Should charities invest in fundraising rather than in stocks, shares and bonds? Or is this really the wrong question?

Published by Ken Burnett on February 13, 2017February 13, 2017

A better thought-through approach to investment could be hugely beneficial for both donors and charities. Arguably it’s their blinkered, inconsistent and confused approach to fundraising investment that has got charities and fundraising into their current pickle.

That one has to speculate to accumulate is, of course, simple economics. Charities need to raise ever more to meet the growing demands from our society for their increasingly diverse and complex services.  Society needs more good works, and charities must step up to raise the needful.

Some argue though that fundraising income has reached saturation point, that fundraising costs — like donor complaints — are bound to keep rising but overall giving is doomed to stay static. There are germs of truth in this, though individual charities show consistent growth over the years, particularly those that invest wisely and do fundraising right.

Many charities can show returns from investment in fundraising way, way more lucrative than they’d ever get by investing similar sums in “the markets.” Individual charities such as Guide Dogs (see opposite) can show that they generate many times more, over time, by investing in fundraising rather than the usual alternatives. But this isn’t just about investing in fundraising per se rather than stocks, shares and similar. Charities will get a better long-term return if they think of this as investing instead in their donors’ experience. It’s time our sector started to quantify this a bit better than it does, as part of its accountability to donors and, incidentally, to help make the case for adequate and sustained future investment.

For fundraising to succeed, charities need to invest in people and in giving them time to do their work. I would contend — again, mere opinion based on 40 years of  inside observation — that far more charity initiatives fail because of under-investment rather than spending too much. Fundraising in the UK has gone off the rails largely because of inappropriate, and under, investment and because expenditure on fundraising is too often seen as an unwelcome cost rather than a necessary and — if carefully managed — prudent, productive long-term investment. Lots of other factors have got in the way too. Having the wrong people in place. Poor leadership from boards and SMTs. Lack of planning. Short-term thinking and false economies (which bedevil our sector). To name but a few.

All of these could be due to a misguided view of the term “investment,” in its broadest sense.

Fundraisers can justify and need to invest much more in recruiting the right people plus training them to think, inspire and communicate in the right way, using properly the full range of stories and channels available to them. In this way, charities will please more donors and raise more money with minimal distress.

What follows is a list of “positions” on investment that many, if not most, fundraisers might agree with

• Some people are disposed to be donors and some aren’t. Given fundraisers’ limited promotional resources it makes sense to concentrate the little we have on those disposed to give, to ensure that fundraising to them is done professionally in such a way that they enjoy the experience so they not only wish to continue giving at optimum, but tell their friends too. If we can find a way to change the disposition of the rest that would be good, but it isn’t our priority.
• Expenditure on donor-centred fundraising should be seen as it is, an investment, not a cost. As outlay and income can both be measured, there should be clear understanding among donors and fundraisers of whether or not such investment is generally a good thing for a charity.
• Charities are obliged to keep reserves. The case for prudently investing a sensible part of these reserves in fundraising (versus other options, e.g. stocks, bonds, etc.) should be clearly made.
• Fundraising charities also must invest in people — recruiting the very best for the task and training them to be better. And must invest in safe and productive work environments, in the right equipment to do the job properly, in the right communications to engage key audiences, and in technology too. We owe beneficiaries nothing less (lack of investment in data is seriously holding our sector back — see Data-driven nonprofits by Steve MacLaughlin).
• Fundraising (donor relationship development) done well can be an impressively cost-effective activity; therefore the returns charities get from a balanced fundraising portfolio should be carefully recorded, understood and made available to donors.
• Charities and their fundraisers have to be honest and open about the commercial realities they face and have a duty to explain their situation positively. The truth, told well. Anyone unable to accept those realities will not stay long as a donor. Spending little or nothing on fundraising is not sustainable but is counter-productive and, ultimately, a rather foolish pipe dream. Fundraisers should not hold back from saying so.
• To quote major donor expert Angela Cluff, fundraising approaches/costs are a hygiene factor, not a motivator.  For donors to give to a particular charity they simply need to be OK with that charity’s approach to fundraising — assuming they are aware of it or care about it at all. A good fundraiser will ensure that they are and will.
• Because giving is voluntary and there’s no tangible product or direct service, asking well is the right aspiration. The donor experience is right; it’s the holy grail. It may be possible to prove this, but believing it will suffice. Logic says that if people find giving satisfying and pleasurable they will do more of it; if they find it unsatisfactory and unpleasant they will soon stop.
• Appropriate spending on an effective administration is not wasteful, nor is it something to be tucked out of sight or apologised for. Indeed, it’s imprudent not to invest sufficiently in an efficient administration as if donors’ gifts are not properly administered, how can they be confident that any of their gift will get to where they want it to?
• Investing appropriately in innovation is essential. As UK consultant Allan Freeman has pointed out, under or unwise investment in fundraising may be the source of many of our ills. Equally important is investing in people, knowledge and understanding.
• Donors have every right to be concerned about the effectiveness/efficiency of fundraising. They are entitled to proper explanation and should not support a cause whose explanations don’t satisfy them.
• Rather like Margaret Thatcher’s view of the electorate, we don’t expect or even need everyone to vote for or support our cause, just enough to help us get “in” — effectively, to achieve our mission.
• A donation to charity is not like the purchase of a product. Fundraising is not like commercial trading. The harder you push to persuade — to sell the idea of a gift to a good cause — the less likely you are to succeed. Anyone who believes fundraising is just a form of selling and that giving is just another kind of product is in the wrong career area.
• Attitudes to and strategies for investment are the concern of each organisation, but there’s a perception in our sector that cheapest is best and that investment in doing things right is not a priority. This is tragically wrong. Our sector is riddled with false economies, and we need unity of purpose and better understanding to change that.

When they give to our good causes donors get no goods, service or direct benefit other than the famous “warm glow” we talk of. Given that, and as there are so many alternative calls upon their limited disposable funds and we need their help so, so much, it strikes me as remarkable — criminal even — that charities don’t invest more carefully and more wisely to make sure that the warm glow is always a lasting sensation. Because donors will only keep on giving if it is.

That’s why charities shouldn’t invest in either fundraising or stocks and shares, at least not until they’ve fully, carefully and comprehensively invested in providing a brilliant experience for their donors.

I hope readers will sympathise that I’ve had long experience of trying to take this particular horse to water, very often thinking the horse has got there only to see it struggle to take even a sip, far less a full drink. The question we should ask is, how should fundraisers invest prudently in the donor experience so they can generate the income that’s needed to secure their cause’s future, long-term? Then we should equip them properly, so they can do it.

© Ken Burnett 2017

Related earlier blogs:

The ‘less cost is best’ fallacy. A fundraising Utopia.

How to make relationship fundraising work.

NB This opinion article is Ken Burnett’s unsolicited response to issues raised in the process of compiling project 20 for the Commission on the Donor Experience, on investment. These opinions are his own, not necessarily the Commission’s. For more information on the Commission visit www.donor-experience.com.