Although most of us wish it were a science, determining donor giving capability is more of an art form.
Prospect research reveals pieces of data about donors and then does the difficult task of analyzing what those data points mean. That result, a prospect research output, is donor giving capability.
It is determined by three factors:
- Connection to Your Cause
- Philanthropic Propensity
- Wealth Markers
Some researchers start and end with wealth markers, which is a real detriment to giving capability accuracy.
In this article, we’re going to give you the lowdown on all things donor giving capacity, which includes:
- A discussion of the three determiners of donor giving capacity.
- An investigation into the accuracy of capacity scores.
- A summary of major gift capacity scores.
Let’s open with point one, the three determiners.
Think of the giving capacity determiners as legs on a tripod, all necessary and all doing their part.
#1: Connection to Your Cause
This is the number one way to determine donor giving capability. The best indicator of a new donation is a past donation, or, at least, a past involvement, such as volunteering.
Cause connection can be evidenced by:
- Past giving
- Event attendance
- Support on social media
- And more
A prospect without an interest in your cause isn’t much of a prospect at all. A prospect with a strong interest in your cause is the strongest type of prospect you have.
#2: Philanthropic Propensity
There are prospects hiding everywhere, donating to causes just like yours, and are essentially great donor candidates in waiting.
Someone who has a proven commitment to nonprofits is going to be more likely to donate than someone who does not.
Consider the two following examples:
- Holding a board seat for another nonprofit.
- Charitable giving outside of your cause.
Let’s discuss those one at a time.
First — Holding a Board Seat for Another Nonprofit
Think about all that holding a board seat entails. If you’re looking for philanthropic propensity indicators, this is as good an indicator as any.
Members of a nonprofit board clearly understand the ins and outs of nonprofits. They know what it takes to run a successful organization. Board members also inherently have a demonstrated vested interest in charitable work. They certainly know the value of philanthropy.
Second — Charitable Giving Outside of Your Cause
In terms of indicators, this is a runner up behind giving to your organization specifically. Past donations mark prospects as people of action. They may not have donated to your cause yet, but that could be for a reason as simple as lack of awareness.
#3: Wealth Markers
These are typically what first come to mind when contemplating the factors that contribute towards giving capability. Wealth markers have their limits though, which we’ll go on to discuss in a moment.
Common wealth markers include:
- Real estate ownership: Often used as a top marker, real estate ownership has a direct correlation to charitable giving. Besides demonstrating wealth, certain real estate amounts actually correlate to a higher likelihood of giving. For instance, prospects who own $2+ million in real estate are 17 times more likely to make a charitable contribution than an average prospect.
- Stock ownership: By checking the Securities and Exchange Commission’s online portal, researchers can view stock ownership in publicly traded companies.
- FEC filings: Political campaigns have to report the donations they receive. If a prospect has made a donation to a political candidate, you’ll be able to find it through the FEC. A major gift to a politician demonstrates that the prospect can make a large contribution and is willing to follow through with one when he or she feels swayed to do so. A prospect who has contributed at least $2,500 to political campaigns in his lifetime is almost 15 times more likely to give a charitable donation than someone who has not.
Always remember that wealth implies an ability to give but not necessarily a willingness to do so.
It is common in prospect research to assign a capacity score to individuals regarding the level of gift a donor can accurately afford to give. Capacity scores tend to solely take wealth into account. There has been some push back about the accuracy of those scores among thought leaders in the nonprofit sector.
Investigating the Accuracy of Capacity Scores
As you can ascertain from the above discussion, we recommend a three-part, holistic donor capability assessment.
However, prospect researchers in the industry frequently apply capacity ratings to high net worth individuals (HNWI). Although these ratings can be a big help when tailoring asks, it’s difficult to truly be able to guarantee a rating.
Let me explain why.
For one, there has to be some guessing involved. Prospect researchers can only go off what they can actually fact-check.
You won’t know a prospect’s:
- Bank account balances
- Breakdown of income
- Investment and retirement portfolio
- And more
Wealthy individuals don’t run around announcing their exact finances, so creating a comprehensive wealth profile on a prospect is an uphill battle.
The analysis follows a formula but often relies on inaccurate or incomplete data. It is like the difference between giving someone exact directions with mileage counts and street names and more general directions like turn left at the blue house with the yellow door. You have a chance of getting from point A to point B with the latter, but it is much less likely than with the former.
So, what are prospect researchers to do?
Here are some options:
- Take the holistic approach. If you rely on more than wealth, your predictive capabilities for any given individual will be more accurate.
- When working on HNWI capacity ratings, use outside sources to uncover predictive ratios. In other words, use fact one to find fact two. For instance, if you know statistically that real estate holdings make up X% of a HNWI’s total worth, on average, and you know your prospect’s real estate holdings, you can solve for (predict) net worth.
- Account for unknowns when assigning rankings. Be ready for a margin of error. After a round of asks, review your results. See where you were close and where you were off. Then do what researchers do best — investigate and determine why.
If finding major gift donors is your prospect research endgame, you’re going to have to analyze donor capacity.
Major Gift Capacity Scores
Major gift capacity scores need to be:
- Acknowledged and understood to be conservative, educated guesses.
- Objectively and pragmatically approached.
If you can keep those two points in mind, you’ll have more success in using major gift capacity scores to the fullest without falling into the trap of their potential shortcomings.
Keep in mind that while an average gift, such as a small or mid-level donation, tends to come from a donor’s income, when you move up to major gifts, those contributions are most often gifted from the donor’s appreciated assets.
In general, there are three ways prospect researchers and major gift officers utilize the information they can obtain to make fact-based predictions regarding major gift capacity. This list includes:
- Visible assets
- Real estate
- Annual giving
In the past, and still to an extent today, the popular approach to major gift capacity ratings revolves around the expression, “5% over five.”
What does that mean? It means that the assumption that researchers make when predicting giving capacity of major donors is based on calculating 5% of a donor’s visible assets and making the educated guess that the donor will give that 5% over five years.
That’s one route, and a fairly common one at that.
To break the three ways prospect researchers and major gift officers predict major gift capacity, we can match each numbered item above to a general formula. Again, as a reminder, these are estimates and should be treated as such.
- Visible assets: 5% of visible assets = giving capacity over five years
- Real estate: Using current reports and data on the relationship between real estate and wealth, determine the estimated percentage of total wealth that real estate accounts for (25% in this example). Then multiply out to gauge total wealth (Total real estate holdings x 4 = total wealth in this example). Once you have total wealth, you can apply the average percentage of total wealth that giving capacity applies to and figure out your major donor giving capacity.
- Annual giving: 5 x the sum of four annual gifts to related charities (including yours) = giving capacity over five years. For more on this topic, check out our annual giving guide.
In reading through those three explanations of formulas, it is easy to see where there’s room for error and that your organization needs to account for such flexibility in protocol. Cross reference various formulas to increase the likelihood of accurate results.
With your major gift capacity rating, you want to give your major gift officers a launching point for their cultivation of high-quality donors.
Your fundraisers need to know those they should target and those they should leave for another day. Major giving is a quality, not quantity, game.
“Prospect research can help your front-line fundraisers identify which donors have the capacity to give a major gift and a history of past philanthropy.
This will enable your development team to ensure that those major donors receive excellent stewardship to keep them engaged for years to come!”
If you imagine your donors are on the other side of a padlock, the prospect researchers uncover the code and the fundraisers do the unlocking. It is a team effort, but it begins with finding the exact numbers in that code.
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