RKD has compiled some incredible data around how inflation is affecting nonprofit fundraising. If you haven’t seen it yet, I suggest you check it out before you continue reading this post.
Just to summarize, the cost of goods rose 13% across the U.S. from January 2021 to June 2022. But the impact is being felt differently depending on your location. Likewise, nonprofit organizations are feeling the effect on their fundraising in a variety of ways, depending on donor’s demographics and location.
That begs the question: What should nonprofits do to adapt to the reality in which we find ourselves? Let’s break it down:
What exactly causes inflation?
First, let’s step back and look at the big picture. At a high level, there are two types of recession: deflation and inflation.
The deflation-recession is what we have seen repeatedly since 1980. It follows a bursting debt bubble, and a typical example is the 2008 Great Recession. We also know from experience how nonprofits should prepare for these economic downturns.
The inflation-recession, as its name suggests, is induced by hyperinflation. When this occurs, the dollar just doesn’t reach as far as before due to a shortage of goods and an oversupply of money. The U.S. is not as familiar with an inflation-recession, and the last one was the Stagflation period of the 1970s.
What can we learn from Stagflation in the 1970s?
The recession we are facing now belongs to the inflation type. Therefore, we can strategize by identifying and learning from the winners of the Stagflation.
Here are a few observations from the 1970s:
- Upstream companies won by consolidation. Example: The big oil companies gained greater control of the global oil supply through mergers and acquisitions. (Note that consolidation can also include knowledge consolidation, data consolidation, financial consolidation, etc.)
- Midstream companies won by innovation. Example: Intel’s 8086 chip led to the invention of personal computer.
- Downstream companies won by scale. Example: Think about the rise of Walmart with its aggressive expansion throughout the ’70s.
So, consolidation, innovation and scale are the three success drivers during hyperinflation. And these three drivers are connected. For example, the consolidation of data infrastructure can give birth to a new technology, an analytic innovation may allow us to achieve economies of scale into a new area, etc.
The principle here is to achieve more with less through innovation.
Does inflation change how nonprofits fundraise?
Somewhat. With tighter budgets, many organizations are hungry for projects with immediate return. They want quick results for their marketing dollars.
As an analyst, I focus on helping NPOs build strong, sustainable programs for the next three to five years. This should still be the aim, but growth may take a little longer than usual in this environment.
So, stay the course in the long term while looking for opportunities to increase cash flow in the short term.
Should nonprofits adapt their creative messaging?
Creative messaging should always be relevant and reflect what’s happening in the world. Early on during the COVID-19 pandemic, for example, nonprofits who were flexible and adapted to the moment saw incredible support from their donors.
It’s important to understand what donors are feeling.
In 2014, a team of British researchers found a strong correlation between a book’s language and the state of the economy at the time the book was being written—they called it a “literary misery index.” During tough times, words like “anger,” “fear,” and “sadness” appeared more often.
In the fundraising world, we must do the opposite. We must provide messages of hope, aspiration and optimism. The key lies in how to balance the emotional aspects of asks with the message of hope in our appeals.
Should nonprofits adjust ask arrays for inflation?
This depends on how much data you have and how flexible your program is. Inflation can be very fluid, and we’ve seen it affect people differently.
If, for example, you have the capability for dynamic ask arrays on your donation form, this would be a good time to analyze results and adjust as needed. Maybe you’re asking too much from some donors, but you may also be asking too little from others.
Advanced modeling can also help identify the optimal ask amounts in sustainer conversion and mid-major donor cultivation—and this can be done in any economic state.
Do nonprofits need to pivot for year-end giving?
No more than usual. You should be optimizing your strategy every year based on the current state of numerous factors that impact fundraising.
We know supply chain issues have been affecting direct mail for over a year now, so hopefully you’re prepared for longer lead times and have flexibility in your packaging and print choices. The longer lead times will also affect how long it takes newly acquired donors to receive their first cultivation piece. Have you thought about how you will continue the conversation with them?
Digital channels offer more flexibility, and a truly integrated program will be able to reach donors across a variety of channels with a consistent message. If you’re not there yet, you should be planning to integrate. Remember: The best time to plant a tree was 20 years ago. The second best time is now.
In summary, we should all keep an eye on inflation and its impact on nonprofit fundraising. There are some adjustments that you can make now, but the bigger focus should be building a program that invests in data and analytics so that you have a robust center of knowledge to guide you. Then, you can adjust and optimize no matter what challenge peeks over the horizon.