10 bad decisions nonprofits make

That cost them millions of dollars in lost revenue

Wrong Way

I’m going to rant for a minute here. Over the last six months I’ve explored more than five dozen nonprofit development operations, and in many ways I’ve been disappointed at what I’ve seen. That’s not to say that these programs are failures, or that the people in these organizations aren’t doing good and meaningful work. But what I’ve seen is that there are some very basic, bad decisions that some organizations consistently make — and those decisions cost these organizations millions of dollars in lost revenue.  Revenue that could be used to house and feed more people, to rescue more animals, to improve our environment, and the like.

Below you’ll find the top 10 bad decisions that I’ve seen nonprofits make — and some thoughts about how to better approach these issues.

  1. Operating without a strategic plan: WHAT??? How does any organization operate without a strategic plan? How can you know the direction you’re headed makes sense if you don’t have a plan? How can you benchmark your progress? The reality is, most nonprofits that operate without a strategic plan never really go anywhere. They don’t grow. They don’t solve big problems or accomplish big things. They simply exist. And in my opinion, that’s a waste. Build a plan. Work the plan. You’ll see the results pay off in big ways!
  2. Expecting nothing from your board: How many times have you heard your colleagues in the sector moan and complain about their do-nothing boards? I hear it all the time. But I also sit on boards myself. And what I’ve experienced (both as a board member, and as a consultant to hundreds of nonprofits) is that great nonprofits are really strategic about engaging their board members. They set clear expectations, regularly interact with board members at multiple levels of their organization, and they resource their boards for success. In most of these instances, the result is a high-functioning board that produces results. Those organizations that don’t invest in their board relationships, don’t set clear expectations, and don’t provide support to their boards have pretty disengaged boards. But is that really surprising?
  3. Not enforcing board term limits: If you don’t have term limits for your board, you have no way to clear out ineffective or hostile individual members. You have no safety net when things go wrong with your board. If you’re a board member reading this, you have an obligation to your organization and the people you serve to institute term limits so that your organization, donors, and clients are protected.
  4. Changing strategies and tactics that are working: I got a call a few months back from a VP of Development who said, I’m new to my organization and I’m looking to make some changes. I need a new fundraising agency. After 30 minutes of discussion I uncovered that this organization’s fundraising agency was doing good work. Really good work. The donor base was growing. Gross and net revenue were up. Retention was up. I couldn’t find anything wrong with this agency’s work. And you know what, neither could this new VP of Development. He simply wanted to put his mark on the organization, bring in a new agency that he hoped would be loyal to him, and make a big decision. I decided not to submit a proposal for their business. I didn’t believe we could do better than what they were already doing. But another firm did. They made a change — and their revenue has suffered because of it. As a donor, this kind of crap really gets under my skin. The process of changing fundraising agencies is really expensive, both in soft costs (i.e., the hours you and your team will invest to research and interview agencies, write and review and RFP, etc.), and in hard dollars. Those are dollars that were donated to fund program and accomplish mission. Not to improve someone’s ego. If your fundraising agency is doing good work — and it’s working — a move like this is a wasteful exercise in ego stroking. And it’s unethical.
  5. Allowing people who aren’t fundraisers to make decisions about your fundraising: Much of what we do in the fundraising business is based on science. There’s rigorous testing that goes into the development of things like direct mail control packages and the like. Particularly when it comes to direct response fundraising, nearly every decision is vetted by A/B testing. But when a nonprofit gives decision-making authority to someone who has no expertise in fundraising, things can go horribly wrong. Just recently, I’ve heard some really bad ideas from amateur fundraisers — people who are experienced and trained as database managers, operations leaders, accountants, etc., who have for one reason or another been put in charge of fundraising for some well-meaning organizations. Ideas like, We want to change the creative every year. We believe strongly that new creative raises more than sending the same thing every year. The reason you mail a control package each year is because it’s a control. You’ve proven it works. Sure, test it. Beat it. We should all do that! But don’t just change it because “you firmly believe” something. There’s a 99% chance that, the creative changes you “believe in” won’t beat your control package. Or, bring us donor acquisition ideas that don’t include direct mail. We’re committed to the idea that direct mail is not the future of fundraising, so we’re getting away from it. Yeah, everybody wants to get away from direct mail. It’s expensive, feels impersonal, it’s difficult to get it right, and takes a particular level of expertise to really succeed. But you know what? It still raises a ton of money and is the primary new donor acquisition vehicle for the majority of nonprofits. You should absolutely be looking for alternative channels and diversifying. But just because you don’t like mail doesn’t mean it doesn’t work. This is where organizations allow unfounded instinct to get in the way of data-driven marketing strategy.
  6. Stopping new donor acquisition: Here’s the rub…New donor acquisition is expensive. I mean, really expensive. Many organizations invest anywhere from $50-$150 per new donor they acquire each year. That’s a lot of money, right? And acquisition almost never pays for itself in the year that you do it. But over time, those donors you acquire can give you anywhere from say, $125-$500. That math is pretty clear. Investing in acquisition is worth the money. Organizations that stop acquisition for even one year (always to cut costs) end up paying a heavy price for this decision for, on average, the following 3-4 years. That’s how long (on average) it takes to replace donors that fell off the donor file in the one year you didn’t do acquisition.
  7. Not diversifying media channels: I talked to a Director of Development recently who told me she would only invest in direct mail, not in anything digital. It was a little surprising. Then she dropped a bombshell. Her reasoning was that she “didn’t believe” in the value of online giving. She admitted to me that she personally buys products on Amazon.com, and she has an active monthly gift contribution to her favorite nonprofit that is set up online…but apparently those aren’t the same. Here’s the deal. Online-acquired donors are typically 2.5x – 3.5x more valuable than direct mail-acquired donors. They’re also more likely to give across multiple channels, which increases long-term retention rates and total donor value. The value of online donors is, at this point, well established in the industry. It’s a little insane not to embrace digital fundraising strategies at this point.
  8. Not investing in talent: It saddens me to see the lack of talent development in the nonprofit sector. This often begins during the hiring process when goals for the position are established. So often one of the top goals for the hiring manager is “getting a great deal” on the new employee. That is, finding a candidate that isn’t looking to make a lot of money so that the organization can keep their staffing costs down. This is a horrible approach. Then once an employee is hired (on the cheap, of course), many nonprofits don’t make ongoing investments in training and professional development. Either there’s no budget, or it’s the first line in the budget to get cut when they need to cut costs.
  9. Not making major gifts a priority: Major gift fundraising this the number one way to scale your organization’s revenue. A robust major gift program can help an organization avoid the financial volatility of negative economic trends, can provide a pipeline of revenue for growth-focused change, and can ensure that organizations have stable revenue over extended periods of time. That’s why it’s shocking to me when I hear a development officer or CEO of a nonprofit say that they “don’t believe” in major gifts, that they don’t have any donors “capable” of making a major gift, or that building a major gift program is “too hard” to do. Regardless of your organization’s size, if you have a strategic and focused major gift program, you’ll raise a lot more money. I see this time and again. But I also see the opposite. Organizations that aren’t intentional and focused in this area continue to suffer. One direct mail appeal doesn’t perform and they’re forced to reduce services or look at cutting staff. The weather is bad the night of their major event, causing event revenue to drop by half — and all of a sudden there’s a financial crisis in the organization. When things like this happen at organizations that have a robust major giving program, they’re minor occurrences, not major crises. Focus on major gifts over the next year. It’s the single most valuable thing you could do for your organization today.
  10. Not taking stewardship seriously: Study after study conclude that one of the most important aspects of building successful long-term donor relationships is stewardship. Donors crave great experiences with the nonprofits they support. And nonprofits stand to gain a ton from getting stewardship right. So it’s unfortunate that so many look at stewardship programs as simply a cost to be minimized or cut rather than a fuel-injector for donor retention and revenue growth.

