OF THE DMA NONPROFIT FEDERATION

ALSO IN THIS ISSUE Volume 18 / Issue 3 / September 2015

3 A note from the editor 6 Increasing net revenue by identifying your audience 9 New in print 10 Leverage email to increase donor engagement 12 The macroeconomics of fund raising20 Senny’s policy scorecard22 NY Nonprofit Conference photos

List Management 101:

Choice compliant?

Are you

Members

Mr. Angel AlomaFood For The Poor Ex Officio

Mr. Glen A. BeasleyArbor Day Foundation

Mr. John BellMMI Direct

Ms. Mary BoguckiAmergent Ex Officio

Mr. Lane BrooksFood & Water Watch

Ms. Tracey BurgoonDisabled American Veterans

Mr. Nate DrushellInfoCision Management Corp.

Mr. John ErnstWiland

Mr. Steve FroehlichALSAC — St. Jude

Mr. Tom GaffnyTom Gaffny Consulting

Mr. Kevin GaschlerDucks Unlimited

Ms. Mary Pat GillinMemorial Sloan Kettering Cancer Center

Ms. Jacqui GrosethOlive Crest

Mr. Tim KerstenRobbinsKersten Direct

Ms. Alicia MeulensteenASPCA

Mr. Steve NardizziWounded Warrior Project

Mr. Matt PanosFeed the Children

Ms. Kim PostulartAlzheimer’s Association

Mr. Mark RhodeRhode Consulting

Ms. Jann SchultzProject HOPE

Mr. David StraussThe Nature Conservancy

Mr. Carter WadeMasterworks

Mr. Craig ZeltsarNNE Marketing

DMA Nonprofit Federation Advisory Council

Chair

Ms. Shannon McCrackenSpecial Olympics International

Vice Chair

Ms. Gretchen LittlefieldInfogroup

2015 Leadership

Staff Xenia “Senny” Boone, Esq. General Counsel & Executive Director

Alicia Osgood Director of Membership & Communications

Malene Ward, CMP, CEM Director of Education & Conferences

DMA Nonprofit Federation

@DMANF & @AliOzDC

Members Only

The world’s largest trade association dedicated to advancing & protecting responsible

data-driven marketing.

1615 L Street NW, Suite 1100Washington, DC 20036Phone: 202.861.2427

Fax: 202.628.4383nonprofitfederation.org

The Journal is published online three timesper year — January, April, and September.

Alicia OsgoodManaging Editor

AOsgood@the-dma.org

Leslie Oakey Publication & Website Design

leslie.oakey@gmail.com

News UpdateAn every-other Thursday round-up of

nonprofit-specific news direct to your inbox

Nonprofit CareersThe latest jobs, delivered to your inbox weekly

Sign up for either newsletter (or both!) by emailing AOsgood@the-dma.org

3

Dear Readers:

This edition of the Journal poses the question: “Are you donor choice compliant?” We hope your answer is an emphatic ‘Yes’! Contributors also share how to increase your net revenue (hint: know your audience) & leverage email to increase donor engagement. A primer on the macroeconomics of fundraising, a “New in Print” spotlight & Senny’s policy briefs are also included.

Enjoy the photo spread devoted to the 2015 New York Nonprofit Conference #NYNP2015 & mark your calendar for all the upcoming DMANF events, includ-ing the 2016 Washington Nonprofit Conference — Fundraisers Unite! The event takes place February 18-19 at the Renaissance Washington, DC Downtown Hotel.

As always, thank you for your support of the DMANF!

Best,

Managing Editor AOsgood@the-dma.org

A Note from the Editor

More photos from NYC on page 22!

4 The Journal of the DMA Nonprofit Federation

DMA Nonprofit Federation members are obligated to be good stewards of our donors’ contact information, including responsible communication about list sharing. The following is excerpted from DMA’s Guidelines for Ethical Business Practice, Article 31:

� Marketers should provide consumers a point of contact where they may add, modify or eliminate direct marketing communications from a company or an organization and obtain the company or organization’s privacy policy with regards to collection, use and transfer of their information. The point of contact information (such as a website, telephone number or address) should appear upon or within each written marketing offer, or upon request by the consumer.

� The point of contact notice should: be easy for the consumer to find, read, understand, and act upon.

� A marketer periodically should provide existing customers with notice of its policy concerning the rental, sale, exchange, or transfer of data about them and of the opportunity to opt out of the marketing process. All such opt-out requests should be honored promptly. More on this bullet item below.

� An in-house suppression request from a consumer should be interpreted as meaning that the consumer also wants to opt out of the transfer of his or her personal information.

� Upon request by a consumer, a marketer should disclose the source from which it obtained personally identifiable information about that consumer.

