The Big Three

I’m gonna keep it real:

There’s some data I reference in this post.

But for the most part, the below is based on many conversations with CEO’s, fundraisers and nonprofiteers. It is based on numerous posts I’m seeing on LinkedIn and elsewhere. And it’s based on how a bunch of nonprofit consultants have started to shift their business model.

It’s anecdotal. And I know that.

But I wanna share with you what my eyes see, what my ears hear and what my gut tells me.

There’s a Big Three in Fundraising and it’s not great for the sector as a whole.

Not at all.

Where The Wild Money Is

Dollars up, donors down defines the nonprofit sector for the last few years. Looks that way for the foreseeable future as well.

Donor retention continues to fall as organizations chase the almighty dollar and fail at the central task of fundraising and marketing: Building relationships.

More money is being given but by fewer people which raises all kinds of problems for the sector.

• Every nonprofit scrambles to find out how they can get on speed dial with MacKenzie Scott, Bill Gates and Oprah.
• They neglect their smaller donors. “Why bother with them? They barely give. We wanna concentrate where the money is.”
• They neglect monthly donors who have retention rates up to DOUBLE the sector average and higher lifetime value than most donors. But again, the amount they give is so small and we could get $5,000,000 from MacKenzie Scott and WHY HASN’T SHE CALLED US YET?!
• Focus now shifts to major gifts and other types of large gifts, which means abandoning anything below a certain dollar threshold which means abandoning those donors who can’t meet said threshold.

The number of donors goes down year after year.

Well geez louise, I wonder why???!!!

As a sector we could be doing so much good if we just followed best practices for fundraising and marketing. Instead of living in the constant dread of a poverty and scarcity mindset, we could GROW and THRIVE. Imagine that!

And yet we damn ourselves to constant stress and anxiety because we’re busy looking for dollars in very few places.

The Fundraising Big Three

As you can see, the above is mostly based on data and what’s being reported in terms of retention, fundraising and who is and is not giving.

Now I wanna share with you where I think this is headed.

Organizations are starting to concentrate on three revenue generators:

• Ultra wealthy philanthropists (major gifts)
• Foundation funding
• Corporate partnerships.

I call it the Oprahization of the sector.

I am a huge proponent of having a diversified fundraising (and marketing) portfolio. Provide different ways for people to give and find different revenue generating avenues to maximize impact for the people you serve.

But what I see out there is a concentration on The Big Three and everything else be damned.

Why? Because that’s where the big bucks are.

I see organizations shifting to chase those three. I hear of foundations that are being inundated with applications at a much higher rate than past years. More consultants are shifting their services to cater to the “major gifts seeking” crowd and posts about major gifts on LinkedIn are definitely on the up.

As someone who publishes a daily enewsletter with nonprofit content from around the Internet, I am seeing more and more articles about how to do major donor prospect research, how to keep major donors happy and giving. More posts about grant research and applying for grants.

In general, those are GOOD things! But as emphasis shifts to The Big Three, fewer and fewer people will be giving.

And that’s horrible for the sector.

I understand how markets work. This is where the market is going and publications and consultants are going with the flow. It makes sense.

Except to me it doesn’t. Nonprofits are playing with fire by becoming an all or nothing. A current Big Bucks or the Whammy. (Gen X shoutout!)

To be honest, I hate the concentration on The Big Three.

Retention Suuuuuuuuuuuuuuuuucks

Acquisition costs 5-10 times more than retention. The amount of time, effort and money organizations put into acquiring new donors is astonishing, considering they could put a fraction of that time, effort and money into retention and generate a lot more revenue.

Yet retention has never been high up on the fundraising to do list. I know that because the average donor retention rate for the sector has hovered around 40-45% for years.

Abysmal. (And it’s continuing to fall.)

The retention rate for first time donors? 20%.

Crappy.

In 2023 you worked hard and 100 new people became supporters of your organization. Yippee!

Or not. Looks like only 20 of them will give again in 2024. 80 of them will simply be lost, most of it due to organization’s laser focus on money and not building relationships and strengthening connections.

This leads to emails telling donors that you need funds immediately because you’re short and can’t provide for those who need it most. (If only there was a free way for nonprofits to learn how to use email effectively…)

Folks, that’s not the donor’s fault. That’s YOU leaving donors on the side of the highway as you zoom past on your way to The Land of Big Bucks.

Next exit: Probably never.

Why? Let me explain some of the issues with relying only/mostly on The Big Three.

Corporate Partnerships

I’m a HUGE fan of partnering with corporations. There are businesses out there with similar values to yours and a partnership would be a win-win for everyone.

But when it comes to the money involved in these partnerships, I have to defer to the number one corporate partnership expert out there, Joe Waters.

Here’s what Joe wrote in his most recent enewsletter:

“The reality of corporate support. Unless you are the United Way, City Year, Product RED, Children’s Miracle Network, Junior Achievement or one of the handful of other charities that lead with corporate fundraising, most nonprofits- based on my 30 years of experience in the field- raise just 5-15% of their revenues from companies. The lion’s share of their money comes from individuals.”