The good news is, each of these decisions can be reversed. If your organization isn’t currently focused on major gifts, you can decide today to change that. If you don’t have board term limits, you can institute them now. You don’t have a strategic plan? Just write one! If you’ve put someone in charge of a key fundraising program but they lack the knowledge or experience to successfully manage it, you can fix that. You can get them critical training — or you can hire someone with the appropriate experience. None of these bad decisions have to be final. Each of them can be reversed, and the damage can be undone. You have the power to fix these things and to put your organization back on the path to success!

 

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Please note: I reserve the right to delete comments that are offensive or off-topic.

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4 thoughts on “10 bad decisions nonprofits make

  1. Andrew, I would add an 11th mistake to go with #4:

    Hiring an agency when things are already going well. There have been a few times in my career where the ED or Board insisted on hiring a consulting firm because “that’s what nonprofits do.” Even when things were going well with fundraising growth, acquisition and retention. Once an agency is put in place, it begins to try to justify its own existence with the nonprofit by making changes that don’t need to be made. That’s why as a consultant to nonprofits, I first make sure if the nonprofit really needs me. If they do, then I work to prepare their existing staff and Board to become better at fundraising, so that in no more than one year I can step away knowing that the organization is in good shape. Unlike many consultants and agencies, for the good of the nonprofit I don’t work to entrench myself in the organizations I serve to make my living from what seems like residual business. I seek to make the organization more independent and sustainable.

    • Hi Kevin,

      Thanks for your reply and for sharing your point of view. This is an interesting perspective that I don’t think I had considered previously. Do you find that most of the nonprofits you work with are able to manage full-scale development operations consistently on their own? I’d be curious to know specifically what type of fundraising activities these organizations are engaged in. I ask because in my experience, most nonprofits that I’ve engaged with don’t have the internal capacity to do what an agency can do.

      Best,
      Andrew

  2. Andrew, this is terrific. I’ve worked for a large range of nonprofits as a volunteer and an employee, doing an unusually broad variety of tasks, from grant-proposal writing to database conversion to being VP for Development and to being one of 3 persons in an immense, influential nonprofit who composed all materials of all kinds directed to 5-, 6-, and 7-figure donors.

    These errors are so common as to by the norm. Indeed, one organization I attempted to assist managed to make all 10. Despite my having over 20 years in the nonprofit world and significant communications expertise, trying to persuade an organization to at least temporarily replace a demonstrably failing strategy with one that’s a proven success, just temporarily as a test – let’s just say it made Sisyphus’ job look easy.

    Many thanks for such a sane, insightful analysis of how nonprofits most often run amok.

    • Thanks for your comments, Laurie. And wow, you had all 10 of these in ONE organization? Yikes! Glad you survived. 🙂