Are you budgeting for next year? If you are, someone at your organization is probably asking you “How much money can we raise next year?” and maybe even “How are we going to raise this much money [insert $ amount here] next year?”
Despite the energy that end-of-year-development-angst consumes, the need to work on next year’s budget makes this the perfect time to work on a development plan for 2020 and part of the planning process is examining how much you can realistic forecast in individual giving.
Far too many organizations decide on fundraising goals simply by calculating need. There is a hole in our budget of $x and $x becomes the fundraising goal for the year. Other organizations wishfully decide they’d like to grow and forecast a certain percent of growth across the board for all fundraising strategies. Still others decide to adopt very conservative approaches and plan for zero growth which might sound like a safe bet, but this strategy results in opportunity costs. Organizations that don’t pursue budget growth risk losing the opportunity to invest in their staff or infrastructure or to improve or expand their services.
Budgeting wisely is critical for nonprofits. As Stan Little, President of the SunTrust Foundation recently wrote for the Chronicle of Philanthropy, two-thirds of nonprofit organizations have less than 45 days of operating cash on-hand, making accurate forecasts imperative. In addition, election anxiety—what Scot Chisholm, CEO of Classy, calls the “election effect”—and 2017 changes in the tax code which donors are still digesting, have introduced additional uncertainty which suggests extra care in giving forecasts and budgeting.
Borrowing from their for-profit counterparts, nonprofits can forecast their fundraising results to develop goals and budgets that are data-informed.
Bottom-Up Financial Forecasts
In the for-profit world, some companies predict revenue by bottom-up analysis of sales. In this approach, businesses review their product lines or streams of revenue, their average sales, and their sales’ trajectories.
In the nonprofit world, the key data to build a bottom-up fundraising forecast are:
- Number of donors this year
- Donor churn/retention rate
- Donor acquisition rate
- Average donation for new donors
- Average donation for repeat donors
In building a bottom-up forecast of individual giving, I would not include planned gifts or major gifts—however your organization defines them—in the calculation of the average gift because large, one-time donations can greatly skew your results.
Using these statistics:
This year’s donations = [# of donors] * [average donation size] and
Next year’s donations = [this year’s retained donors * average gift of repeat donors] + [acquired donors * average first-time gift]
The best predictor of next year’s sales is always this year’s sales (unless, of course, you are a start-up). Fine-tuning predictions based on last year’s results by adding your specific organization’s donor retention and acquisition statistics as well as the differentiated averages between first-time donors and repeat donors will give you a far superior prediction. These simple data points introduced into the calculations will factor in your organization’s current rate of growth.
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Image Source: Bigstock.com/ADragan – Used with permission.