What nonprofits can do in an economic slowdown

Which came first, the chicken (a national economic slowdown), or the egg (talk about an economic slowdown)? Whichever it might be, nonprofits have plans to make and action to take.

The U.S. economy shows multiple signs of slowing, and one of the indicators is projections in 2023 of a decline in donations to nonprofits, continuing a trend that began at the height of the COVID-19 pandemic.

In March, the NonProfit Times reported on findings from the Nonprofit Alliance that “Nearly two-thirds (65.64%) of direct-response fundraising consultants said their nonprofit clients met or exceeded projections for 2022. However, an even greater number (68.75%) said the results fell short of 2021’s outcomes and nearly half (43.75%) said their clients have lowered expectations even more for 2023. … Those answering pointed to inflation, donor acquisition and donor retention as the biggest challenges.”

The trend was showing itself even in 2022, according to information compiled by the Fundraising Effectiveness Project: “Despite donor counts falling in five out of the last six quarters, giving dollars had stubbornly hung on to marginal growth in Q2 and Q3 2022, largely driven by large donors. However, according to FEP’s latest quarterly data, the continuing decrease in donors of all types in Q4 was accompanied by a notable weakness in total dollars, suggesting the possibility of continued challenges in 2023.”

Putting another weight on the scale is the nation’s barely-moving gross domestic product growth rate, 1.1% in 2023’s first quarter. As CNBC put it, “U.S. GDP rose at a 1.1% pace in the first quarter as signs build that the economy is slowing.”

Apart from a slowing economy, the effect of the Tax Cuts and Jobs Act of 2017 on non-profit donations can’t be overlooked. The act upped the standard deduction to $12,000 for singles and $24,000 for married couples. State and local tax deductions were capped at $10,000. Itemizing charitable deductions for tax purposes lost much of its luster. Also, in the past, high-income, wealthy taxpayers who often made charitable gifts decided instead to take advantage of the increase to the estate tax exemption to $11 million for single taxpayers and $22 million for married couples.

What are nonprofits to do?

First, concentrate, as another old saying goes, on “dancing with the ones who brung ya.” Evaluate, or reevaluate, your existing donor base. This can be done using the 80/20 principle (that 80% of activity comes from 20% of donors); by analyzing the percentage of contributions from donors above a certain income level or donations based on percentage of organizational operating costs; or some other standard.

The next step: increase your contact with your best donors. Let them know their importance to the people they serve, the children they help, the elderly they support, the lives they change. Ensure they know it’s not your nonprofit making these contributions to society: it’s them, working through the nonprofit, to accomplish these important goals. Increase the opportunities for donors to come in contact with the people with whom your organization works. If you’re already doing this, do it more.

It’s a time-honored business reality: it costs less, and achieves a greater return, to keep an existing customer than it does to find a new customer. The same is true for donors.

Second, internal efficiencies. Think of an organizational structure as a computer. Defragging organizes storage on a computer, and needs to be done periodically to ensure the computer is functioning at peak efficiency. So defrag your nonprofit. Examine it from the alpha to the omega, looking for every area to assess where money could be better used, spent, assigned or saved. It costs more to seek new money than it does to save existing money.

Third, what new or revised revenue streams are paths of opportunity and offer the paths of least resistance? What’s the potential for increasing recurring donations; pursuing legacy contributions; property donations; stocks and bonds; and an assortment of other possibilities? Which existing donors can be converted to other, bigger giving methods? Who are your allies and relationships in the community that can introduce you to new funding avenues?

It’s helpful to seek outside counselors – financial, accounting, legal – with experience working with nonprofits. This is particularly the case if the not-for-profit's internal staff is accustomed to saying, “We’ve always done it this way, we’ve never done it that way.”

Fundraising is hard. Taking the right steps – and finding the best path – will help you find both the chicken and the egg of better fundraising.

This article first appeared in Knox News.

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