Richard Neustedter of Nonprofit Financial Specialists, and Barbara O’Reilly, CFRE of Windmill Hill Consulting recently joined us a for a webinar in which they took an in-depth look at how to combine factors like ratings, overhead, impact into your strategic donor communications that showcase qualitative and quantitative results and vision to retain current donors and attract new ones.

In case you missed it, you can watch the replay here:

Full Transcript

Steven: Well, friends, my watch just struck 1:00. Do you want to go ahead and get started officially?

Barbara: Sure.

Steven: All right. Well, welcome everyone. Good afternoon if you’re on the East Coast, and good morning if you’re on the West Coast or somewhere in between. Thanks for being here for today’s webinar: “Ratings, Overhead and Measuring Impact: How to Use Your Social Sector Excellence to Attract and Retain Donors.”

My name is Steven Shattuck. I’m the VP of marketing here at Bloomerang and I’ll be moderating today’s discussion as always. Before we begin, just a couple of housekeeping items. I just want to let everyone know that we are recording this presentation and will be sending out the recording as well as the slides later on this afternoon. So if you have to leave early or perhaps you want to review the content later on or share it with a friend or a colleague, you’ll be able to do that. Just look for an email from me later on this afternoon.

As you’re listening today please feel free and feel welcome to send any questions or comments our way using the chat box right there on the screen. We’re going to save some time at the end for Q&A and we’d like for that to be as interactive as possible. So don’t be shy. Send any questions our way and we’re going to try to answer just as many as we can before the 2:00 Eastern hour.

Please, if you’re a Twitter kind of person, if you like to follow along on Twitter, please send us a message using the #Bloomerang or talk to us directly using @BloomerangTech – that’s our username. If you’re listening today via your computer if you have any trouble at all during the course of the hour, dial in by phone. Usually, it’s a little bit better audio quality if you use your phone if you can. So just check your email from ReadyTalk. It will have a phone number in there if you want to go ahead and make that switch.

Just in case this is your first webinar with us welcome. We’re so glad you’re here. We do do these webinars just about every Thursday but if you’re not familiar with Bloomerang we offer a donor management software application. So if you’re in the market for that or if you’re interested in learning more we’d love for you to visit our website. You can even download a quick video download. You don’t even have to talk to a salesperson if you don’t want to. So check us out. We’d love to get to know you beyond just this hour long presentation.

I want to go ahead and introduce today’s guests. We have Barbara O’Reilly and Richard Neustedter on the line today. Hey there friends, how is it going?

Barbara: It’s great. Thank you.

Richard: Good.

Steven: Well, I’m excited to have you both here. This is obviously a timely presentation even though we’ve had this scheduled for a while. There was obviously some news in the sector concerning overhead. So I’m really excited to have you both talk about this interesting topic that I know a lot of people have perhaps some strong opinions on. So I took a peek at your slides and I’m really excited for the information you’re going to share.

But before I turn it over to you I just want to introduce you and tell the folks a little bit more about both of you. If you don’t know Barbara, Barbara O’Reilly has more than 20 years of fundraising experience at some major nonprofit organizations. Ones you’ve probably heard of, including Harvard University, The National Trust for Historic Preservation, Oxford University and the American Red Cross. Her specialty is relationships between donors and nonprofits through annual funds, capital campaigns, major gifts, specifically from high net worth individuals and corporations, direct mail and stewardship.

I actually got to hang out with Barbara just earlier this last week on Monday. So it’s a real treat to have you on the line.

Her partner in crime today is Richard Neustedter. He’s got over 25 years of progressive marketing management experience. He is over at Non-Profit Financial Specialists. Throughout his career he has effectively analyzed budgets, forecasted finances and led successful product marketing teams as his work as an executive in the highly competitive Silicon Valley semiconductor industry.

So we’ve got both sides of the table here. We’ve got the fundraising and then the finance and biz ops perspective. So, Barbara and Richard, I’m super excited. I’m going to pipe down and let I’ll let you two take it away for us.

Barbara: That’s great. Thanks Steven.

Richard: Yes.

Barbara: Hi everyone. Richard and I are really delighted to be with you today to talk about a very important topic – how to navigate through the web of ratings and overhead to instead highlight best practices that attract and retain donors.

We’d like to start by giving you the context of what donors today look for when making their giving decisions. Then we’ll talk about what it means for an organization to demonstrate what we’re calling social sector excellence by having strong business practices across the organization which tie closely to financial management that has been the focus of so much of this debate. Then finally we’ll circle back to how to reframe conversations with donors given what we know is a very strong sensitivity to ROI of their gift. Then of course, as Steven mentioned, we’d like to leave time at the end for questions.

I’d like to start with a very sobering thought that Bob Ottenhoff who is a former CEO of GuideStar once said. He said, “The age of assumed virtue is gone.” Meaning that donors no longer primarily rely on the good reputation of organizations to make their giving decisions. This is of course with the exception of sudden onset emergencies or disasters which inspire certain impulsive, in the moment giving.

But the reality is that donors don’t just give nowadays because you ask. Evidence that donor giving is not always guided by this line of trust can be seen in recent surveys. In the Chronicle of Philanthropy Poll that was released in late 2015 in fact, survey participants were asked how much confidence they had in charitable organizations and 47% of them said they had a “fair amount” of confidence. As we’ll see, though, this confidence is tied to the key issues of finance and performance.

