The Collective

Craig Linton’s excellent and timely post over at Fundraising Detective got me thinking, especially his points about seeking market share with no growth overall.  For context, this chart from a recent NCVO report neatly illustrates the dominance of ‘big charity’ in raising funds:

NCVO chart charity size_income

Now compare this with the increases in individual giving of six of the largest national charities in the UK:

  • CRUK Individual Giving income 2008/9: £90.9m: 2013/14; £123.4m
  • Save the Children Individual Giving income 2008/9: £28.1m; 2013/14: £43.5m
  • Macmillan Individual Giving income 2008/9; £16.1m: 2013/14: £38.5m
  • BHF Individual Giving income 2008/9; £18.6m (donations): 2013/14: £22.7m (IG not split out; this covers ‘donations’)
  • NSPCC Individual Giving income 2008/9: £48m; 2013/14: £68.1m
  • Red Cross Individual Giving income 2008/9: £19.5m; 2013/14: £48.5m

Combined gains of £123m in five years; pretty chunky in a low-growth sector where most organisations have 10 or fewer employees.  Craig cites the £18m increase in individual giving expenditure by six large charities last year, and declining ROI.  From the figures above though, (our lists don’t exactly match, but Macmillan and British Red Cross, not included in his expenditure figures, must be at the high end of spenders), ‘big charity’ was spending on the basis of success — their IG income has grown hugely, if expensively.  It’s plausible that the ripple effect of this costly growth was for other smaller charities also to turn up the volume on acquisition.  I’ve not been through the accounts so can’t definitively say this, though in the comments to the article Mark Phillips, Founder of agency BlueFrog, does say that, according to his analysis of accounts, this trend prevails outside the top ten biggest charities.

To me, these gains present the sector with what economists call ‘collective action problems‘, where individuals’ incentives differ from those of the collective.  So, individually, it made business sense in 2008 for ‘big charity’ to (aggressively) pursue market share through existing channels.  But, collectively, this race often took the (ultimately damaging) form of higher ask rates and more acquisition without a matching focus on retention.  When I interviewed  Macmillan’s Head of Insight earlier this year, one of the questions was ‘if you could choose to have one piece of data/information about your suporters, what would it be?’.  Answer: supporters’ ask tolerance level, ie, how often can we ask before their patience snaps.  Just a straw in the wind but telling nonetheless.

This speaks to a similar, but bigger, issue, namely a lack of disruptive innovation.  As Craig says: “if the market isn’t growing, then the only way you can grow is by taking market share from your competitors”.  But as it stands there is little ‘first mover advantage’ for many charities to strike out with a really big, but risky, initiative which may not pay off, and which can be co-opted if it does.  But not creating new types of products (not just versions of existing products or appeals) harms the collective in stunting overall growth.  This is a classic collective action problem, the tricky bit being that such problems are often solved by the (Enrepreneurial) State stepping in to do basic, blue-sky research that moves things forward; as this now-classic chart from Mariana Mazzucato’s book of the same name shows, the iPod and iPhone is almost entirely derived from Government-funded technology:

iphone ES MM pic

So, of course, market growth via product innovation is possible, and we do have great initiatives like SOFII and Innovation in Giving (to name but two).  But the the current Government is unlikely to ramp these up anytime soon, and we can’t wait for A. N. Other Government.  Karl Wilding, Director of Public Policy at the NCVO, flags the important example of ethical products, UK sales of which have quintupled since 1999, as this graph shows:

ethical spending graph

He’s right to raise the example: this growth is both a promise and a threat; promising because it shows that demand is there for ethical products, a threat because how long before this growth subsumes our own?

If something cannot go on forever, it will stop“, and after the last few months, it’s pretty clear that growing by turbo-charging acquisition again will not fly, and new markets have to be created for charitable giving.  Creative destruction is real; without growth, fundraising will be overtaken.  Craig and Mark nail the issue (I think) in pointing out that the wealthiest 20% of British society donate a smaller fraction of their income to charity than everyone else, and raising the question “[which charity] is going to make the break and try and establish a more ‘luxury’ giving brand?”. 

I’m off to buy a crystal ball…

Where is the money?

We all know that overall charitable giving in the UK hasn’t moved in decades, and that it needs to grow (a lot) to get near to meeting the need.  But how we raise funds seems not to match the society we find ourselves in.  The UK is lopsided in terms of wealth, with basically all the gains in the last 30 years going to several thousand London-based financial services executives.  Economically, the UK is a big city that happens to have a country attached to it:

Poorest wealthiest regions EU picLondon wealth graph pic I’d love to be proven wrong, but some technologies of fundraising seem not to be geared to raise significantly more than they already are from a society like the one described in these charts.  How many teams focus on neglected ‘middle donors‘?  How may Legacies departments have a ‘HNWI unit’ to capitalise on rising home prices?  I wonder.

