Freakonomics of Fundraising Part Two

The Freakonomics of Fundraising: Part Two

Katie Nix Business Tips, Fundraising

In part one of this story, we uncovered six surprising discoveries about nonprofit fundraising based on a study by the researchers behind “Freakonomics.” Those included California Symphony’sOnce and Done” fundraiser, the power of suggested donation amounts and personalized appeals, and some counterintuitive revelations on matching gifts and seed money. Today, we’ll review five more nonprofit fundraising tactics that will reveal how a few small tweaks could dramatically boost your fundraising power.

1. Quality Matters

One of the most important findings in recent research is the effect of “quality signals” on donors. Donors want to make sure their dollars are having a real impact. In other words, they want to back a winning horse. Because they don’t necessarily have the time to do deep research on every charitable solicitation that comes their way, they rely on signals in the solicitation to judge the quality of the charitable cause.

One important signal is the existence of seed or matching money, which indicates that a major donor or grant-giving organization has determined that the cause is worthwhile. That explains part of why matching-gift and seed money solicitations do better than plain solicitations.

The power of that seed or matching money can be increased even further if it’s a well-known, reputable source. One study found that naming the Bill and Melinda Gates Foundation as a matching grant source (rather than announcing the same grant without naming the source) in a donation appeal increased the number of donations by 26%. When they looked at donors who had previously given to poverty-oriented charities, the area in which the Gates Foundation does most of its work, the effect was even greater—roughly 3.75 more than on other donors. Those in-the-know donors recognized a Gates Foundation grant as an important quality signal in the international development non-profit area.

Bill and Melinda Gates Foundation

Bill and Melinda Gates: a driving force in nonprofit fundraising.

2. Quality Matters Even More to Your Big Donors

Another study found that quality signals are even more important to your high-impact donors (the 10% of donors at the top of your pyramid who give 90% of your donations.) The study targeted high-value University of Chicago donors who are capable of giving more than $25,000 a year. The researchers made a one-time quality signal change in a solicitation letter. In some cases, it was the announcement of a matching gift program. In others, it was an invitation to hear Freakonomics authors Steven D. Levitt and Stephen Dubner speak at an upcoming engagement.

The high-capacity donors didn’t respond with an immediate uptick in donations, like small donors do. In fact, in the case of the matching grant, they pretty much ignored the matching period altogether. But over the next 3 years, they gave on average $8,000 more per person than the control group, who got a standard solicitation letter. That single, one-time intervention including a quality signal literally generated millions of dollars in additional donations.

Freakonomics author Steven Levitt

Photo courtesy of the Gerald R. Ford School of Public Policy, University of Michigan.

Freakonomics author Steven D. Levitt’s research is changing the nonprofit fundraising industry.

3. Every Penny Helps

Studies have found that saying the simple phrase “even a penny will help” can increase participation in a donation campaign by about 20%. It works best when combined with a phrase that adds a social norm, such as “people like you usually give $5.” However, the actual donation amounts given in response to this appeal are just a few dollars. The phrase has no effect when there’s a higher suggested donation, which cancels out the “every penny helps” logic of the appeal. This strategy is best saved for in-person campaigns, where you are really asking for whatever your audience can afford to give in that moment.

Every Penny Helps ?

Penny Marshall

4. Give a Little to Get a Lot

Donors on your “warm list”, the people who have donated in the last few years, are more likely to give to your next campaign than those on your “cold list.” It’s conventional wisdom, and it’s been proven true (phew, conventional wisdom finally wins one!) But how do you warm up a cold donor?

A study conducted with the Center for Natural Hazards Research at East Carolina University used a door-to-door solicitation to warm and cold donor lists. Each potential donor heard a standard donation appeal. Some heard just the appeal, while others were given a gift of a set of four postcards. When the fundraiser just made the standard appeal, the warm list outperformed the cold list, just like we’d expect. But when given a gift, the cold donors were just as likely to donate and donated in the same amounts as the warm donors.

Read that again. When simply given a set of postcards, cold donors gave just as much as warm donors. It’s also worth noting that while the effect of the gift wasn’t as strong on the warm donors, it did increase their donation rate a bit. The lesson here is never to underestimate how much people love getting a little gift.

Gift of giving

Photo courtesy of JD Hancock

Gifts: the gifts that keep on giving (additional gifts).

5. Try Playing the Lottery

Offering your donors the chance to win money can lead to major results. In another door-to-door campaign, potential donors either heard a standard donation appeal, or were told that each dollar given to the Hazard Center would get them one entry into a lottery for a cash prize.

The result? People were twice as likely to give when the lottery was offered. The most successful version of the lottery offered a single, $1000 prize, compared with offering multiple smaller prizes.

I know what you’re thinking: arts fundraising is about cultivating donors who will keep giving—not ones who are just in it for a prize. In a surprising follow-up study, the same researchers found that the next year, donors initially acquired through the lottery offer acted just like other warm-list donors. They were just as likely to give again as those acquired through traditional means.

Play the lottery

Photo courtesy of Jeremy Brooks

Why is the lottery so popular? Because incentives work.

So there you have it: 11 scientifically proven, peer-reviewed insights into nonprofit fundraising strategy. The final insight here is that you don’t need to be afraid of challenging your preconceived perceptions. Apply and test the knowledge you’ve gained here and see for yourself how this brave new world of research is revolutionizing nonprofit fundraising.

For more insights on how to supercharge fundraising efforts for your nonprofit performing arts business, just drop us a line.