The problem is, though, that these numbers have stayed stuck at 47% in each of the four polls that the Chronicle has done since 2003. This was also seen as a top concern in the Money for Good report that was released also last fall. And 49% of poll participants were concerned and interested in knowing how the organization uses their money. So building trust is tied to demonstrating strong social sector excellence and there are tactics and tools that can help you bridge this gap.

So access to information like never before and the intense competition for donor dollars has created a new landscape of philanthropy. Research shows that donors are looking for ROI, organizations that are effective and sustainable as they are philanthropic investments. So what does this mean? This means that the nonprofits are demonstrating high performance in four key areas: leadership, operational results, attentive measurement of impact of mission, and using results to constantly improve trust.

But self promotion is not the only requirement to building that donor trust. You must also be validated by others. So how do donors find the best investments of their gifts in the sea of more than one million nonprofits in the US?

GuideStar was founded in the mid to late 1990s as a resource for grant makers to conduct due diligence. At the time, digitizing the 990s, which was what they started doing, was really revolutionary. Charity Navigator came along in 2001 in response to scandals being reported at the local and national charities about mismanagement. Charity Navigator wanted to be that source for the “social investors”, or as we know them, donors, to make decisions.

So these charity watchdogs or validators like Charity Navigator and now the Better Business Bureau’s Wise Giving Alliance have created a scorecard to help donors make their decisions. These ratings, though, are limited in the scope of measurement based primarily off of the 990 and are only one part of the story and really often misrepresents the real impact of an organization.

So there’s a lot of misunderstanding both by donors and nonprofits how the financials are analyzed, causing everyone to lose sight of the bigger picture of nonprofit health, performance and sustainability. Donors are left with limited and sometimes misrepresentations of nonprofits and the organizations themselves feel pressure to conform to standards that they feel their validators are setting, and the conversation gets stuck on a narrow definition of impact.

So today Richard and I are here to dispel the myth that it’s all about the star ratings of Charity Navigator or the BBB Wise Giving stamp of approval. Those are certainly one measure of a bigger picture of a nonprofit’s financial health and operational performance. GuideStar is now serving as a thought leader by trying to balance the conversation to focus on impact. So we’ll talk today about how to tie the two together.

But really, the only way a nonprofit can attract and retain donors is by having a clear vision and plan, a culture of high performance that’s imbued and embraced by the entire organization and a strong intention of measuring progress and course correcting when necessary. Ultimately, the overall health of an organization demonstrated through these three areas will nearly always create strong programs with results and that’s what donors want.

So let’s look at what influences the social investment decisions for donors. Donors, in particular major ones, are looking at program performance and financial management very, very closely and that much is clear. When asked about factors that influence their giving in this Chronicle of Philanthropy poll that I referenced just a few minutes ago, nearly 70% of them, the biggest portion of the survey respondents, said it’s very important that the charity has evidence that its programs are effective. The other factors that move towards 50% to 55% favored low overhead spending and were concerned about having good charity rates by these watchdogs.

But clearly the donors and the nonprofits themselves are not able to connect program and administrative costs as integral to the full context of organizational effectiveness. So watchdog groups, or “validators” is a better term have to find a methodology which can be used as a model for poor performance. These benchmarks compare results using a standard framework and the metrics themselves are judged and rated as good or excellent ratings. They seem to identify and reward what are now considered best practices.

So validators themselves didn’t intend to drive this shift in best practices but that’s the result. The problem is that no validators have really defined holistically what a best practice is. They further don’t assist a charity to achieve those best practices as they’re defining them. They don’t provide guidance in advance of the ratings and they just simply provide a scorecard after the fact. So in many cases the information that’s being used for rating is one to two years old and is almost irrelevant of the current operating conditions, and so the result is fear and confusion.

So increased scrutiny over finances leads nonprofits to do what they can to appear “lean and mean.” In the study that was done in 2004 by the Urban Institute Center on Non-Profits and Philanthropy in conjunction with the Center on Philanthropy at Indiana University researchers examined the tax forms of nearly over 200,000 nonprofits. They wanted to determine what the accuracy was of the financial reporting. What they found was just widespread discrepancies, as they cited, “that defies plausibility.”

You see here a few of the stats. Thirty-seven percent, nearly 40% of the organizations reported having no fundraising costs. Thirteen percent said they had no management and general expenses. These findings were consistent in a wristband study that was done several years later that showed a very marked wide range of overhead rating percentages.

So then that leads us to the question. We hear so many times that organizations are touting 90% or even 100% of their donor dollars are going to program. Can this really be the case? The answer is yes and no. It completely depends on how much unrestricted funding the organization is able to raise to offset those programmatic costs or if the organization is successfully able to incorporate the full cost into their major gift asks.

So the result is that the charities have such a fear of disapproval, that pressures them to cater to public prejudices like lowering overhead, keeping salaries down, having low investment in fundraising and marketing expenditures. The more the charities lower these costs, the less they’re able to educate the public about the great work they’re doing, the less able they are to hire and retain the number and the quality of the staff that they need and also to ensure the operational infrastructure to support their programs. The nonprofit itself may not also have the cash reserves to protect against risks and certainly won’t have the available bandwidth to be able to respond to opportunities in a strategic way that moves their mission forward.

