Donation Numbers Are Down. How Will You Respond to Economic Uncertainty?
Charitable giving enables you to resource your mission. Whether you work in education, health, arts, culture, or direct services, less philanthropy means less mission. The “boom and bust” process that is core to our current economic system has left discernible imprints on the landscape of charitable giving. During the Great Recession of 2008-2009, for example, Giving USA reported a notable drop in total charitable contributions by an inflation-adjusted rate of 7% in 2008 and 8% in 2009. This decline in giving varied across sectors however, with religious organizations seeing a less steep decline, while human service organizations experienced a more substantial decrease. It’s not all doom and gloom, however. Philanthropy often displays remarkable resilience, with periods of economic recovery commonly accompanied by a surge in giving. For example, in the aftermath of the Great Recession, charitable donations began to rebound in 2010, with total giving increasing by an inflation-adjusted 7.5% over the next five years.
The relationship between economic uncertainty and charitable giving is not uniform across different donor demographics and nonprofit sectors. Research indicates that high-income households, who contribute a significant portion of total giving, tend to maintain their philanthropic activity during downturns more than middle- and low-income households.
This month, saw the publication of “Giving USA 2023: The Annual Report on Philanthropy for the Year 2022,” a report created by the Indiana University Lilly Family School of Philanthropy and published by the Giving USA Foundation. The largest and most credible report on philanthropic giving in the US. The report showed that in 2022 nonprofits raised $499.33 billion — a 3.4% year-over-year drop in current dollars and a 10.5% downturn when adjusted for inflation. In dollars, the 2022 slump calculates to $17.32 billion in fewer funds nonprofits received to carry out their missions last year. This is only the 4th time in over 40 years that we have seen a year on year decrease in giving.
Some Highlights
Individual giving continues to make up a smaller percentage of total giving, dropping to 64% in 2022. Individual giving was down 6.4%, or down 13.4% when adjusted for inflation.
Foundations, bequests and corporations all saw increases in actual dollars. However, when adjusting for record inflation, all categories decreased.
When broken down by mission, many nonprofits received more donations, but not at the same pace as inflation. Only two types — foundations and international affairs — were able to outpace inflation.
Religious, health, as well as arts, culture and humanities causes also saw growth in current dollars, though not when adjusted for inflation.
The ultimate impact of this on-going economic downturn will depend on:
Your main revenue stream (foundation, major gifts, corporate giving, etc.)
The demographics of your individual donors (age, income, etc.)
The sector you are in (religious, direct services, arts, etc.)
Harvesting Resilience: Cutting Costs During Economic Uncertainty
As the current economic uncertainty drags on into its fourth year, you may already be seeing a downwards trend in your revenue numbers. As the “will we wont we” recession question lives on, it’s important for nonprofit leaders to ensure they have a strong grip on their expenses in the coming months. As the old saying goes, every penny saved is a penny earned.
Here are some ways to prune unnecessary expenses:
1. Optimizing operations: A stitch in time saves nine. By improving operational efficiency, you can reduce costs significantly. Review your processes, eliminate redundancies, and streamline your workflows. Implement technology where it helps save time, reduce error, and improve overall efficiency. When is the last time you sat with your operations team to go through a list of all the software platforms you pay for? While individually, that $45 a month subscription may not amount to much, collectively you could find yourself making substantial savings. A simple question to ask is whether or not that subscription is totally necessary or is simply a luxury your team can live without.
2. Collaboration: Remember, unity is strength. Look for opportunities to share resources with other nonprofits or forge alliances with businesses. These collaborations can reduce costs. Whether you enter into an agreement for a shared office space, conduct joint fundraising activities, or share in the purchase of bulk orders, think about what collaboration could look like for you.
3. Reevaluate Contracts: Relationships with vendors are key, but it’s essential to ensure these partnerships still serve your best interest. Renegotiate contracts if needed, or search for alternative suppliers offering more competitive prices. Remember, a reasonable vendor is interested in keeping you as a client long-term, so make clear your need to renegotiate and your plan to look at competitive offers.
4. Volunteer Engagement: Your volunteers are your biggest supporters. Utilizing their skills not only bolsters your workforce but also promotes a more engaged community, reducing the need for external resources. Are you using your volunteers enough? Can they do certain things that will save you money? Remember, your board directors are volunteers too!
5. Going Green: Embrace environmentally friendly practices. They are not only socially responsible but also economical. Reduce, reuse, recycle should be the mantra. Perhaps now is a good time to think about your marketing strategy and whether you really need to print that 45-page annual report? Travel often makes up a significant line item in nonprofit budgets, have a meeting with your team and strategize a way to limit unnecessary travel.
Navigating the Rapids: Managing Financial Downturns
When revenue decreases, it´s like navigating through a misty morning; the path forward may seem unclear. However, equipped with the right compass of financial strategies, you can safely journey ahead:
1. Transparent Communication: Honesty, they say, is the best policy. Communicate the financial situation with stakeholders, staff, and donors. Shared burdens are lighter, and solutions might come from the most unexpected places. Hiding any financial challenges doesn’t help you or the mission. Most stakeholders in general, including donors, are reasonable and understand that organizations, like families or small businesses, will go through periods of economic uncertainty.
2. Resilient Fundraising: Make sure your organization doesn´t rely on a single source of funding. Diversify your fundraising strategies and invest in building relationships with donors. It’s not too late to start this! It may seem daunting, but you need to get all your core staff and board members in a room and brainstorm ideas for how you can diversify your revenue streams. While you do this, of course you must make sure to engage your current donors by sharing inspiring stories and demonstrating the impact of their contributions. The results may not be immediate, but you need to create a clear path for diversification and long term sustainability.
3. Contingency Planning: Hope for the best, prepare for the worst. Having a contingency plan ensures your nonprofit can weather the storm. Maintain an emergency reserve fund, and plan for various revenue scenarios that could affect your income. For example, have two cash flow reports that show best and worst case scenarios.
4. Review and Adjust: Be flexible. Review your budget and plans regularly with your team and adjust as necessary. Adaptability is a necessary survival skill in times of financial downturns.
5. Mission above Everything: In the face of adversity, remember why you began. Your mission is your North Star. Prioritize programs and expenses that align most closely with your core objectives. Major supporters will see this and appreciate it, and will very possibly step in to support you even more. Your staff too will notice your commitment to the mission, leading them to feel responsible for helping you solve this financial challenge.
In conclusion, economic uncertainty is but a season. It will pass. What’s key for you as a leader is to ensure you’ve taken all the right steps to keep the organization, and the mission, afloat during these turbulent times.