Then there is ‘wealth’.  Using rich lists and wealth screenings has conditioned us to focus on (often illiquid, asset-based) ‘wealth’.  But the key concept should surely be liquidity or affluence.  In a fascinating 2013 Sunday Times article, research by credit rating firm Experian showed that there is very little overlap of their house price and affluence indices (affluent households are those with high home equity/no mortgage and low identifiable debt/outgoings).  The article highlights the disparity between SW7 1, around Rutland Gate in Kensington & Chelsea, and N20 8, around Totteridge Village in North London, which top the house-price and affluence indices respectively.  Although house prices in Totteridge are lower, the area has many large detached properties, some in several acres of land, which sell for up to  £20m.  The area is home to many footballers and two members of One Direction, and 40% of home buyers pay cash.  These are liquid, cash-rich households, and are consequently more likely to be able to offer charitable support than those loaded up with mortgages and other outgoings.  This is not even the largest discrepency between the lists, with WD17 3 (around Cassiobury Park in Watford, Hertfordshire) coming 14th on the affluence index, but a mere 247th on the home price index, and SW1Y 5 (St James’ in central London) the 9th most expensive post code sector, but only the 425th most affluent.  And we can take the analysis of affluence further by looking at equities.  These are trackable, for the princely sum of £200 a year, via the ‘Director Deals‘ area of the FT website (many websites offer similar services, including email alerts).  For me, these are a far better qualifier of wealth than a database screening, and, as Director dealings give insights into the performance of the company, are useful as well for corporate partnerships and trusts.  Prospect researchers can add real value in this area, by shouting from the rooftops about the value of analysing affluence, and steering away from simplistic wealth estimates in campaign planning.

Furthermore, as Marianne Pelletier highlighted in a previous interview on this site, we could do more to understand when our donors feel most confident to give.  Charities often use research on the timing of competitor appeals (to avoid clashing with established events such as Movember, Comic Relief, World’s Biggest Coffee Morning etc).  But do we track times of the year when major outgoings are due for relevant constituencies (Eton’s school fees of £35,000+ are payable in advance of enrollment in September, UK bank bonus season is often in February), and build these into our ask schedule?  Again, I wonder if this happens often enough.

And at the other end of the spectrum, there are a remarkable number of low-income households in the British regions, relying to some extent on benefits for their income, with even greater disparities in London (world financial centre Canary Wharf is in Tower Hamlets, one of the UK’s most deprived boroughs).  Indeed, as the map above shows, nine of the ten lowest income regions in Northern Europe are in the UK.  Granted, many charity supporters will come from the (upper) middle classes and associated professions, but the first chart above and the one below (from the great Flip Chart Fairy Tales blog) gives a sense of the degree to which many households will struggle to make ends meet, let alone make any kind of charitable contribution.  This should surely be factored into charity campaign strategy.  How many DM packs drop each month onto the doormat of households claiming tax credits or housing benefit?  How confident are these households likely to be to make a charitable donation?

flipchart rick screen-shot-2015-05-26-at-12-49-29The UK is still undeniably a major economy, with a significant middle-class and long history of giving time and money to support charitable work.  And there may well be mega-opportunities in changing demographics, engagement with corporates and building stronger donor relationships.  But to grow giving (and consequently reach), charities must break the cycle of low value, low commitment relationships with donor constituencies a mile wide and an inch deep.  As Mark Phillips very rightly says: “[d]onors don’t give enough to warrant special treatment, but without special treatment, the donors who can afford to give more, simply won’t…just as there’s no skill required to open up a pound shop, there’s no skill required in asking people for very small gifts…What’s harder is creating an offer that supporters will pay a premium for. It might not bring in as many donors as discounting, but the long-term value and loyalty of the donors it does attract will far outweigh the quick wins of being just another charity [in] the £3 a month club.”

We know more than ever about ‘where the money is’.  But it will not be easy to steer the fundraising oil tanker to a more relationship-focused, evidence-based way of working, nor to move to a more nuanced conception of ‘affluence’, rather than a blunt wealth estimate.  Until either or both these things happen, however, it seems that charitable giving, and the amount of good work we can do and people we can help, will struggle to grow to any degree.

Tennis and the Rich List

The 2015 Sunday Times Rich List was published yesterday.  It reminded me of tennis.

The world’s top 100 tennis players (male or female) have about the same levels of talent, skill and motivation.  Yet, they are paid wildly differently for their efforts, with the top three male players earning around one quarter of the total available prize money from 2009-2012.  Inequality in this group is severe, and has increased in recent years.