So when the full cost of a nonprofit’s program is not met, ultimately the communities are paying the price because you’ve got compromised effectiveness which is in fact the exact opposite of what we believe to be the main driver of donor intention. Then donor expectations are not met, leading to the broken trust we mentioned earlier and so the cycle continues.

But there’s a better way to meet donor demands and build trusts into your organizations beyond financial reporting. We know that organizations that can invest in their entire operations ultimately are more likely to succeed than those that don’t, and so the challenge remains. How can we educate donors about the connection between best practices through financial management, strategic direction and staff to strong program performance in a sustainable organization? Using social sector excellence to build trust attract and retain donors is a critical strategy for success and it starts with board governance. So ratings are just one part of the story.

Richard: Thanks to Barbara. I would like to take over now and give a little bit better explanation of what we consider social sector excellence, defining what this really means to you as an individual organization. The concept that we’re introducing here, again, is a strategy that can be used to attract and retain donors. These concepts can be a bit overwhelming if you look at them as individual actions for your organization. So we’re trying to break them down into achievable activities as we continue with this presentation.

So first let’s define what this means. It’s important to note that we’re not reinventing the wheel here. Instead we’re employing proven practices from thought leaders to enhance the success of the nonprofit sector. High performance or social sector excellence uses the seven components of highly successful people as a guide for building a successful organization.

For nonprofits there are four main opportunities: leadership, people with passion and experience that have a strategic vision and a creative means to get there, combined with operational results, high performance and financial health, exhibiting capability and sustainability for the organization, measuring the effect of your mission, the evaluation for impact, both internal as well as validating through external sources and providing evidence of your success, and then lastly monitoring yourself for the improvements necessary through internal assessment which will then be used to drive strategic changes.

We feel that Performance Imperative can result in a high impact organization exhibiting social sector excellence. You may ask why do we want to do this? Well, the reason is that validators are driving the need for excellence by providing donors with a scorecard for charities. Many organizations think that these methodologies are subjective and mysterious. In fact, they’re rather simple calculations or assessments based mostly on public information reported on the 990 or information from your website.

Let’s take a look at the specific metrics being used to get a better understanding of the tactics and tools needed to meet these evolving donor demands. First we have accountability and transparency. These are more than buzzwords. They reflect significant components of your operation which you need to disclose to the public or community trust that you serve. They start with governance, oversight and a dedication to the ethical practices of highly successful organizations. The purpose of this is to establish a culture of accountability defined by structural policies and procedures which are enabling tactics to build trust.

Once you’ve implemented these best practices, you need to communicate the fact to the public. Nonprofits are after all a public trust and therefore responsible and accountable to the general community. Full disclosure of operational conditions is part of the trust generating action. Now let’s look at how validators use this information to rate or score your organization.

In my experience there are two main validating organizations most recognized by donors for performance information. They are as referred earlier Charity Navigator and the Better Business Bureau’s Wise Giving Alliance through their Charity Seal program.

Charity Navigator rates national organizations with a zero to four star system which is simple for donors and they like and enjoy the opportunity to quickly look and assess an organization’s capabilities. They do restrict their assessments to organizations with operating revenue of one million or more. Currently, they rate about 6,000 charities with plans to increase to 10,000. This may seem a small number within the overall 1.4 million charities in the US. However, Charity Navigator reports that 50% of the giving goes to the charities they rate. Therefore, this makes them a significant player in donor decisions.

The Better Business Bureau provides accreditation by application to their Charity Seal program. There’s no cost to apply and obtain accreditation. The application process takes time and requires in-depth operational information. However, meeting the 20 standards identifies to a donor that you have implemented best practices for social sector excellence establishing trust.

Use of the BBB logo itself does require an annual fee which is typically scaled based upon revenue of the organization. These different validators can be used. They use many of the same inputs so that it becomes easier for you to manage the data across both organizations.

Let’s review these validating sources in more detail. Charity Navigator uses inputs from the 990 and a nonprofit’s website to determine financial ratings and a governance rating identified as accountability and transparency. They use 7 metrics for financials and 20 metrics for governance which creates a combined score representing the overall performance of the organization.

You don’t need to actually be excellent in all categories to get an excellent rating but the key is to understand how the rating is defined and more importantly, what you can do to manage it before you report results in the 990. Ideally, an organization should determine an estimated rating with the annual budget. The key is to understand these rating components by mapping them to your reporting information and translating them from your operational plan. There are tools to help you do this.

Now let’s look at the BBB accreditation. The Wise Giving Alliance established 20 standards or metrics for charity accountability and performance. The Charity Seal program requires an application with information which supports these standards, many of which are the same as those metrics used by Charity Navigator. The Charity Seal program incorporates financial metrics as well as detailed operational practices identified to confirm that an organization operates using best practices for high performance.

The Better Business Bureau’s logo is a nationally recognized validation source. If you compare the information used by BBB accreditation to the Charity Navigator metrics you’ll see that many of them are the same. Because of this, you can more easily identify operational methods to implement, which will positively impact performance measured by either source.

