Blueprint Fundraising

Lake Anne calling

Hi everyone. Postings will be slim through August as I’m off on my joyous annual pilgrimage to visit grandparents and family at Lake Anne, just northwest of Montreal in the Laurentians. Happy summer!

Know your wristbands

Confused by all the “awareness bracelets” representing various charitable causes? Here’s a handy reference for you. If you know of others, let me know!

For more on this ubiquitous marketing phenomenon and whether it is
possible to be cool and kind at the same time, check out this article
from the Times Online.

Yellow — Cancer (the original, started by Lance Armstrong)
Red — AIDS, MS, Blood Services
Green — Kids with cancer, environmentalism
White — Make Poverty History
Black & White — Anti-racism
Purple — Memorial to those who have been lost to cancer
Orange — Anti-smoking
Blue – Tsunami relief
Pink — Guess!

Interview: Christopher Trepel on behavioural decision theory and fundraising

Christopher Trepel is a fascinating man with insights to share with all you fundraisers. As principal of Signal-to-Noise, LLC he has helped some of the world’s most successful companies improve the quality of their business decision-making. He has a PhD in Experimental Psychology, holds a research position at the UCLA Anderson School of Management, is a former Engagement Manager with McKinsey & Company, and has published over 30 academic papers and abstracts on psychology and neuroscience. He knows a little about how people make their choices and why!

I asked Chris to tell me about Behavioural Decision Theory and how it can help us raise more money and understand the giving process. The conversation will continue through several fundit entries.

Q: What is Behavioural Decision Theory?

Most decisions involve risk and uncertainty. Should I walk to the traffic light or dash across the street? Invest in stocks or bonds? Volunteer for an environmental charity or a women’s shelter? From the simplest to the most complex situations, we all make choices without knowing what the outcomes will be. Research shows that people rely on mental short-cuts (collectively referred to as “heuristics and biases�) to simplify their choices. In essence, people are not the rational actors described by economic theory, and they do not have perfect insight into their own likes and wants. Behavioural Decision Theory provides a framework for describing and predicting how people will make choices and act under conditions of risk and uncertainty – conditions that dominate the business world.

Q: What are “heuristics and biases?�

Heuristics are mental shortcuts that can skew our judgement. This skew can, in turn, lead to biases in our behaviour. Generally speaking, very few of us use data and careful reasoning to make decisions. Instead, we tend to speed up the process. Often these shortcuts work just fine, but there are many cases when they lead to well characterized, and very poor, outcomes.

Q: What are a few of the cognitive heuristics that fundraisers should be aware of?

I’ll tell you about four. The first is known as “anchoring and adjustment.� When people are making numeric estimates, say, trying to estimate how many pennies are in a jar, they are extremely vulnerable to influence. If you are estimating the number of pennies and I call out a random number you are very likely to base your estimate, at least in part, on that number. This is true even in situations where people know that the number is irrelevant, and even when they have been told to ignore the number. A more serious example: research shows that judges’ decisions are anchored to prosecutors’ demands, and that this influence appears to be independent of whether the demand is relevant to the circumstances of the crime. That’s a little scary.

Q: Does this support the commonly-held belief in fundraising that to raise a donor’s sights when soliciting for a donation, you should ask for a specific amount of money?

Absolutely. Because we know that people will anchor on numeric values when trying to come up with an original one, it behooves anyone in a fundraising situation to try to anchor the other party on the highest possible number. Although they will adjust their final donation away from your anchor there is a very good chance that you will end up receiving much more than you would have otherwise.

Q: How about another heuristic?

A second heuristic stems from something researchers call the “peak and end rule.� Danny Kahneman, who won the 2002 Nobel Prize in Economics, has shown that people experience unpleasant events in a particular way. When patients recall medical treatments and evaluate how unpleasant they were, they do not remember the total amount of pain they suffered. Rather, they recall the worst point of suffering (the “peak�), and the last moment of the overall experience (the “end�). The salience of these two time-points is incredibly strong. How strong? Kahneman demonstrated that patients actually preferred longer procedures that involved more overall pain, as long as the final moment was relatively pleasant. That is, we can increase a person’s total suffering but if we make the final moments less painful, people will report a better overall experience.

