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Vol. 41, No. 6

What persuades donors to invest in your foundation? Making the case for support

by Marilyn Cavicchia

These days, your bar foundation might have to market itself harder—and differently—than it ever has before, said Richard Neustedter, partner at Non-profit Financial Specialists.

One reason, he told attendees at the 2017 Midyear Meeting of the National Conference of Bar Foundations, is that—as the former CEO of GuideStar said—“The age of assumed virtue is gone.”

Recent scandals such as the one involving the author of Three Cups of Tea, who was alleged to be deriving private gain from his Central Asia Institute, have eroded the public’s trust in nonprofits as a whole, Neustedter explained.

And don’t think potential donors will call you if they have questions, he added; “instead, they’ll Google you and assess based on that.”

Helping donors decide to invest

This means your website has to be sharper than ever, he said, and you need to push more information out rather than passively waiting for donors to come to you. Be aware, too, that it’s a crowded field when it comes to where donors will decide to spend their money, Neustedter added; your mission might be inspiring, but a lot of other organizations’ are, too.

Actually, he said, more inspiring than your mission—and well worth sharing with potential donors on your website and elsewhere—is your foundation’s vision and strategic plan. By “vision,” Neustedter said he meant a concise, powerful statement that expresses “the ideal state of your environment if your mission is successful.”

Donors want help making the decision of where to invest, Neustedter explained, noting that the word “invest” is important: “Donors want to make an investment decision—not just give gifts.”

Neustedter, who worked in a high-tech field for 23 years before starting his career with nonprofits, said he finds it strange how few tools exist to help nonprofits improve both their effectiveness and their outreach to donors, and also that donors must make investment decisions without the benefit of the in-depth analysis that is typical for other forms of investment.

Things like Charity Navigator and BBB Wise Giving Alliance are “report cards, not tools,” Neustedter believes, and their evaluations can be flawed in ways that are advantageous to organizations that aren’t as great as they seem, and unfavorable toward organizations whose excellence isn’t as well captured by the sites’ metrics.

As far as what specific metrics donors pay most attention to, Neustedter said you can fight back against the commonly held belief that low overhead costs necessarily make an organization more worthy of support—if you can explain clearly and effectively what those costs are and why it’s important to direct some funding toward operations. In a recent poll, he added, 70 percent of potential donors said they look for evidence of an organization’s effectiveness, and 54 percent said they look for a good rating on “watchdog” sites such as Charity Navigator.

Make the most of your 990

“Before you ask for a rating from somebody,” Neustedter advised, “make sure it’s good.”

Generally, he said, if 80 percent or above of your expense is for programs, 15 percent or below is on operations, and 10 percent or below is for fundraising, you’ll get a good rating from both Charity Navigator and BBB Wise Giving Alliance. (Whether you’re actually an effective organization is another matter, he added.)

The data on Charity Navigator is all pulled from your 990 form, Neustedter said, and donors know to check your 990, too. Neustedter believes organizations should be transparent by posting their 990s on their websites rather than saying they’re available on request.

That being the case, he said, it’s important that your 990 helps you put your best foot forward. But doesn’t your 990 just convey facts that are what they are? Actually, no, Neustedter said: For one thing, inaccuracies abound. In a recent review of 220,000 such forms, 37 percent reported no fundraising expense, and 13 percent reported no management and general expenses.

“That can’t be true,” Neustedter said, and similar inaccuracies may be hiding on your 990, where they could raise a red flag that you’re being intentionally dishonest. What often happens, he added, is that the organization’s tax preparer also fills out the 990, and then the executives or board members give it only a cursory review.

The problem, Neustedter said, is that tax preparers almost speak an entirely different language, and “lots of inaccuracy comes from translation.”

Do look closely at your 990, he advised, not only for inaccuracies, but also for things that could be changed to your advantage while still being truthful. For example, he said, the tax preparer will often list the executive director’s salary under administration, which will count toward your overhead costs. But some executive directors spend most of their time working directly with the organization’s programs—so that salary might actually qualify as a program expense, which could help you earn a better rating.

But don’t pin all your hopes on those ratings, Neustedter stressed: You still need a strong website (he praised the Philadelphia Bar Foundation and its case for support) and marketing materials.

“You can’t depend on organizations [such as Charity Navigator] to represent you as well as you can,” he said.

(Note: This workshop was the first in a pair; the second portion featured Barbara O’Reilly, CFRE, principal at Windmill Hill Consulting, on the topic “Talk Impact, Not Overhead: Strategies to End the Nonprofit Starvation Cycle.” A synopsis of that presentation will appear in the next issue.)