This trend uncannily mirrors recent UK wealth patterns, namely, the further up the income scale we travel, the more gains accrue.  So, the top 0.5% benefit more than the top 1%, the top 0.1% more than the top 0.5%, the top 0.01% more than the top 0.1%, and so on.   The graph below is indicative, and more detail, using US data, is here.UK 61-11 wealth pic Is this reflected in how charities seek support?  In some cases.  Should we work even harder to bring in truly big gifts more consistently from the wealthiest?  Absolutely.  The maths are simple: the 2015 Rich List estimates that the wealthiest 1,000 people in the UK are worth £547bn, up 5.4% on 2014.  So, even if the estimated value is accurate (and it’s almost certainly too low), gifts over £1m account (at £1.36bn in 2013) for around 0.2% of total top wealth.  Getting this to 1% would quintuple the value of UK high-value philanthropy to around £6bn.  However, a 2013 study by the University of Manchester suggests this is not happening, as the poorest 20% gave 3.2% of their gross monthly income to charity during the four weeks before they were interviewed, while the richest 20% gave 0.9%.  And, the Coutts Million Pound report estimates that the value of the largest gifts has increased in the last decade, but only incrementally, while this year’s Rich List calculates that the wealth of Rich List entrants doubled between 2009-2015.

And, among the ‘merely wealthy‘, it is hard not to agree with research consultancy Factary who concluded in June 2014 that “Middle England is neglected”, ie, that charities leave significant sums from this group ‘on the table’.  The space between Individual (roughly, £3-£20 per month) and Major Giving (cash gifts of around £5,000-£10,000 and up) is one which could receive more attention.  Factary estimate that this market could grow to be worth more than the £20m value they currently assign to it.  Many in this group would have featured in Rich Lists just a few years ago, but are now excluded by the explosion in top wealth.  However, they can still make a really significant contribution, and many will be passionate advocates of causes we represent.

Tennis is an extreme example of a handful of superstars driving revenue.  Those featuring in the Rich List will obviously play a crucial part in raising the overall amount given to charities in the UK — from the level spent on cheese to that spent on, let’s say, alcohol.  By broadening and deepening support from the wealthiest, and strengthening the base of so-called ‘middle donors’, charities can avoid tennis’s reliance on a handful of household names, and reach more of those in need of their services by raising more, more consistently.  If we agree that fundraising must change to survive, these opportunities are too important to miss.

Charity to serve.

PS: when will the Sunday Times publish another version of the expanded 2005/6 Rich List?  This is one of the most useful books in my library, especially as it now requires £100m to enter the top 1,000, excluding many wealthy people.  I have to assume they made a (big) loss on the expanded version, but surely 10 years is long enough to wait for another edition?

Charlie Hulme interview: understand the ‘why’ as well as the ‘who’

Charlie H

Charlie is CEO of DonorVoice UK, who work with not-for-profits to reduce rates of donor attrition and in building supporter relationships.  He tweets at @charlieartful.

The interview is about retaining donors.  Retention has the coming idea in fundraising for…a long time. Ken Burnett published the fundraising classic ‘Relationship Fundraising’ in 1992, with Professor Adrian Sargeant’s ‘Building Donor Loyalty’ published in 2004, both books are well-known and acknowledged references on how charities can build strong and enduring relationships with supporters.  Charlie is a real evangelist for the cause, and opened my eyes to the danger that many charities are — often without knowing it — committing suicide through inertia.  We know that two things — the ‘functional’ and ‘personal’ connections to brands — are critical in determining the level and durability of charitable support, yet many not-for-profits routinely follow the mantra of ‘just ask more and it will be fine’.

But we still find ourselves hemorrhaging support. Around one third of first time supporters of charities in the UK do not give a second gift, and in the US around 70% of donors have not continued giving a year later. Acquisition budgets increase, but retention budgets do not exist. We furiously slop water into the leaking bucket, even while holes continue to appear.

In the UK this is especially important, as the generation who the CAF call the ‘Civic Core’ (the 9% of the population who contribute 66% of the time and money donated to charity) are now well into their 60’s and 70’s. This group have doubled their charitable giving in the last 30 years, as younger people’s engagement with charity has fallen off a cliff. To even sustain out current donated income, UK charities urgently need to reach new audiences, as well as building stronger relationships with existing supporters — no mean feat.

Charlie talks in the interview about the fundamentals of retention. He also speaks about recent work done to test how commitment works, the psychology of commitment to brands and organisations, and what people want from organisations they support.  Hope you enjoy it.