Development

Fundraising models

What are the pros and cons of continuous and periodic fundraising models? By Tim Edge

In recent years, a large number of UK independent schools have embraced the concept of an annual fund. The annual fund is a method of financing those second-tier priorities that are not allocated funding from the school’s operational budget. Donors from across the school’s ‘constituencies’ are asked to give a relatively small amount each year for specific, medium- to small-scale projects. Extensive use is made of volunteers to solicit gifts from constituency peer groups.  

Whereas the average annual yield from US annual funds can run into seven figures, the yield in the UK is much smaller, averaging £50,000 or less per annum. This reflects a number of factors. Many cite a different giving culture in the US. I think this is overplayed. What is missing over here is not a culture of giving but a culture of asking; particularly solicitation that is sensitive to the feelings and aspirations of the donor. Also, one of the main reasons for the difference in yields is the different way in which US schools are set up.

The US experience
US schools offer a much higher number of part and fully subsidised places for promising children from disadvantaged backgrounds. This has created a debt of gratitude, particularly among alumni, that fuels an ongoing financial commitment. Also, many US institutions regard the annual fund as an intrinsic part of the school’s operational budget, not as a means of subsidising optional extras. For example, many schools will seek to secure up to 10% of its operational revenue from the annual fund. Donors therefore feel that if they don’t do their bit, the school will be forced to run at a deficit!

There is no doubt that the annual fund provides a strong and regular context for communicating with and engaging the school’s many constituents. It also provides a mechanism for identifying potential major donors who can then be approached, discretely and separately, to provide support for higher level fundraising projects.

Is it the best approach to ask people for money in order to cultivate them and ascertain their net worth? I believe that it is impossible to cultivate your community effectively while asking them for money, as any goodwill you attempt to build will dissipate when viewed in the context of an impending fundraising approach.

Forthright defences
No doubt some development directors will respond that donors to the annual fund have subsequently become generous supporters of other initiatives. The question is: had they been simply cultivated (that is, through building a relationship without being asked for money) might they have given considerably more? Logic would suggest this and what little evidence there is available in the UK seems to show that giving to capital campaigns is higher in both number and levels of gifts, where it has been preceded by a period of pure cultivation rather than regular ‘asking’ (whether to the annual fund or to support a rolling foundation programme).

Running effective annual fund and major gift campaigns side-by-side also demands sophisticated database systems that allow effective segregation of donors into separate pools. Even with this effective segregation you still run the risk that a potential major donor, who has not hitherto appeared on your radar, will make a small gift to the annual fund that then ‘quarantines’ him or her against a major capital gift.

Diminishing returns
A number of schools that have tried the annual fund approach have reached the conclusion that continuous fundraising can wear out and, in some cases, alienate members of the school community. To use the crop rotation analogy, many now prefer a fallow period between fundraising initiatives to allow replenishment of goodwill. During this fallow period, members of the school community will be informed about the school’s progress and become involved in activities and events in an engaging and creative way.  

Many schools are choosing to cultivate their communities in this way for a number of years without active fundraising taking place. This ensures that when fundraising initiatives occur they do so in the context of strong and consistent feelings of goodwill.

There are two reasons why such an approach is not always adopted. First, governing bodies are often uneasy about sanctioning development activity that does not involve active fundraising; also many development directors have latched on to the annual fund as a way of justifying their existence and demonstrating their effectiveness.

What is needed is the courage to take a leap of faith. It is this boldness that is necessary to put medium- to long-term donor and potential donor cultivation at the top of the agenda. It is crucial to invest funds and resources in order to build the relationships from which sustainable income will, in time, flow.

Tim Edge is the development director at Charterhouse.

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