What will happen in the first year-end campaign since the new tax code was enacted? That’s the big question facing nonprofits as they gear up for the biggest fundraising push of the year. To help your organization prepare, here’s an overview of what we know so far, followed by some tips to help you minimize negative impacts and maximize your revenue.
Fewer people are going to itemize their deductions. Estimates of the number of Americans who claim deductions on their taxes vary, but 5 percent is a generally accepted figure. The doubling of the standard tax deduction to $12,000 for individuals, and $24,000 for couples filing jointly, will mean that fewer people are likely to itemize their tax deductions.
This change may have a negative — but not cataclysmic — effect on year-end giving. Studies predict that the change could reduce charitable giving by an amount between $13 billion and $20 billion. Those are huge amounts, but when compared to the $410 billion donated to charity last year, it translates to a reduction of only 3 to 5 cents on every dollar raised. So, while the threat is real and credible, based on the information we have to date, it’s unlikely to deliver a knockout punch.
Competition for big gifts will increase. Changes to the standard deduction are expected to dampen giving the most among less generous midlevel donors. As a result, competition for major and higher mid-level gifts will likely increase as nonprofits seek to fill holes in their budgets.
The growth of fundraising revenue will continue to outpace inflation ― and offset tax-related reductions. With the exception of 1987, 2008, and 2009, charitable giving has increased every year since 1977, according to
Charity Navigator. It grew by 3 percent in 2017 compared to the year before (adjusted for inflation). We anticipate that charitable giving will continue to grow in spite of the dampening effects of the new tax code and the growth should – in part – mitigate some of the code’s constraining effects.
The burden will not be shared equally. Nonprofits that are second- or third-choice on a donor’s list of giving priorities are the most likely to lose out. This year, donors may only give to their first-choice charity and forgo additional gifts to other organizations. Small, often local, nonprofits may be hit hardest, specifically those whose average direct-response gifts are less than $100.
5 Ways to Counter the Effects of the New Tax Code
An important lesson in fundraising (and indeed life) is to avoid stressing out about the things you can’t control. The good news is that there are lots of ways you can convert these risks into an opportunity for growth, if you follow five strategic priorities.
1. Double down on your midlevel donors. Midlevel donors (or prospects) likely provide a significant portion of the revenue threatened by the tax changes. By upping your offer (through exclusive access, perks, or high-value premiums), you may be able to offset potential revenue loss by increasing donors’ propensity to support your cause.
Branded, benefit-laden midlevel programs (aimed at people who give a yearly cumulative gift between $1,000 and $10,000) have grown steadily in the past 36 months. Expand these programs by adding in new levels of giving, each with its own perks and incentives, and encourage donors to move up to a higher level. Midlevel donors generally enjoy exclusive experiences and events as well as rich content that focuses on mission and impact. Given the right encouragement, these supporters will reward your nonprofit with high giving ceilings, boosts to your bottom line, and greater lifetime value than non-midlevel donors.
2. Find the people actively affected by the tax cut. You probably have a lot of midlevel prospects in your database whose wealth is unknown to you. If you don’t have household income or wealth screening data on your donors, or on the non-donor members of your community, you need to purchase it from a data-append service . Gathering that information and using it to set your priorities will allow you to target the audience with greatest potential to give and thereby increase your revenue. Prospecting only works well when you have insights into your potential supporters, so if you don’t have this data, append it as soon as possible!
3. Market your mission. We know that the most loyal donors are the ones who care deeply about your mission. Double down on your mission by spending more on donor cultivation. Unveil a new class of emotive content (especially videos) focused on the impact of your work and guide viewers through remarketing channels by using cookies placed on your website to drive further experiences online: through YouTube “pre-roll” (also called in-stream advertising), on Facebook, or through display advertising. You have only a few moments to sell your mission, and you’ve got to make those moments count.
4. Spend more time looking at your midlevel donors and prepare to be nimble. With so many uncertainties on the horizon, be sure that you can run reports on the performance of specific subsets of your donors rather than the full file. Monitoring your midlevel prospects and donors will be vital to your year-end success. You’ll need to understand how each of your key groups is behaving on an hour-by-hour basis (particularly your midlevel prospects, recent donors, and lapsed donor groups) in order to celebrate on January 1.
5. Transform supporters into recurring donors. This should be a long-term strategic priority for all nonprofits. Moving away from an emphasis on single gifts and inspiring donors to make an ongoing commitment will likely increase the lifetime value of your donors and help your organization be resilient when faced with changes to the tax code and other external factors.
There is a plenty of time between now and December 31. Follow these five steps and make the most out of this year’s giving season.