With more information publicly available than ever before, prospect research is becoming an increasingly popular tool for nonprofit organizations to increase their fundraising capabilities. Sophisticated analysis now makes it possible to identify an organization’s best prospective donors, as well as better understand how to approach each one and what size donation to request.
Prospect research can help organizations:
- Identify prospective donors
- Determine potential gift amounts
- Formulate ask strategies
- Segment donors by potential gifts
- Build guest lists for events
- Efficiently use fundraising/development resources
- Reduce fundraising costs
Prospect Research: Definition and Benefits
Would you ask a total stranger for money? More importantly, would you expect a total stranger to give your nonprofit a five-figure, six-figure or seven-figure donation?
Before drafting or trading for a player, sports teams prepare in-depth profiles of each prospect, looking at both past achievements and the factors that are most likely to predict future potential. They use that information to weigh different players against each other, estimate likely salaries, and determine which players are most likely to help their team.
For many nonprofits, annual giving represents the majority of gifts received, surpassing the number of gifts received from major and planned givers and events.
Benefits of Prospect Research:
- Start and develop relationships
- Develop approach/engagement strategies
- Estimate ask amounts
- Uncover “hidden” donors
- Increase gifts from existing donors
- Segment donors by likelihood of giving, capacity to give, and type (annual, major, planned) of likely gift
- Identify potential board members and organization champions
- Find more donors who share your values
The key metric for prospect research is ROI (Return on Investment): that is, what will every dollar spent on prospect research return to your organization in terms of revenue? According to the Center on Nonprofits and Philanthropy, the average amount spent to raise $1 in contributions ranged from 15-24¢, depending upon the type of nonprofit.
What You Can Find
The more wealthy and philanthropic the individual, the more information that is publicly available. The data that can be publicly accessed includes philanthropic history, wealth indicators, and general background information about education and employment, business affiliations, and nonprofit connections.
- Number of gifts
- Amount of gifts
- Dates of gifts
- Types of organizations supported
- Names of organizations supported
- Events supported
- FEC (political) donations
- IRS 527 donors
- Real estate ownership
- SEC insider transactions
- Pension amounts (for public company directors)
- Boat ownership
- Plane ownership
- Neighborhood demographics
- Nonprofit affiliations
- Professional biographies
- Business affiliations
- Business descriptions
- IRS 527 directors
- Who knows whom (nonprofit board partners)
Turning Research Into Action
Prospect research alone has value, but it becomes even more valuable when the data is processed in different ways.
Prospect research firms analyze the data to make predictions about donor behavior. For example, statistically there is a strong correlation between political giving, as reported by the Federal Elections Commission (FEC) and charitable giving: a donor who has made multiple political gifts totaling $15,000 or more has almost certainly made at least a five-figure gift to a nonprofit organization.
More importantly, prospect research can show that a prospect has given significant gifts to other organizations that have similar or complementary missions to yours, making that person a stronger prospect for you.
Prospect research can also help formulate an ask strategy. For example, a prospect may have a relatively low income, but large amounts of real estate. That prospect may also be someone whom one of your trustees knows. By discretely introducing real estate into the conversation and providing examples of real estate gifts, that donor can be persuaded to make a larger gift than one based on income alone.
The other aspect of prospect research is the old 80-20 rule: 80% of your gifts will come from 20% of your prospects. (Some development officers say the ratio is closer to 90-10.) By identifying the 20% of your prospects who are most likely to make significant gifts to your organization, you can maximize your fundraising/development efficiency.