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The Investment Puzzle

Here’s a scenario for you: a donor makes a very generous offer of a grant for “building capacity,” hoping that her $250,000 investment will help to ensure your organization’s future. Her only caveat is that she must know how you will use her money. She gives you two choices: will you increase your marketing efforts in support of your annual giving program or will you hire two new major gift officers?

At the heart of this puzzle, of course, is the debate about how best to use a gift of this sort.

For most organizations, direct marketing is still effective as a tool for acquiring new donors even though the cost of acquisition is climbing, as is converting new donors. It requires both patience and perseverance.

On the other hand, a major gifts program can offer healthy revenue even though major donors must be engaged long term, unlike annual givers who are a less predictable source of support.

Splitting the difference, the decision, not surprisingly, was to invest in both annual giving and major gifts. Not a bad idea, in my opinion, because while annual giving can and should be profitable, its greatest return on investment should come through the donor life cycle progression. And a truly successful annual giving program generates not only dollars, but new donors.

The good news for nonprofits with limited resources is that “investment” does not always mean more of something. It can mean doing things “smarter.” With research, data analysis, a deeper understanding of the value of donors and knowing how to identify your best donors, you can actually target those who will give you the greatest return.

The next time, an opportunity like the one presented in this scenario comes along, make sure you make your decision based on the donor’s wishes and what gives your organization the best chance to grow.

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