Second Gift Strategies that Work!

Sarah Koss
VP, Account Services

We all know that getting the second gift from a new donor is a key objective in the donor journey and crucial to long-term retention. And yet, as many as 70% of all donors leave us after that first gift. How can we enhance & extend the donor journey to reverse the trend?

Here are a few second gift strategies that can make a difference to your program:

Say “thank you” … then say it again

Many times the first communication after the first gift is an acknowledgement, which is meant to provide the donor with a tax receipt for his/her first gift to the organization and solidify the donor’s feelings of goodwill.

Before your newest donor receives yet another request for money, you have an opportunity to begin building goodwill. If you’re using best practices, everyone will receive an acknowledgment with a tax receipt in a timely manner after the first gift. But consider going even further:

  • A real, honest message of thanks. While it’s true that most acknowledgments include a thank you, they also include another ask, which can diminish their impact. Consider a communication that is a pure and unadulterated thank you across all channels. For high dollar donors, consider a phone call. For lower dollar donors, consider cost effective formats such as a postcard or email.
  • Welcome them into the community. It is critical that you educate the donor about your organization and show them their impact in order to solidify their place in your community. You can include all that in a multi part email “Welcome!” series that makes them feel good about their gift and introduces them to many facets of your organization. There doesn’t have to be a lot of content, but showing impact is key.
  • Begin a dialogue. Another important element in the Welcome is to start a dialogue with your donors. Including a brief survey is an excellent way to accomplish this. Let them have a say in how often they would like to hear from you and in what channel.

Pay attention to the age-old best practice: renew as acquired

We’ve seen response rates more than double when the donor’s original acquisition vehicle is sent within the first three months of the renewal cycle!

Speak to donors personally

In the first year of the donor relationship, it’s critical to speak to them appropriately. Often, new donors are simply thrown into renewal segmentation and receive renewal messaging that doesn’t resonate with them or acknowledge their new relationship. Think about:

  • Segmenting out new donors for the first year of their relationship, further acknowledging and thanking them. You can also encourage a second gift in a way that shows you recognize their status. For example, instead of asking the donor to “renew their gift” ask them to consider “an additional gift.”
  • Review and evaluate existing control content to ensure the new donor is receiving information that is relevant. Your GA data and social threads are great sources for what your constituents are consuming & responding to. Newsletters represent a great opportunity to present mission information as well as highlight the donor’s impact and enhance the relationship.
  • Introduce your new donors to other ways of getting involved. This can include volunteering or joining an event. Or it can be an opportunity to join a monthly giving program, subscribe to your blog, or participate in your online forums. We know that the more engaged they are with you, the better they will retain.

Remember, if you can get that second gift, you increase a donor’s chances of retaining by anywhere from 35 to 60%. So if you’re not putting second gift strategies into place, we’ll be happy to partner with you to increase those all-important retention rates.

Similarly, be sure to get in touch if there are subjects you’d like to see in future issues of Straight Talk.

Happy reading!

Tax Changes in 2018 – Are You Ready?


The new tax bill signed into law in 2017 has raised many questions – and concerns – among non-profit leaders. Here is a brief recap of what’s changing for 2018:


Downward Chart

New tax brackets have gone down: Highest rate for married taxpayers filing jointly is now 37% on income of $600,000 and above, with similar changes for single taxpayers.

Upward Chart

Standard deduction was increased to $24,000 from $12,700 for Married taxpayers filing jointly, and personal exemptions were eliminated, with similar changes for single taxpayers.

$10000

State and Local (SALT) deduction limited to $10,000.

House

Mortgage interest deduction was limited for new mortgages taken after December 14, 2017. Home equity loan interest is no longer deductible.


The question for most nonprofits is: Because the standard deduction was increased, and the SALT deduction was limited, how many donors who itemized their charitable deductions in the past may no longer benefit from itemizing? Will donors decide to reduce their giving? If so, what impact will this have on revenue in the coming year and beyond?

