

The title of More Money for More Good is based on the finding that if just 5 percent of this year’s charitable donations were given to high-performing nonprofits, $15 billion would go to the organizations that are having the most impact. What kind of effect do you believe a shift like this would have on how donors and organizations approach giving?

Yes, 5% – or $15 billion – is what we calculate is achievable based on our research; this amount could make a real difference if it’s really put to use. And my hope is that this would lead to a positive cycle:

  • More money goes to nonprofits that show they are having an impact. This increases the total social impact in the sector, as the best organizations are able to increase the programs and services they offer.
  • Other nonprofits will see that organizations that can prove their impact are getting more money. This causes them to monitor and measure their progress.
  • By collecting better information, nonprofits start to learn what is and is not working. By communicating this information, others can learn from their experiences. All this helps organizations perform better .
  • As more organizations produce better information, donors will start to notice more and more. More of the best organizations will get even more donor dollars.
  • And all of a sudden you see positive cycles of nonprofits collecting better information, nonprofits communicating better information, and donors and foundations giving to the organizations that can show real results. This will all lead to a more effective and dynamic nonprofit sector, greater social impact, and greater evidence of that impact.

Of course, I don’t see a world in which this is the way that all nonprofit behave, and all donors operate. But I do think that we can move a long ways from where we are today.

 

It is often difficult for social organizations to quantify the impact they are having. In lieu of good data, what else can nonprofits do to give donors the information they want and build a story of their organization’s impact? How can the Charting Impact tool (included below) be used to present an organization’s story in a compelling way that meets the needs of many donors?

Charting Impact is a great tool. By completing it, organizations can build consensus internally around what they are – and are NOT – doing, and they generate the bedrock of the information donors want. While it doesn’t go all the way to true “impact data”, it does help organizations articulate their story in a way that is useful for their own operations, and to donors.

When we tested the Charting Impact tool (disguised) in our surveys, we found that the information it contains is of great interest to donors, AND the idea of a self-reported narrative resonated. While the full Charting Impact report (which generally runs about 4 pages once completed by organizations) is incredibly useful for internal purposes, when communicating to donors I would recommend either:

  • Using the core content from it to inform your solicitations and appeals
  • Creating a shorter, 1-page, Charting Impact and circulate that to donors


You might also be interested in reading What’s Next for Philanthropy for insight into how funders can use their resources to support high-performing and high-potential nonprofits, as well as Seizing a Crisis: How Great Nonprofits Grew Amid the Economy’s Challenges.

 

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