Podcast | The 2022-2023 Giving Outlook vs. Today’s Challenging Economy

On this episode, we’re talking with Trent Ricker, President and CEO of Pursuant, and Matthew Mielcarek, Senior Vice President of Analytics and Insights Strategy, about the recently released 2022-2023 Pursuant Giving Outlook. Specifically, we’re digging into how the Giving Outlook can help us navigate the challenging economic times we’re all facing.

This eBook uses data aggregated from several industry reports plus insights from Pursuant clients to help fundraisers more broadly anticipate the year ahead. You can also read more about the Giving Outlook, download your free copy, or watch this on-demand webinar.  

In this discussion, Trent and Matthew will also touch on the latest Fundraising Effectiveness Project Q2 22 Report, released by the Association of Fundraising Professionals (AFP) Foundation for Philanthropy. Listen to the full episode or check out these highlights:

Q: The Fundraising Effectiveness Project report happened to come out the morning that we’re recording this, so we’ll be discussing some initial reactions to it as well. But first, let’s dive right into the 2022 Pursuant Giving Outlook. This year, it feels more important than ever.

Trent: It’s important for us as strategists and as an agency to have a finger on the pulse of the market and to share that with our clients. Both the Fundraising Effectiveness Project and the Chronicle of Philanthropy dropped reports this week, and that shows that there’s so much information that comes out throughout the year. Matthew does a great job summarizing that — pulling in research from our own clients and weeding through findings from the Fundraising Effectiveness Project, Blackbaud, and others.

Matthew: Each of those benchmark sources offers amazing, unique value in looking back over the last year to see broad philanthropic trends, but they don’t help orient us to where we are now. So often, our clients want to know where we are right now. So, we lean on those benchmarks as well as benchmarks of our own clients to evaluate what we’re feeling, how programs are responding, and how donors are behaving today. That’s what’s exciting about the Giving Outlook — it allows us to combine all those sources and look forward.

In terms of where we are today, it feels like we’re at an inflection point like something is about to happen that’s different. We know 2020 was a blockbuster year in terms of philanthropy, and when the pandemic stretched into 2021, we saw that philanthropic response continue. But as 2021 ended, giving enthusiasm waned in face of the economic headwinds ahead of us. So, it feels like we’re entering a new era, and we’re not sure how dramatically different it might be.

Trent: We have this unique period where year-over-year comparisons are being done to very unusual years in 2020 and 2021. In fundraising, we saw an enormous boon, but not in all market segments, of course. Some faced some real lows, such as higher education and arts and culture, and had to close. But we’re seeing some rebound, and now there are real economic headwinds. So, it’s both harder and more important than ever to cut through all the reports and determine not only where we are but also where we’re going.   

Fundraisers must understand the economic dynamics — we’re in a bear market right now, inflation is the highest in decades, and both employment and consumer spending will have to slow. These elements forecast what might be ahead. It doesn’t mean the sky is falling, but we’ll want to take the lessons learned in previous economic challenges to heart if we want to survive.

Q: Let’s dig deeper into those headwinds. Top of mind is the Federal Reserve increasing interest rates to help curb inflation. We don’t know how long this will last, and everyone seems unwilling to even say the word “recession,” much less say whether we’re in one.

Trent: You’re right — people are afraid of the “R-word.” There are a lot of dynamics that go into it. Politics aside, when interest rates go up, people are less likely to make major purchases, and businesses are less likely to borrow capital so they can grow. What happens to donors in this situation, when they might think twice about giving?

Even in tough times, loyal donors that are well-stewarded will keep giving. People take care of the things that are most important to them. They’ll have priorities, but they’ll make sacrifices in other areas, so we, as fundraisers, need to make sure we’re out in front of our donors.

Matthew: I heard a headline this morning that said the average American family is spending $431 more per month on the same goods and services than they were a year ago. And at the same time, the value of gifts has shrunk — a $1,000 gift is actually worth only $917.

Everyone has their essentials, and they’ll start cutting back on their non-essentials, which could be the nonprofits they support. So, that’s really the crux of our advice — in the coming months, how do you remain relevant? How do you remain your donors’ charity of choice when things get tough?

Trent: Yes, how can you position your nonprofit as essential to those who care deeply about your cause and have been loyal to you? Consider pet owners — people are going to take care of their own dogs first, and then they might very well look at an animal welfare charity as something that’s essential to them. So, you need to continue to ask, and you need to continue to communicate the difference that the individual is making.

