ARTICLE

2 Distinctions That Impact Your Donor Acquisition Strategy

Acquire

Did you know there are two types of nonprofits that must fundraise in two different ways? Of course, it’s not quite as simple as just that. But for our purposes today we’re going to split the nonprofit world into two camps: open loop and closed loop organizations.

While donors represent anyone who volunteers their time or financially supports an organization, today we’ll be discussing those who provide financial support. In addition, let’s define a “beneficiary” as the recipient of your organization or institution’s services. These are the people your organization exists to serve.

2 Types of Nonprofits – Open Loop and Closed Loop

Beneficiaries fall into one of two camps. They either have (or eventually will have) the ability to be a donor, or they will not. A humanitarian organization that serves the underprivileged, or provides international relief, has a beneficiary base who will likely never have the ability to provide material financial support back to the organization who helped them. That organization’s donors will come from another place. I call this an “Open Loop” organization, and very simply, it looks like this:

Some organizations and institutions serve beneficiaries who have, or will have at some point in the future, the financial means to be a donor. These include hospitals, higher education institutions, and many religious organizations like churches. I call these “Closed Loop” nonprofits and they look like this:

Generally speaking, most nonprofit donor bases are predominantly made up of donors who are either distinct from the beneficiaries that organization has served (Open Loop), or they are a subset of the universe of people who have been served by the institution (Closed Loop). There are always exceptions, but generally, most of your donors have personally benefited from or been impacted by your work, or they have not.

How it Impacts Your Acquisition Strategy

Your approach to acquisition has everything to do with whether you operate in the Open Loop or Closed Loop environment. Both have a unique benefit and a very real challenge, and require distinct approaches to acquisition. If you happen to have a number of donors that reflect both models, then your acquisition practices need to reflect both models via distinct campaign strategies.

Will your beneficiaries one day be your donors? This is an important distinction to make and is the first step in accelerating your acquisition.

Curt Swindoll

Curt Swindoll is the executive vice president for strategy at Pursuant. His career has spanned six industry sectors (Manufacturing, Technology, Banking, Nonprofit, Professional Services, and Energy), serving in or consulting functional areas as diverse as operations, sales and business development, marketing and branding, IT and software development, fundraising, consulting and board development, strategic planning, finance, client service and support, and P/R and corporate communications.

Comments

Curt Swindoll

Love the comments here. Denisa, universities are an interesting animal. They really are closed loop, though some people think "open loop" because students are usually not going to school by the time they start supporting the institution. But once a student, always a beneficiary in my book. They know the university's work first hand. As a result, universities need to do a better job of extending their value from the stage of relationship where the student was a student to the stage where the student becomes a donor. Evan, it isn't unusual for orgs to have some mixture of both open vs. closed loop. I'd ask you this: do your donors PREDOMINANTLY come from among your beneficiaries? Or from outside of your group of beneficiaries? Acquisition strategies dramatically change whether you are cultivating beneficiary relationships into donor relationships vs. people who have little to no first hand knowledge of your work. There are always exceptions, but where do most come from? The benefit of closed loop: your donors know of your work first hand, and you already have given them a personal benefit. You don't have to tell the story as much because they already know the stories personally. Just keep helping them. The downside: your pool of donors is largely limited to the people you serve. Ex: Most people don't give to support a church they don't go to. The benefit of open loop: the world is your oyster! Anyone with the means to give is a potential donor. It's a virtually unlimited pool. The downside: they won't give until they know something about you, and the cost of finding them and educating is usually pretty steep. Think of it like this: On the open loop model above, draw an arrow from the org circle back to the donor circle and label it "Benefit". This is what open loopers need to do: find a way to be of benefit to your prospective donors. Hope this is helpful.
Evan Abla

This is fascinating. I love the descriptions. I have found in my setting, at least to some degree, we have a little of both, a sort of semi-open loop. We have beneficiaries in Honduras who will most likely never be able to give, but we also send teams of people to work along side of Hondurans to create capacity in community development. The latter group often become donors as well. Then we have donors who never travel and are not beneficiaries. The travelers who become donors are a variation of the closed loop. Thank you for this blog!
Denisa Casement

Great blog! I've always referred to this as a "natural constituency". This issue became really clear to me when I had a number of board members from the university sector. They didn't understand that a non profit without a natural constituency had to approach acquisition of new donors in a very different way than the university. They were quite disdainful of cold acquisition and didn't want to make the investment in this form of fundraising.
Simone Joyaux

Really nice blog. Very useful. I'll be including it in one of my e-newsletters. Thank you! And nice to meet another Pursuant person.