(Before I go on, major shoutout to Joe’s fantastic enewsletter Selfish Giving. It is the top enews on corporate partnerships. I have been a subscriber for a whole bunch of years and have learned a ton from Joe. If you haven’t yet, subscribe today!)

Your organization has limited resources. Does it make sense to spend a large percent of the precious few dollars you have on something which might only yield 5% of your overall revenue?!

Nope.

Does that mean ignore it? No! You SHOULD be seeking corporate partnerships but not at the expense of small and midsize donors, building relationships, monthly givers etc.

Power Imbalance

Donor dominance is a real thing in our sector. One person gives major bucks to an organization and they use their gift as leverage to exert control and pressure on the Board, ED and fundraising department. That one donor holds a LOT of power in their hands and that can damage your programs and services (and ultimately the people you help).

Some mega donors are very hands off. Kudos to MacKenzie Scott for donating and letting the organizations decide how to spend the gift.

But ask any fundraiser and they have at least one horror story of a large donor wielding way too much power and influence over the internal decision making.

Take hi-tech: Investors in start ups want a seat or more on the Board so they can see up close how their investment is being spent and if they don’t like it…

Why do you think mega donors will be any different?! They’re giving you a lot of money. They’ll want to see that it gets spent the way THEY want and not necessarily how you want.

You have a mission. A strategic plan. Programs and services.

Along comes a million-dollar donor and demands changes which will affect all of the above.

The upside? The million dollars.

The downside? All the rest.

Additionally, this rush for mega donations makes me think of the needle in the haystack. There are 1,700,000 nonprofits in North America. Know what the odds are that your specific organization will be chosen by MacKenzie Scott?

Let’s just say Draft Kings wouldn’t offer odds on it.

Praying for donor manna from heaven is not a way to run an organization.

Yet as nonprofits shift the focus to finding a mega donor to gift them mega millions, they will simply have less and less in the company coffers because they will have neglected all types of other donors.

The Limited Resources Conundrum

Most nonprofits are cash strapped. It might make sense to tell them to put their resources where they’ll get the most bang for the buck. The Big Three certainly fit that criteria.

For example, concentrate your fundraising efforts mostly on Boomers. They have a ridiculous amount of wealth at their disposal. Build relationships with them and start seeing returns.

Sigh. This one drives me nuts.

See: Madoff, Bernie.

I was living in Israel when the Madoff story broke. I cannot begin to tell you the number of charities who were screwed because of him.

Why?

The foundation of their donor pyramids were large donors and from there it went up to major and mega givers.

Monthly givers? Small donations? They did very little to build relationships with those people.

Know what happens when the base of your donor pyramid is large donors and then along comes Madoff + financial trouble + Bear Stearns and other large corporations suddenly go bankrupt? Wealthy donors consider putting away their check books. They’ve lost a lot in the stock market and their investment portfolio takes a major hit.

Know who feels the repercussions? Nonprofits.

Know who doesn’t feel the repercussions? Nonprofits whose donor pyramid had a solid foundation at its base of small givers. They’ll continue to give in bad times.

Yes, some of your midsize donors may have to take a year off of giving or give less. But your nonprofit isn’t solely dependent on those midsize and large donors.

If you pursue The Big Three, you better be praying that a recession or unforeseen event doesn’t take down the stock market. Because if it does, you’re screwed. Plain and simple.

The Big Wealth Transfer

It is estimated that between $40-60 TRILLION dollars will be passed on from Boomers to their Gen X and Millennial kids and family.

The people telling you to run after The Big Three will also tell you to minimize your efforts with Millennials and Zoomers. They don’t have money! Why waste your time, effort and money inviting them to join your organization and become donors?

So you’re concentrating on the prayer from heaven and neglecting the potential donors of today and tomorrow.

Tell me how that makes sense!

Building relationships NOW can pay off in the future. Waiting for the wealth transfer to happen means that other forward-looking organizations will have previously built relationships with the newly rich and they will partner with those nonprofits.

Your nonprofit waited to build a relationship? Too late. Money’s going elsewhere.

You could answer there are plenty of fish in the sea.

But are there?

There are almost 22 million millionaires in the U.S. but just 735 billionaires. That may be a lot of overall wealth but if everyone is trying to raise money from them, it’s not as big a pool of donors as you think.

Concentrating on The Big Three means your pool of donors shrinks. That’s not a path to growth.

What’s The Solution?

As I said at the outset, a lot of the above is based on what I hear and see. I can’t say it’s sector wide. I have no idea what percent of nonprofits are investing heavily in The Big Three and stopping to fund efforts to find and connect with small donors, monthly givers and the like.

But something’s afoot. And it’s not good.

Ask organizations who rely heavily on gala events about putting all your eggs in one basket (see: Covid 19). Concentrating efforts heavily on The Big Three is tantamount to doing the same.

A diversified portfolio of donors and donation opportunities is the best path to go from survival to thrival.

Yes, The Big Three SHOULD be part of that portfolio. But so should small donors. And monthly givers. And Xers and Millennials and Zoomers.

No matter how long you wait, MacKenzie Scott isn’t calling. Better have a plan B.