Now let’s look at opportunities to tell your story as part of building trust through external validation. Testimonials and self reporting of mission success are the ways that a charity can provide external validation of impact and operational performance. As Barbara alluded to earlier, GuideStar Exchange is one method for doing this. They provide the ability to have online profiles of information that you manage. They categorize them in three areas of bronze, silver and gold and the good news is their database links to 60+ websites, applications and programs which support nonprofits.

Another source is GreatNonprofits. They provide the opportunity for you to manage testimonials and stories about your mission and impact. They link to over a dozen other outlets and very importantly feed information into GuideStar for the gold level of the Exchange program. Both organizations push data to other sites, helping to expand your reach and educate donors about your success. They help you tell your story through external validation.

So the real question is why spend time supporting these activities to find the social sector excellence? Because successful charities can use this information provided by validators as a promotional tool to establish trust and confidence in your organization. Managing your public image with validation is a powerful tool which can attract and retain donors. Remember, data plus validation can be used to build trust. Furthermore, many adviser organizations are using validation sources as a means to guide donor decisions. This is especially important in large donor consideration.

The social sector excellence confirmed by ratings is an important strategic tool to help achieve your mission year after year. These important organizational conditions are tickets to the dance, so to speak, in today’s competitive environment. Establishing trust is mandatory in attracting and maintaining donors. Now, let’s look at how you can use this information to increase donor support. Let’s turn this over to Barbra.

Barbara: Okay. Thank you, Richard. So we started our presentation by saying that there’s been a breakdown in trust between donors and nonprofits. Increased access to information by donors and a few bad stories of mismanagement of funds over the years and especially most recently have led to more questions being asked. This isn’t a bad thing. It’s just that donors are asking the questions in the wrong way, putting the nonprofits in the defensive stance instead of allowing them to be in a space in which they can create stories of transparency, impact and dreams.

We all know that good fundraising is not transactional anymore. It used to work but today’s donors expect more out of their relationships with charities they support. They also have more resources to do their homework about the organizations that they’re interested in supporting over the long term. So how organizations treat and interact with their donors has to change in order to continue to attract and retain them.

Conversations and the supplies to both general annual donors but especially for major ones should include three important factors that donors use to measure if you’re a good philanthropic investment: results, fiscal responsibility and vision. By building these into your storytelling you will help move the focus beyond how much do you spend on overhead, to what do good outcomes cost. Remember, donors want ROI and they’re giving not because of your needs. They’re giving because they share your vision for a solution for results to an issue that’s important to you and to them.

I won’t go into specifics today about donor-centered fundraising, but rather I’d like to suggest some key information that can help shape your messaging whether illustrated through mass mailings, profiling, beneficiaries or built into your major donor solicitation or just general donor communications that you produce.

So if we think about the key ingredients that define social sector excellence that Richard just shared a few minutes ago, your fundraising case and messaging should always start with your vision. What is it that your organization is hoping to accomplish? How are you planning to get there? What’s your culture of performance? What is it about you as an organization that makes you unique and best positioned to address the goals and the vision that you’ve stated in your strategic plan?

Finally, how will you know if you are making progress? What sort of metrics do you put in place to monitor whether or not you’re on track? Being honest and open about failures and learning from how to course correct is as important as celebrating successes. Donors really want to hear that you are being thoughtful and intentional in your program design.

In reality these are all key elements of a strategic plan. The plan should not just be a piece of paper that you create once every few years and stick in a drawer. It should be the operational driver, the tactics, the vision, the strategy that helped guide your organization toward a new reality of program results.

So I mentioned earlier that donors and nonprofits have a hard time connecting operational expenses with program effectiveness. They think of them as two different buckets. But if you’ve created your story around plans and program designs and metrics, then the cost for infrastructure and operational needs now becomes framed around bigger goals and the investments needed to achieve them. And you have now a better way to measure performance than just program ratios.

So your conversations become about cost to achieve outcomes and how investments in you as an organization as a whole can now be much more meaningful. So rebuilding and retaining your donor trust can include a few key points in your conversation.

First, know what your full costs are. What is it that you need as an organization to keep your doors open? What risks could you anticipate, especially in changing landscapes and in changing environments and economies? And how much would you need to address those risks? Are there other opportunities that if money were not an issue that you could implement and incorporate into your program that can help you do your work more effectively?

Then when you’re asking for program support, and this is especially the case for major gift ask, always build in the full cost because it does no one any good if you’re just asking for program support when the organizational expenses are not in place to be able to run those programs.

Also, stop talking about how much every donor dollar goes towards your programs but instead position your overhead in the context of how you need to thrive as an organization, what are the full operational needs that you have to help focus on and keep your results in sight. Lastly, always focus on your impacts and your results and celebrate the donors who are investing in you and for their help in achieving the results.

Richard: So I’d like to take that opportunity now to summarize the information that we’ve presented. We really feel strongly that social sector excellence is a strategy that you can employ to ensure sustainable results by attracting and retaining donors to your cause. The graphic provides a visual representation of the components that lead to a stronger nonprofit organization and market sector. Validators are just one part of an effort to create a standard framework for best practices for nonprofits.