As you can see in the chart below, donations from individuals and bequests have been on an upward trend for the past 30 years, with an average increase of 1.9 percent per year. The exception was a notable decline in 2008-2009 during the Great Recession. The only other obvious decline occurred during the 2000 dot-com bubble.

Data Giving Chart

There have been several tax law changes in that period, though none as directly related to the charitable deduction as the 2018 change to the standard deduction. From a historical perspective (see Major Tax Law Changes above), there doesn’t appear to be a direct correlation between tax law changes and charitable giving. Individual donors make their giving decisions due to a variety of factors. Our nation’s economic outlook plays a significant role, so the current low unemployment and high stock market valuations should indicate a positive outlook for fundraising revenue in 2018.

And we know that the single most significant factor in a donor’s giving to any individual non-profit is the donor’s connection and commitment to the mission.

Nevertheless, the tax law changes may have some impact on specific segments of the population. Anticipating those potential impacts will allow us to implement the best strategies to optimize revenue, particularly at the end of the calendar year, when tax concerns are most likely to be in the minds of donors.


Potential Impact by Donor Segment

Share of Tax

Donors with Adjusted Gross Income (AGI) of $100,000 or less:

Minimal impact. These donors, who likely make up the bulk of the direct response file for many organizations, itemize deductions less often. However, these donors will see a small increase in their paycheck withholding if they are W-2 employees, starting in February.


Donors with AGI in the range of $100,000 to $400,000:

Depending on circumstances, these donors, who are likely midlevel donors giving $500-$10,000 per year for most organizations, may experience noticeable changes in their tax returns. Most donors at this income range likely itemized returns in the recent past (see chart above, 77% of filers with AGI $100;-$200k, 93% of filers with AGI $200k-$500k), and are accustomed to the benefit of the charitable deduction. It stands to reason that these donors may consider lowering their giving amount by roughly the cost of loss of the deduction (equal to the amount of their 2017 marginal tax bracket of 28%-33%).

However, these donors are likely to also experience a significant reduction in their overall federal income tax bill, due to the changes in tax rates. In particular, the shift of tax rates at the income range of $165,001-$315,000 of 28-33%, down to 24%, should provide a sizeable increase in disposable income. Ignoring for a moment the complexities of the deduction changes and the Alternative Minimum Tax (AMT), this means a donor with an Adjusted Gross Income (AGI) of $315,000 will owe $14,987 less in federal taxes in 2018 than 2017.

Every donor in this AGI range will experience slightly different results, depending on their own personal circumstances. We expect that long term these changes should offset one another for this population, but that some of these donors will reduce their giving in 2018 due to the loss of the value of the charitable deduction.


Donors with an AGI greater than $400,000:

These donors likely make up the majority of non-profit Major Gift portfolios. Most of these donors will have deductions exceeding the value of the standard deduction, such that it will be worthwhile to itemize their charitable deductions. These donors will continue to benefit from that deduction, so we do not anticipate changes in tax law to have a significant impact on their giving behavior.


Other Considerations:

Donors on fixed income, specifically donors age 65+, are of particular concern due to their prevalence in many organization’s direct response files. As discussed, donors at lower income ranges are unlikely to experience a significant change. However, the value of the IRA Charitable Rollover provision as a giving tool has increased for donors age 70½ and older now that the charitable deduction is less available.

One trend we do expect to continue, or even accelerate, due to these changes, is the rise in the prevalence of the Donor Advised Fund (DAF). Because these funds allow donors to group their charitable deduction into tax years when it is most advantageous, we expect that more donors will use this tool in the future. The challenge non-profits will face will be in identifying the true donors behind the DAFs, and appropriately cultivating and stewarding those donors to cement their connection to the organizations’ mission.


Thinking Ahead: Insights for Your Year End Fundraising


THD BENCHMARKS

To stay ahead of potential revenue shortfalls, THD will proactively track and analyze year over year performance of total giving for all of our clients in the first and second quarter of 2018 analyzing key demographic indicators, including income ranges and age bands, to assess the potential impact of the new tax law changes.