Q: Not to equate being on a board with a painful medical procedure… But might this apply to acknowledging volunteers or donors? For example, can you improve the chances that people will feel good about their time on a board, in spite of challenges or difficulties, if the organization expresses gratitude in a meaningful, memorable way?

Yes, exactly. Since people will tend to remember the “peak� and “end,� organizations should build these moments into a project to try and maintain and improve morale. Although this research has tended to focus primarily on physically aversive experiences, it is likely that the effects will be seen in other venues as well. Donors may remember the peak experience they have with your organization – so make sure there is a peak. Perhaps that could be a very special type of acknowledgement or meaningful interaction with someone their gifts have helped.

Next entry: Chris tells us about two more concepts – the Affect Heuristic and some common obstacles to accurate forecasting.

Tip of the Week: Get your money’s worth from fundraising staff or consultants

Direct mail guru Mal Warwick asks a question on many an executive director’s and board member’s mind: Are we getting our money’s worth from our development director or fundraising consultant? Salaries and fees are high, so are expectations for results. Mal shares his evaluation criteria and suggests how to measure performance in a meaningful way.

Carnegie’s contradictions

“He who dies rich dies disgraced,” said the famous philanthropist and steel magnate Andrew Carnegie. A new book about his life (Meet You in Hell: Andrew Carnegie, Henry Clay Frick, and the Bitter Partnership that Transformed America) makes me think of the complex morality of mega-philanthropy.

Charities sometimes experience a combination of feelings towards the wealthy: desperate longing to befriend them, and contempt for the ways they make their money or choose to spend it. Many of the greatest philanthropists past and present have become rich from the exploitation of one of two things: the earth’s resources
or their workers. And yet giving to charity is voluntary and there are so many wealthy people who give nothing back. (Sad fact: Canadians with the lowest household incomes give a greater percentage of their incomes to charity than those with the highest household incomes.)

Carnegie’s life embodied a paradox — giving away millions to help the needy, while exploiting his workers in brutal ways. From 1881 to 1917, Carnegie funded more than 2,500 libraries around the world including Vancouver’s first public library in the building we now know as the Carnegie Community Centre. His contribution education, literacy and the arts is profound.

Tip of the Week: Consider all the revenue options

If you are new to nonprofits, you might not know the wide range of ways that organizations fund themselves. It’s not all about fundraising. In fact, only 13% of it is about fundraising! Statistics Canada identifies these sources of revenue for the average Canadian nonprofit (in 2003, the most recent year available):

Government payments for goods and services – 18%
Federal – 1%
Provincial – 15%
Municipal – 1%

Government grants and contributions – 31%
Federal – 5%
Provincial – 24%
Municipal – 1%

All government sources combined – 49% of revenue

Earned income from non-governmental sources – 35% of revenue
Charitable gaming – 1%
Membership fees – 11%
Fees for goods or services – 20%
Investment income (including interest) – 4%

Gifts and donations – 13% of revenue
Individual donations – 8%
Fundraising organizations and family community foundations – 1%
Disbursements from other nonprofit organizations – 2%
Corporate sponsorships, donations or grants – 3%

Other – 3% of revenue

For each sector (i.e. arts, social services, environment, health, education, etc.) this breakdown of sources is different. For example, arts organizations receive more from corporations — 8%. International causes receive more from individuals — 30%. Email me or post a comment if you would like to know the details for your sector.

Tip of the Week: Visit the Grassroots Fundraising Journal

Kim Klein and Stephanie Roth are wonderful people and fundraising gurus to boot! Their magazine, the Grassroots Fundraising Journal, and their website are full of excellent resources to help small organizations creatively, ambitiously and successfully raise more money. The “Dear Kim” Q & A section is especially helpful. Whatever question you have, someone has probably asked Kim and received a wise answer that can help you too.

Golf tournament tax receipting mysteries explained

‘Tis the season for golf tournaments and the latest Canada Revenue Agency newsletter has an in-depth explanation of what aspects of charity tournaments are eligible for tax receipts. The same concepts apply to a variety of special events that may have tickets, sponsors, third-party management, or group ticket sales.

The newsletter also describes a recent court ruling that confirms that donations of services are not eligible for tax receipts. When an individual volunteers their time or professional expertise, this is not a receiptable gift. Tax receipts can only be given where there is a transfer of “property” such as cash, land, or other physical items of value.