The point is that donors want the best possible return on their philanthropic investment and they look for financial stability and sustainability, impact and results, and finally sound leadership and strategic vision to demonstrate that. These are three areas of sector excellence that you need to have in place. If they are, your donors will no longer focus on how much overhead you charge but rather will understand the investment in organizational capacity needed to run effective and impactful programs.

The challenge for all nonprofits is to understand how donors use public information to guide their decision. So you can establish strategic plans which manage information and meet your donor expectation. I want to thank Barbara for the presentation here today and her insights on the fundraising side.

Barbara: Thank you, Richard. Thank you for your expertise as well and helping to breakdown the myths and the confusion around all of the validators. Steven, I think we can probably open up for some questions.

Steven: I’d love to and I just want to say thank you to both of you for the rundown on what’s going on and in demystifying the sector here. We purposely kept this a little bit shorter because I know that there are some interesting and strong opinions about the whole topic. We wanted to open up for an interactive discussion. I have a bunch of questions that I was writing down and we’ve already gotten a lot coming already.

So I just want to invite people to send those questions our way. We’re going to spend probably about the next 20 minutes or so doing that. I’m going to ask my own question first if you will all allow me to be a little bit selfish. We try to do a webinar about once a year on the whole overhead and charity ratings thing and whenever I announce that webinar I always get some strongly worded emails and I’m sure I’ll get some after this presentation by people who attended or maybe saw that we were doing it.

Those are fundraisers who are firmly entrenched in the belief that none of these organizations are valid. This is all a terrible way to judge nonprofits and I’m just curious what your take, Barbara and Richard, is on what would you say to that fundraiser who thinks that none of this should even be looked at and that’s totally invalid. I’m curious if maybe you’ve ever had that experience with someone expressing that opinion to you.

Barbara: I’ll start and then I know Richard has some thoughts as well. So in fact I’m a recovering fundraiser in that regard. So when Richard and I first met a couple of years ago I was definitely in that camp where I felt that putting this lens on nonprofits in such a way really lost sight of the bigger picture of what nonprofits were hoping to achieve. But it’s been in talking with Richard and getting to know a little bit more just hearing from his expertise that the reality is that I have a more balanced perception now.

The reality is that these validators aren’t going away, that there are donors who are looking to them for some guidance. How many times do any of us on the phone go to Yelp or go to TripAdviser when we’re looking for ratings on a restaurant or a hotel? So it’s the same for the nonprofit sector and I think it just provides one more benchmark, one more perspective that uses, in fact, very concrete evidence, concrete information from the 990s.

Then also then where GuideStar and great nonprofits have come in is to try to balance that by letting the nonprofits speak and celebrate and demonstrate the programmatic results, the impact, the other areas, the strategic vision, the things that will prevent a more holistic view of their organization. So I think it’s a matter of not dismissing them because they are here to stay and it’s a matter of just understanding that they are serving the best intentions for donors to be thoughtful and what’s the best use of their donor dollars.

Richard: I’m going to actually take a slightly different approach to this because I look at this as a strategic opportunity that is often not incorporated into the operating plan of the organization. I completely agree with what Barbara has said. This is a donor-centric view that these watchdogs or validators come from. I think that it’s important from a governance perspective that we understand that as a governance agency or the board of directors, your responsibility is to provide for the organization all of the tools necessary to be successful.

I would put forth the idea or the argument that one of those tools is external validation and a rating which meets certain donor expectations. I’m not saying that an organization can’t be successful without them. I know that there are people who won’t give to you if you don’t have this in place. As a governance adviser, my position is that a tool to enable every campaign to be successful requires this to make sure that you can attract every donor.

So it really is an enabling toolset that I look at this as being part of. It’s a way to empower the staff to be successful with every single ask that they have. So it really goes up to the governance level.

Steven: I agree with both of you and I used to have maybe a little bit stronger opinions similar to what Barbara maybe went to herself. My wife, she’s a career fundraiser. She’s almost 10 years into the sector and I think that she should be compensated well and fairly. So I always stray away from those kinds of things as a good rating. But I completely agree that, yeah, these people aren’t going to go away. And it’s not as if they’re predatory either. They’re not going out and rating people lowly with impunity necessarily.

So I completely agree and, Richard, one thing you just said that really stood out to me is the donors that do care about these kinds of ratings, who are they? Are those major gift prospects, are they your current loyal donors, are they people who have not donated to you before but are maybe researching you for lack of a better term? Who are those people? Is it a combination of all those things?

Richard: I can give you a little bit of anecdotal evidence. I actually met with a client of mine last week who is doing a major gift campaign for their endowment. They’re spending a lot of money, they have hired a consultant for this. So this is a big dollar campaign. He had the opportunity to meet with the head of Fidelity’s Donor-Advised funds. They use Charity Navigator’s ratings as one of their qualification, actually as their primary qualifier for approving a charity as a receiver of funds through their organized giving with their clients.

So when you have major organizations like that who have already established this as the checkbox that says your charity is qualified to receive funds, I personally do a fundraising campaign for a small nonprofit and have a very good friend of mine and that’s where their money is. So I had the questionnaire from Fidelity that I had to fill out first in order to get qualified to receive. In this case it was a very small donation under $100.

