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Saturday, 21 May 2011

Too Much of a Good Thing From One Donor
Sometimes a nonprofit finds a receptive donor and become overly dependent on the donor's generosity. When that happens crisis follows.
A few years ago, a nonprofit client of ours developed a funding crisis. They had a $1 million budget and a donor who gave them $150,000 a year. The relationship started with a gift of $25,000 and over ten years grew to $150,000. Naturally, other sources filled in the remaining $850,000.
One day the major donor announced that he was moving to Florida and his gift 8 months ago would be his last. He was going to start giving to a similar organization near his retirement home in Florida.
It is a crisis when you have 4 months to replace 15% of your budget.
For this client, one might be tempted to define the crisis threshold for funding as 15%. This means any donor or source of income that exceeds 15% will put them in crisis if the flow of funds ended. However, in their case, the crisis threshold turned out to be about 8%.
Let us turn back the clock to three years before the crisis. Let us assume the leadership determined that the crisis threshold was 8% and they realized that Mr. Big was giving 15%. What do they do?
One of the best strategies is:
Continue to cultivate Mr. Big. He obviously loves the mission and has a desire to see it succeed.
Ask Mr. Big to introduce his friends to the mission. This will help to increase the donor base, which will reduce his percentage of the total income. In addition, if something happens to Mr. Big, it is possible to ask his friends to make a one-time gift in his name. This will soften or eliminate the impact of the loss and provide time to replace Mr. Big.
Set a goal for donor growth. Since Mr. Big is almost twice the crisis threshold, a goal of 104% growth in income is appropriate. Let us assume that next year's budget requires $1 million. A goal of 104% means they must raise $1,040, 000. Place the excess $40,000 in a reserve account. In 3 to 4 years, the reserve account will be large enough to cushion the loss of Mr. Big until other donors step up.
Determine the number of donors and the size of the average gift necessary to reduce Mr. Big's percentage of the income stream to 8%. For practical reasons this probably needs to be a 5 - 7 year goal.
The goal is to keep cultivating Mr. Big while reducing his relative percentage to a manageable level by cultivating the generosity of the other donors and sources.
Next Step:
Determine your crisis threshold
Calculate how many of your donors or sources of income are over the threshold
Develop a plan that reduces all of your sources of income to less than the threshold
Sustainable funding is a function of constantly growing the number of sources of income and the generosity of each source. Having sustainable funding also requires one to ensure that a single source of income never become a threat to sustainability.


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