If you’re interested in hearing how THD’s Tax Impact Benchmark can help you get a jumpstart on protecting your year-end revenue, please contact Eric Johnson.

Your Best Planned Gift Pipeline… is Your Database

Jess Hutchins
Director, Donor Advancement

Did you see the recent headline about the $4 million dollar bequest from a janitor? As a former Planned Gift Officer, I see these stories all the time. Where do these donors come from, and how can I find them? Those questions would often pop into my head.

I was delighted to hear just such a story from a client last week. A multi-million dollar bequest they knew nothing about – good for them!

Here’s what we learned when we dug into the donor’s history:

  • His first gift of $45 was in 2012 in response to a direct mail acquisition package
  • All subsequent gifts were made in response to direct mail appeals
  • Since coming onto the file, this donor made a total of 11 lifetime gifts
  • All his gifts were made in response to direct mailings
  • His largest gift ever was $1,000 (all other gifts between $25 and $54)
  • Last gift was in May, 2014 (we’ll get back to this later)

This gift – and the donor who made it – illustrates why a robust direct response program – and its database – is a critical pipeline for any nonprofit who wants to increase planned giving revenue (and who doesn’t?).

And yet, it’s an opportunity that is being missed, mishandled, and far too often, misunderstood.

“Many of our valued donors who have provided for Mercy Corps in their wills are acquired through donor acquisition direct mail campaigns, including a recent six-figure donation.”

David Rubin
Senior Director of Major Gifts
Mercy Corps

A different mindset
Planned giving professionals often come from different backgrounds than direct response marketers. We know that the organization we work for has a direct mail fundraising program and asks donors for annual gifts – but often we don’t really know who these donors are, how they behave, or that many of them are qualified to be pursued for planned gifts.

What it took me almost ten years to learn is that, in fact, this database is a virtual gold mine for PG prospecting.

Some organizations are going to have millions of records on their database, some will only have thousands. But the process of identifying, communicating, and cultivation remains the same. One of our most successful programs was with a highly respected international humanitarian organization with more than two million active donors.

We’ve included a brief case study of how THD was able to uncover nearly 8,000 PG prospects for cultivation and stewardship in one client’s database… and successfully generate dozens of planned gifts.

But identifying planned giving prospects is just the beginning. Without a clear plan to cultivate, steward, and communicate with them, you’re wasting your time and money.

Where intention and action meet
Most planned gifts are nothing more than good intentions… until the check is in the mail.

Yes there are some cases, such as irrevocable trusts, where you can count on the revenue. But since most gifts are bequests, they can be changed, altered, or withdrawn at any time.

Without continued cultivation and consistent communication, you can lose a percentage of planned gifts BEFORE they are received by your organization.

So reach out to them even if they have already indicated that you’re in their will. Make sure that your organization is top of mind. And continue to keep them active, engaged, and involved.

How to recognize when someone’s ready for a planned gift
There is one excellent marker for a potential planned gift, and it may not be what you expect.

Take another look at the behavior of the donor who left that multi-million dollar gift I mentioned earlier. He gave frequently and he was loyal, both of which matter. But there was one specific behavior that you want to look for.

He had stopped giving more than two years ago.

When loyal donors lapse, it might indicate a lifestyle change (such as moving to a fixed income) that prevents them from making annual gifts. At this point, whatever they give is going to be through their estate.

These are donors who love you and may want to make sizable gifts! But if you’re not watching closely (or having a PG partner do it for you) these prospects will make their gift to someone else.

When it comes to planned giving, matures rule
Beginning this year, the oldest baby boomers will turn 70. Approximately 72 percent of them give to charity – and the majority reside on a database, along with both older and younger donors who are excellent prospects for planned giving.

Show the love to your direct response donors and you will reap planned gifts for years and perhaps even decades to come.

To continue this conversation with our team at THD, click here.