So it just shows you the breadth of involvement that Charity Navigator can have in the giving spectrum. It’s at the very top and it can be at a very small level. Again, we need to attract all of those donations.

Steven: It makes sense. Well, we’ve got a comment here from Doug and a question and thanks to all of you have sent questions already. Keep them coming because we have probably about 15 minutes or so for those and I’ll try to get to all of them. But Doug just kind of echoed what you just said Richard. He says, “Although we’d all agree that the most important aspect of our work is impact, it seems like these charity watchdogs are a necessary first step.”

Would you agree with that statement? Do you think that they are indeed maybe some people call them the necessary evil. Doug says the first step and Doug was also wondering does one of the agencies trump another? Is there one that people should focus on or maybe spend the most time leveraging or trying to get that rating? Or should they try to get all three? Would you prioritize them all evenly? I’m curious what you guys think there.

Richard: Actually, I would take a step back and say that if you put your operational organization in order, you don’t have to worry about it. You can put your focus back into telling your story. Now I know that that’s a grand scheme and often easier said than done but that’s the perspective. Again, it goes back to an organizational structure.

Now, if you want to focus on an individual rating organization, I would actually focus on the very simple calculation, the methodology the Charity Navigator uses because it’s easier, it is directly translatable from the 990 and it is far more manageable from your operating budget than some of the others. They require more information. Charity Navigators is very specific to the 990. The challenges to map out exactly what those components of the 990 are and then drive your business to those results. So I have some tools which are fairly simple in defining that and that has been the challenge, I think, in the market places. There are no tools available or organizations to very simply do this.

So the answer is yes. It is a step. I think it is a first step but it comes from your management activities and so that you don’t have to spend a bunch of time and resources doing it over and over. It should become just a structural component of your budgeting activity.

Steven: It makes sense. Well Katherine has a question that I’m sure a lot of people are wondering. It’s one that I actually wrote down myself as I was listening. Let’s say that you do have a rating and maybe it’s unfavorable or you think perhaps that it’s incorrect or maybe they missed a certain aspect of what you’re doing. Or it was fair at the time and you’ve since turned things around or made some changes. Can you go about cleaning up those profiles? Is there a way to get them to rate you again? How can you mitigate perhaps a negative public relations type situation or something like that where you feel the rating is causing you a little bit of harm?

Richard: Well, that’s a good question and I’ve actually had this direct experience. I’ve created a tool which mimics Charity Navigator’s ratings so that I can do an advanced rating based upon your budget and your 990 way before Charity Navigator ever gets it. Charity Navigator’s information, as I said, is at least a year old because of the filing delays and information and often it’s two years old. They will not accept a revised 990. So if you catch an error after you’ve filed and it results in a negative rating you’re stuck with that until the next filing – not a revision of the 990, very important to note.

On that front, I would recommend that you revise your 990 and post it to your website so that you actually can correct the error with your own publically available data. You can use that then to tell a story. You can use it as a campaign, a communications vehicle. There was an error, you should use that opportunity to self promote the error but you’re not going to get it done through Charity Navigator.

So I really think that the opportunity exists to not depend upon Charity Navigator or these other organizations, to tell the proper story for you, but to find the tools so that you can mimic the information that they’re reporting. You can tell it yourself and use that proactively way before they ever actually rate you.

By the way, they do make errors. Because I have done this analysis with clients of mine, I have found in two cases where they made an error. It’s a simple calculation error which did result in a lower rating. Now, I will give them credit, the minute the error was identified to them they had it fixed within a day or two. So they’re very responsive to that but they are human and they are not infallible.

Steven: Well, there’s a question here. I’m going to scan over to it. I want to make sure I read it exactly. I love this question because it’s something that I have some strong opinions on as well. Donors who really care. Donors who care about overhead costs, who care about operational costs. If you have a donor who says, “I’m not going to give to an organization who has more than 15% operational costs or 15% overhead,” should you care, I guess, is the simple question. Do you think that you should try to bend over backwards and maybe explain yourself to that donor or not even worry about how they perceive your overhead and operational costs?

What would you say to an organization who wrestles with that? It’s not necessarily with a ton of their donors but maybe they have one or two that have really strong opinions. What advice would you give to that organization dealing with that kind of donor?

Barbara: So of course I don’t want to sound dismissive but it depends on if the donor is a $10 donor and they’re complaining about a 15% overhead, I’m not sure that that’s the best use of staff time to explain that. But in all of your messaging to all of your donors really, it should be focused on it’s empowering for the nonprofit to take that conversation and shift it. So that it isn’t just 15% of overhead; it’s, “Well, let me explain to you what goes into our overhead. And if we don’t have enough staff in our finances, we can’t run reports and manage our program expenses in the most cost efficient way. If we don’t have enough fundraisers on staff, we can’t continue to grow our revenue base to be able to expand and grow and deepen our impact and achieve more results because of this.”

It’s breaking it down to explain that there’s a broader capacity investment that needs to happen that supports and elevates and strengthens the programs themselves. I’ve certainly worked with donors who get stuck on that cost per beneficiary ratio. When you can frame it, when you can position the ask or position the conversation in a way that gives them that fuller picture of everything that your organization needs to better serve your clients or your beneficiaries, then you can take that off the table.