I can’t hammer home enough on how important stewardship is during these times because people need to know and feel that return. In fact, there are studies suggesting that, while some people may give to fewer charities, they may actually go deeper with their gifts to those they continue supporting.

Matthew: Right, so then the question becomes, how do we stay relevant to donors and encourage them to give deeper? Something that strikes me is the incredible power of storytelling and creative. It’s building that connection with the donor, which will be particularly important in the months ahead. Talk about your role as a nonprofit during these recent hard times.

Trent: I agree — authenticity and vulnerability are extremely important. And in addition to that, people give because they want to help others who are in need. I think it’s important to remind people of the work you’re doing — “We’re grateful for your help and the impact your gift makes.” I believe it’s incumbent upon the nonprofit to understand how a donor came to their organization, which will affect the way that donor is communicated with and stewarded.

Matthew: I’m also curious to see what impact donor-advised funds will have in the years and months ahead. Will people be more reluctant to designate to it? Frankly, I think nonprofits should be making a direct appeal for those funds, but it’ll be interesting to see if individuals untie those funds in the months ahead.

Q: What are some other indications that the economic headwinds we’re experiencing are actually affecting fundraising?

Matthew: I lead our analytics and insights team, and we have recession-monitoring tools that we look at and update on a continuous basis so we can track changes. Then we look at how those changes compare to prior years. So, there are a few key metrics I encourage nonprofits to track as well. First is response rates — how are individuals responding to your direct mail appeals? We’ve seen response rates drop a bit starting in March of this year, and they’ve fallen flat across the board for many of our clients.

I also encourage folks to track average gifts. I expect the average fit to increase in the weeks and months ahead — we’ve seen them bump up a bit in recent months. Another important thing to keep in mind is that the average gift or revenue per donor has been growing for the past 10 years. So, we’re looking for spikes in that, although we haven’t seen one yet.

And then the last metric to track is overall retention. Our clients’ retention rate is still healthy, although it has dropped almost 10 points in the last year. But what’s interesting is that we can completely attribute that to pandemic churn — it’s a natural fallout from the last two crazy years we’ve had in fundraising.

Trent: I think we also have to consider where the data is incomplete. The headlines say there’s been a drop in donors, and while I believe that to be true, I also don’t believe we’re counting all our donors the way we once did. We know, for example, that social media and Facebook fundraising is leading to a lump-sum, anonymous type of donor.

If we’re seeing a drop in donors but an increase in average gifts — and if you’re not out-pacing average gifts to the number of donors — then you should have a decline in overall giving to nonprofits. But we aren’t seeing that. Most nonprofits have been up in recent years.

Matthew: Yes, what we know about pandemic giving is that it reversed a 10-year overall decline in new donors. There are substantially fewer new donors being added to donor files, and then we’re also seeing those less-committed pandemic donors falling off the file. So yes, you could call it a collapse, but it’s also the natural attrition we were all bracing for.

Trent: You can look at an organization like the Red Cross, which is the pre-eminent disaster relief organization. If there was a major hurricane one year and then none the next, you might say their retention is awful — that all their small givers abandoned them. When, in reality, it was a return to normal.

So, what I want listeners to know is that we’re in a delicate spot. Read the data, take it seriously, but don’t over-dramatize it. We are comparing time periods that were very unique. And on the flip side, we can’t ignore the economic conditions. People are a little more cautious.

Matthew: Exactly. There’s a ton of opportunity ahead, so continue to look at ways you can lean into that opportunity and strengthen relationships with your donors.

Q: One final question on stewardship. Stewardship is an area that nonprofits may reconsider when their budgets get tight. What are some stewardship opportunities nonprofits should look for, and what knee-jerk reactions should they avoid?

Trent: Stewardship is intended to be a strong component of retention. In tough times, the knee-jerk reaction — the shallow reaction — is to first reduce stewardship, then reduce acquisition. Both are dangerous things to do. Right now, you have an opportunity get people to become more connected to your organization.

Stewardship informs retention, renewal, and upgrade. The size of the gift and the lifetime value of the donors is critically important to these periods. We saw people double down in stewardship and continue some form of acquisition, and they survived the Great Recession better than those who cut these programs.

Just be more resourceful. Don’t cut your newsletter altogether — shorten it to focus more on your donor and the mission recipient experience. If you see people who are giving consistently, pick up the phone and thank them. People crave connection, especially in tough times. Use good database analytics software, whether it’s GivingDNA or something else, that can help you understand people’s connection to your organization.

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