Charities and Nonprofits ARE Between Scylla and Charybdis
In Greek mythology, Scylla and Charybdis were mythical sea monsters that lived on opposite sides of the strait between Sicily and Calabria. They were regarded as maritime hazards, close enough to each other that they posed a threat to passing ships. To avoid one meant courting disaster with the other. It’s a nautical reference to a similar expression: “caught between a rock and a hard place”. And that’s exactly where many charities and nonprofits find themselves today.
Surging inflation is having a profound impact on the entire economy. Just as higher costs for individuals has an impact on their ability to give, charities and nonprofits must also juggle expenses just to continue fulfilling their mission.
To tame inflation central banks around the world are doing what they always do, they are hiking interest rates. Rising interest rates have a ripple effect on the economy. Consequently, consumers often have less disposable income when interest rates increase and are forced to cut back on discretionary spending – like donations.
Equity markets in 2022 have experienced a significant pull back, impacting the investment portfolios of donors and charities alike. It’s no wonder many are concerned about the state of the economy and the value of their investment portfolios.
As a sector, charities and nonprofits were already in a tough spot as a result of the COVID-19 pandemic. In 2021, Imagine Canada’s Sector Monitor Survey reported that only 44% of charities were able to meet demand, and nearly half of all organisations reported that demand for their services was increasing. In fact, some charities (arts, culture, and recreation) are struggling because of a drop in demand due to their inability to operate because of the measures put in place to combat the pandemic. With less resources available to provide services, charities will find it difficult to maintain their level of community service, let alone expand services to meet increased demands.
And that’s not all. The Ontario Nonprofit Network is reporting that workers are “leaving the sector in droves and staff vacancies have reached a breaking point.”
Blame it on the Great Resignation or on a real labour shortage, the bottom line remains the same. Charities and nonprofits are struggling to do more with less people and with less money.
So how can organisations recover – let alone thrive – with these significant headwinds?
A possible way forward
For charities who rely heavily on grants and gifts from other organisations, some relief might come in the form of the Canadian Federal Government’s 2022 announcement to increase the disbursement quota (from 3.5% annually to 5.0% annually). That assumes, though, that granting organisations continue to favour their cause over others. Given the demand for charitable dollars from many worthy organisations, this is by no means a guarantee. Charity and nonprofit boards will be forced to have difficult conversations such as:
1. Reducing programming to a level that current finances and resources can sustain;
2. Identify operational efficiencies by merging with another charitable organization in a similar space;
3. Finding new ways to increasing the number of donors supporting the cause; or
4. Generating an increase in the share of donations/share of wallet that comes from each donor.
A good board should always explore all options available to their charity or nonprofit. However, the one option that sticks out and has, I believe, the most promise to deliver what charities and nonprofits need is the fourth option. Retaining a donor, like retaining a customer, is much cheaper than acquiring a new one and can increase revenue. According to Hubspot, it costs between 6 to 7 times more to get a new customer versus retaining the customers you already have. Also a five per cent increase in customer retention can increase company revenue by 25-95%.
A bird in the hand
Charities that rely on donations, by definition, already have an existing base of support. Whether that support is ongoing or casual, exploring ways to deepen the level of support from existing donors is a path of less resistance. After all, they’ve already supported the cause in the past.
This suggests that donor retention – keep your existing supporters close – should be high on the list of priorities. Yet, so many charities miss the mark because they continue to embrace donor retention strategies that worked three economic cycles ago. The world has changed, and donor retention strategies must change with it.
According to Blackbaud Institute in their paper Tipping Point: Aligning with Supporters in a Changing World, “the direct marketing model still widely used by nonprofits today was created…when most TVs were black and white with only four channels from which to choose.” Today, donors want to be engaged using modern tools. Newsletters and direct mail have been replaced by social media and TikTok. Humanitarian entrepreneur, Dan Pallotta said that ‘people are weary of being asked to do the least they can possibly do; people are yearning to measure the full amount of their potential on behalf of the causes that they care about deeply. But they have to be asked.’ And I think he is right.
To me, the best way to engage donors in the modern economy is by telling stories that the donors wants to read. Of course, this means promoting and communicating about the work that you do, but it also means engaging your donor audience to determine what type of content they would like to receive from you and how it should be delivered. Remember, engagement isn’t about the charity… it’s about the donor.
While stories about mission and vision are critical, don’t overlook the importance of introducing donors to new ideas and concepts that will enhance their ability to make an impact. For example, teaching that the gift of an appreciated security has tax advantages that a simple cash donation does not, could earn you trust and respect from donors. You’re not just looking for donations, you’re giving back by teaching people along the way how to become better philanthropists.
The first step
As someone who works closely with nonprofits and charities, I recognize the existential threat the current environment has created for many smaller organisations. Communicating, educating, and engaging their existing audience may be a way for them to find calmer waters during these turbulent times.
Make sure that donor-retention and donor-education strategies are on your charity or nonprofit’s agenda at the next meeting. Your existing donors with thank you – hopefully by way of increased support during difficult times.
Craig Swistun is a Portfolio Manager with Lexicon Financial Group (www.lexiconfinancialgroup.com) at Raymond James Investment Counsel. The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.