Steven: It makes sense.

Richard: Yes, I do agree and actually I want to add a little guiding statement that I learned in my semiconductor experience. The chairman of the board for the company I worked for had a great phrase that we lived by which was very simple. “Good news is no news. No news is bad news, and bad news is good news.” That directly relates to what Barbara said. You take that bad news, you analyze it and understand what it is, and you reframe your ask to donors.

Now, in the same context you may determine that that individual is actually not one that you’re ever going to convince that they have already come up to the conclusion that they’re not going to give it to you, but you have used that information as a phenomenal learning opportunity so that you’re already positioned for other donors who in fact will give you the opportunity to improve the bad news and the good news.

Steven: Love it. Well, here’s a question from Jim and a couple of other folks have asked this as well. I’m curious if you two have observed a certain type of nonprofit such as like a social service or healthcare of maybe education. Or is there a certain type of nonprofit that is maybe more heavily scrutinized rightly or wrongly versus another type of niche or mission focus, education, religious, healthcare. Is there one that has to worry about this more than others perhaps, or maybe is there a size criteria, not just the niche that they work in?

Richard: I would say that there isn’t. Specifically, I think no. I don’t see that at all. I think that what you will have is organizations related to a bad news story go under temporary scrutiny. That’s the bigger risk is that you may think everything’s fine for you and then an affiliate . . . for instance Wounded Warrior project, all organizations now involved in veteran support are going to be scrutinized a little bit more as a result of this bad story.

Steven: Right.

Richard: That’s more what I think the situation is relative to the public image and it goes right back to what we started with. The age of assumed virtue is gone. You get a story of bad behavior and then now everybody is somewhat punished as a result of that.

Steven: It seems like maybe once a year something like this comes about. It’s Wounded Warriors obviously last month and that’s kind of what I was alluding to earlier on in the presentation. Do you see a typical news cycle? Do you think that this perception is always going to repeat and that we’re just going to have to deal with it or do you think we’ll ever overcome that scrutiny from the media and the press?

Because there are these groups that you talked about today and then also there’s the general public and I’m wondering if you can speak to that general public awareness. Is it different? Should we treat them any different from the other watchdog groups? Or what can we do about that negative perception that seems to get a light shined on it maybe once a year in that short news cycle?

Richard: Well, I think that, again, putting the structural components so that you have . . . you’ve already met the donor expectations as the first step. I think it’s a strategic action that you should take so that when this type of information comes up, and it’s not if, it’s when. We love bad stories in this country, we have lots of outlets for media and you can anticipate that the opportunity for these stories is only going to be increasing. I don’t think it’s going to be decreasing. We love all this information.

The question is are you positioned to weather whatever storm may be out tomorrow? Certainly the larger organizations who are more visible are a better target. I do have some clients who have not the best performance in certain areas but they haven’t been reviewed in their mind. So therefore they think that they’re possibly going to fly below the radar and my position is is that a risk that you want to assume? It’s a risk analysis and assessment.

The point is what if you do get looked at? How defensible is your position or how recoverable is the bad media to your organization? In a lot of cases in my experience, it’s irrecoverable. I don’t know that Wounded Warrior Project is going to recover from this bad PR. Never put your organization in that position of risk.

Barbara: Then from the fundraising perspective when those stories happen, when there is a particularly negative light that might be shown upon your organization, that’s not the time to retreat from your donor communications. That’s in fact the time when you are proactive, not defensive, but proactively engaging conversations with your donors to explain to them the fuller context.

That’s critical because you want to make sure . . . we talked a little bit about donor retention and this is not the conversation to bemoan the low, the abysmal retention rates. But the fact is that if so much of our effort needs to be on keeping the donors that we have, you need to make sure that your communications plans will allow for you to be quickly responsive to those situations in a way that offers constructive analysis of what has happened, and not in a defensive way because you want to be able to promote the good work you’re doing and the overall operational effectiveness that you’re striving to achieve.

Steven: Let’s say you’re an organization who . . . they’ve followed your advice, Barbara and Richard, that you’ve got your governance set, you’ve got your culture, everyone’s on board, you’re communicating it. Do you think there’s an opportunity to be opportunistic with that negative news cycle and say something about it and be proud of the fact that you have all that together? Or should you not even put that into your donors’ minds?

I hear a lot of consultants who say the less you can have your donor thinking about operational costs the better. Even if your operational costs are low or you think they’re fine and you have all these things in place, do you think that total transparency is a good thing to have or do you think you should just be reactive should someone raise a flag or scrutinize you in some way? What’s your feeling there?

Barbara: Well, you never want to get yourself backed into a corner. So you want to be as transparent as you can as often as you can. So to the extent that you can build into your conversation, whether it’s in your general donor communications that you send out to your annual donors or in the cultivation and engagement strategy that you implement for your major donors, it is talking about what it is that you need as an organization to achieve the programmatic results that you want.

