FundClass Archives:

The Annual Fund

Edited Digest of FundClass Topic #02, May 1997

1) Some thoughts on the definition of an annual fund:

• It is the primary fundraising method used to broaden support, upgrade giving levels, and provide operating support for on-going programs... and often the donor does not receive any tangible benefit for his donation to an annual fund.
• The focus is different from a membership drive: an annual fund drive asks donors to give to support the organization generally, a pronounced philanthropic intent; while a membership drive provides a service to the members and not a charitable service in itself.
• annual fund campaign is multi-dimensional:
  1. creates money for current operating expenses
  2. allows an organization to develop a donor base
  3. cultivates donors for larger "special" gifts later
  4. creates a pool of potential volunteers and leaders
  5. gets your message out to the general public each year
• the money is used to meet an unrestricted need. Otherwise, it's a campaign.

2) How to start an annual fund?

One writer wants to start an annual fund, now gets most income from government sources, has a board which does not do fundraising, and no member constituency other than the youth with which the organization works. Ideas included:

1. buying/renting a mailing list to do direct-mail appeals (see Direct Mail section below for why this may not always be the best route to take)
2. work with the board: form a committee of board members to work on fundraising; and/or ask board members to come up with names of friends/colleagues to appeal to and have them sign the appeal letter to those people (on the basis that people have a hard time saying no to friends)
3. don't assume that your constituency can't/won't help! Are there "alumni" who may be in a position to help? Try asking current clients -- maybe giving even a small amount will empower them and their families. Also, clients and families may work for employers who match funds, or have other philanthropic programs which could help your organization. And you should use your former clients for stewardship purposes once you have donors; seeing success stories in action makes a more powerful statement of the worthiness of your cause than any appeal letter you could write.
4. look at special events: while not great for the sole purpose of raising funds, special events can be great for PR, marketing, and building a mailing list of prospective donors. In fact, seeing your event in that light, rather than as a fundraiser, will help your success rate. . . always plan some way to get names and addresses of attendees (door prizes, for instance; if they "don't have to be present to win", you have a legitimate way to ask for address and phone number), and any other data about the prospective donor that you can find a way to ask for. Then enter them into your database for future appeals.
5. planning is important here . . . do you have access to other organizations that have already implemented successful annual funds . . preferably one whose budget is similar to yours? Ask for help in coming up with a long-term plan. To start with, set small goals you can reach without too much of a stretch, and allow your plan to be revolving: start with a good attainable goal for this year, have a drafted budget for next year, and revolve (modify) this budget the quarter before the fiscal year starts, using your numbers from the previous year.

3) Some thoughts on direct mail in regards to annual funds

1. Direct mailing to a rented list is NOT a way to start an annual fund -- or even a way to start a direct mail campaign!
2. Before you even think of renting/buying a list, you need to compile a list of all clients, directors, volunteers, friends, donors, etc. -- coding each according to their source and whatever other data about them you know (you're looking especially for why they might give to your organization). You should mail information and appeal requests to each one regularly. The NATURE of the mailing, the FREQUENCY, and the ASK amount should vary based on source, recency, frequency and amount of previous giving. Lots of testing is required to determine the 'right' nature, frequency and ask amounts for each group (a group being people who have similar characteristics or reasons for giving to you).
3. Once you've got a substantial program under way, THEN you can try to 'clone' those donors, by renting lists of 'similar' people. That similarity is based on much more than just geography (which may be important) and demographics (which may also be important). It ideally is also based on interest area, mail-responsiveness, and other factors. This is where a list consultant can be of some help.
4. Expect a return of 1% or LESS from most rented lists. This means it's unlikely that mailings to rented lists will pay for themselves. So, you have to have a substantial base list to raise funds, not only enough for the programs you run but also to fund the expansion of your direct mail program to rented lists. Donors who do respond from a rented list will add to your donor base, and help to grow your fundraising program over time, but it may take three to five years for a direct mail campaign which uses a rented list to begin to return more money than it costs.
5. So get started now, with people known to you and your organization, and build a good list of names!

4) Data Collection and Maintenance

Computer software can help immensely in coding your donors for appeals letters (as well as do other chores, too). Donor codes can be used to identify the type of donor (individual, business, church) and any existing relationship (board members, volunteers, staff, clients, alumni, etc). Another important piece of information is WHY the donor gives to your organization. Some software is able to modify the text of a direct mail letter based on codes or other data, resulting in a much more focused appeal (called "mail-merging" data into letters).

Contribution codes can identify the source of the contribution (a direct mail campaign, a special event, a personal visit, a phonathon, etc), the purpose to which the donation should be put, and more. These are a great source of information for segmenting donors.

Computer software can also help you analyze this data, to see which segments are most productive and which are starting to slide and thus need more attention. It can also show you which projects or approaches have been successful and which were flops.

Gathering data: As donation checks come in, besides entering the contribution data, check to see if there is an address change, a phone number, or the name of a spouse to add to your database. If there's any correspondance, look through it to identify and code any clues as to why they gave, what it is about what your organization does that is most important to them. Consider enclosing a short survey form in your next mailing, to encourage donors to give you that information. If the contribution is the result of a phonathon or personal visit, mine the person who made the contact for any bits of data, and enter it in the notes section of their file in your computer program. This will be valuable for the next contact with that donor.

Information you want on each donor includes: name, address, phone, fax and email data; spouse name and family info; date of birth can be handy; detailed contribution history; and basically anything that will help you make your relationship with that person personal and effective. Think of it as your journal of that relationship . . . include what was mailed to them, when, what the result was, all significant communication. A good software program will allow easy coding of this and any other data; a notes section of considerable length on each donor; and a way to segment donors into groups who have similar interests or reasons to give to you.

5) How do you combat the "I only hear from you when you want money" syndrome?

You combat this through sound stewardship. . . make sure that that is not the only time they hear from you! Tell donors how you've spent their money . . . thank them promptly and frequently . . . take a "donor first" approach to development, meaning look at what is right for the donor, instead of what is necessarily easiest for the staff.

This response may be short, but it is very important.

6) A Success Story

And, to finish this FundClass topic on an inspirational note, and to lead into the next topic (Direct Mail), comes this story from Father Ed Gustafson of St. Andrew's Crippled Children's Clinic in Arizona:

Several years ago the local newspaper wrote an article about our clinic,showing pictures of a few children and disucssing the needs that we care for. I followed that up within a month with a rented mailing list, and got a 16% return! Several things I did:

• The same children were shown in the brochure I sent as the newspaper photos had shown
• I placed an ad in that newspaper, alerting people to watch their mailboxes for a special mailing from the Clinic, again using a photo of a child who'd been profiled in the article (I got my photos from the newspaper photographer)
• In the mailing, I added credibility to our project by listing a couple of community churches that were already supporting us
• Of course, each mailing had the essential ingredients: cover letter, brochure, pledge card and postage-paid return envelope.

The mailing of 4000 pieces cost about $3000, and returned almost $21,000. I also added 650 names to my mailing list; probably about 475 of those still contribute regularly.

I must add that this was the foundation for all my mailings. I have not followed up with another blanket mailing to a rented list, but am planning one in December; the town has doubled in size. I have already contacted the newspaper, and they're interested in doing a piece on our annual Christmas party which occurs in early December. We'll follow up in the same way as before, and hopefully net another increase in both cash and donor base.

[Ed. note: this is an amazingly good return for any mailing, let alone one to a rented list. If you try this, don't be disappointed or feel you've failed, if your return doesn't equal Fr. Gustafson's!]