So it’s okay to talk in context of the overhead but I would be as clear about what would happen if you didn’t have the resources that you did. So for example, if you run a meals delivery program and you’ve got a lean staff because you feel like that’s going to make you appear more cost effective and efficient, well, think about what are the ramifications for having that lean staff. You may not have the back office that you need to do your accounting and finances. You may not have the number of staff that you need to be able to grow and have a broader meals delivery neighborhood reach.

And then the strategic direction. Are there other things that you could be tacking on to those programs? Maybe some add-on support for the people who are benefiting from that. Well, if you don’t have that programmatic expertise on your staff, you’re going to stay limited in the focus. So I think it’s always talking about I think in one of the slides we talked about is it just enough or make do or do without? And always showing where is it that you want to go, what do you need to achieve that from where you are today and what would happen if you didn’t have all of those resources invested in your organization? Those are what I have always found to be important conversation topics to incorporate.

Richard: I would like to add on that. Exactly, you should position this already in communications as part of your strategic plan. The second part goes to your question of should you take advantage of a market opportunity, and my answer is yes. You’ve been fully transparent, you’re positioned strategically because you’ve already been communicating how you use your funds to make an impact. Remember, focusing on impact here and your worthwhile organization.

If there’s a market opportunity you should take advantage of it and, againm I’ll give you a good real world example. One of my clients, as I said, does participate in the veteran arena. Last week when I visited them they are now going after increased giving with donors who have turned away from Wounded Warrior Project because they fill the same space, they fill the same need. Now, the important part for them is that a year ago they took a strategic initiative to become a four star rated charity with Charity Navigator and they were successful at that.

So now they have the perfect opportunity, since the infrastructure of that rating is already in place, to go after not only more donors but also major donors, because their strategic activity will support that market opportunity in this situation.

Steven: I don’t necessarily disagree with that but I’m going to give you a harder question, Richard, if you’ll indulge me. What would you say to someone who would consider that not a good thing to do, to be opportunistic or take advantage of that situation? I’m sure there are some people who think that. It’s probably not a prevailing opinion. But what would you say to someone who says that’s maybe even unethical to do that? What’s your response to that opinion?

Richard: I don’t think it’s an ethics issue. I think we have to keep focused on the mission and the marketplace served. If there’s a need, which in this case there is, there is an individual who’s in need and we really need to support those organizations who are best positioned to serve that need. Again, you can put it in the for profit community. Those people who don’t get it are the ones that aren’t in business that much longer. The ones that serve the needs better are the ones that are more successful. It’s the same thing in the nonprofit community.

Steven: I agree.

Barbara: It isn’t like you’re now on the coattails of the bad press that a peer organization might be receiving and saying, “Gosh, we’re not like that.”

Richard: I wouldn’t do it that way.

Barbara: You would not. Exactly and you’re not implying that at all. I think it’s more that what you’ve just talked about. What makes you unique or best positioned to address the issue that you are focused on? It’s that I would call either the competitive advantage or the comparative advantage, depending on how you want to phrase it. But that’s where you can perhaps be a little bit more proactive in your outreach through your donors and really focus and highlight the strategic vision and the planning and the operational results that you have been working hard to implement.

Steven: Well, I think we’ll leave it at that. I feel like I could talk about this all day. Maybe you two feel the same way but we are getting close to the 2:00 hour and I want to be respectful of everyone’s time, especially if you haven’t had lunch which is important. So to those that asked questions, I know we didn’t get to all of them, Barbara and Richard would you be willing to take questions via email or Twitter or something like that?

Richard: Absolutely.

Steven: I thought you would say yes. Well, Barbara and Richard, this is awesome to have you. I really appreciate the discussion. A very interesting topic obviously and I appreciate you taking an hour or so out of your day to join us.

Barbara: Thank you and we were delighted to be here. Thanks, Steven.

Richard: Thanks a lot.

Steven: It was fun. And thanks to all of you who also took an hour out of your day. I know it’s a busy time of year and we definitely appreciate you joining us. We can keep the conversation going. We’ve got lots of resources on our website. We definitely encourage you to check out Barbara and Richard. Follow them. We do these webinars every Thursday.

We’re going to take a couple of weeks off here in March. We’re back on March 17th but I wanted to highlight one cool presentation that we just put on the schedule. It’s later on in April and we’re going to be talking about face to face fundraising. We’ve got an expert in that. Daryl Upsall. He is a European fundraiser and the face to face fundraising, the street fundraising, is definitely more popular in Europe and Australia than it is in the United States but we thought we would tell you about that and maybe think of some ways that you can perhaps try that type of fundraising within your organization. So check that out.

There’s lots of other webinars listed on our webinar page. You’ll find some more speakers and topics there. We would love to see you again sometime in the future. So I’ll say a final goodbye and a special thanks to our presenters and to all of you listened along.

Look for an email from me later on this afternoon with the slides and the recording and hopefully we’ll talk to you again on another Bloomerang webinar. So have a great rest of your afternoon and a great weekend. We’ll talk to you soon.

Major gift fundraising

Kristen Hay

Kristen Hay

Marketing Manager at Bloomerang
Kristen Hay is the Marketing Manager at Bloomerang. From 2018 - 2020, she served as the Director of Communications for the Public Relations Society of America's local Hoosier chapter. Prior to that she served on several different committees and in committee chair roles.