� A marketer should establish internal policies and practices that assure accountability for honoring consumer preference requests regardless of the marketing channel, in compliance with this guideline, and at no cost to consumers. Should those policies substantially change, the marketer has an obligation to inform consumers of that change prior to the rental, sale, exchange, or transfer of data, and to offer consumers an opportunity to opt out of the marketing process at that time.

List Management 101:

Choice compliant?

Are you

Volume 18 / Issue 3 / September 2015 5

From the Ethics Committee of the DMA Nonprofit Federation Advisory Council

The third bullet point deserves a couple call-outs. First, that word ‘periodically.’ Periodically — if interpreted as ‘once in a great while’ — providing notice for the sake of checking a box that it has been done is not meeting the core obligation to our do-nors. The Commitment to Consumer Choice (CCC) Compliance Guide for DMA

Members stipulates that organizations should provide this information shortly after a donor makes their first contribution, and at least annually afterward.

Second, as mentioned, every organization should have written guidelines outlining list rental and exchange practices. Organizations may consider the following when developing these guidelines:

a. Basic statement of types of mailers that could use your list (nonprofits, etc.). b. Will you make available to 501(c)(4) organizations, or only 501(c)(3)’s?c. Will you make available to commercial mailers?d. Are there any organizations specifically blocked, including competitors,

polarizing political stances, organizations with poor track record with list usage, and so forth?

e. Are there any types of offers that are not allowed (e.g., sweepstakes)? What is your tolerance for something that “sounds too good to be true”?

f. Do you use any other consistent screening before deciding to make your list available to another mailer?

g. Is there a limit on number of times a donor’s name will be shared during a set time period?

h. Do you use any blackout dates to protect your own mail dates?i. Do you withhold any protected donor segments?j. Are there any policies above that are different for exchange vs. rental?k. How does your participation in co-ops fit with your overall policy parameters?

An organization may have two versions of the policy, one that is written to be clear and understandable for donors and a second more detailed version intended for internal use with the list management partner. It is also recommended that your list manager use a written contract when renting or exchanging your list that assures clarity on your terms of use and adherence to the usage limits promised to your donors. As with any guidelines, these should be reviewed every couple of years.

More information about donor choice compliance and other best practices in data privacy can be found on the Ethics & Policy page of the DMA Nonprofit Federation website.3

6 The Journal of the DMA Nonprofit Federation

Chris PritcherVice President, Analytics, Merkle Nonprofit

Increasing Net Revenue: It’s a matter of knowing your target audience Picture this…you just presented a great set of slides demonstrating the efforts of your team over the past year and your strategy for success in the next. Then a seed of doubt enters your mind … your pulse quickens and a bead of sweat forms at the back of your neck. The senior leader leans in to ask that question, the one you knew he or she would ask. How do we raise more money and spend less to do it? You have your ammunition ready … industry trends demonstrating how keeping revenue flat is a big win. However, wouldn’t it be nice to simply answer, “I have a plan that will raise more money while spending less … and improve the constituent experience.”

You probably feel that you have squeezed every pen-ny out of your direct marketing program. The fact of the matter is the key to improvement is to leverage actionable insight to refine strategy. I am sure you have heard the re-frain before (usually from someone trying to sell you the next big thing), but today we are going to talk about three cutting edge fundraising organizations that used market-ing analytics to deliver real and immediate outcomes.

� One organization increased acquisition net revenue by $800K in year one and is currently running $1.2 million ahead of that increase in year two.

� Another identified a $1.3 million opportunity in cold acquisition alone.

� A third cut its list cost by 42% in a single year (while engaging the same number of prospects).

Would you be interested in achieving these type of results within the next year?

Driving Net Revenue with Actionable InsightAnalytics is quickly becoming a mainstream component of the fundraising sector. With the combined goal of

enhancing the constituent experience and optimizing your fundraising resources, it’s easy to understand why enthusiasm is high for this powerful discipline. Market-ing analytics can often be a misused buzzword, but you can take immediate action to convert that buzz into real world value. While there are endless avenues to pursue, I think of fundraising analytics in four broad questions:

1. Who is the audience? 2. What is the offer? 3. When do you engage? 4. Where do you engage

(which media and channels provide the right opportunity)?

Question Focus: Who is your audience? The first question I always hear is, “Is anyone increasing their net revenue in direct mail acquisition?” My first re-sponse is always, “Yes, but tell me, who is your acquisition audience?” In theory, the answer is simple … find more valuable donors who will stay with you for the long-term. In practice, this is not so easy.

There are three approaches to generating more net rev-enue in your acquisition program.

1. You can increase the size of your program. But bigger is not always better. The additional con-tacts or prospects are often negative to long-term net revenue.

2. You can increase the average annual revenue per donor. Great, but how do you identify these high-er value donors?

3. You can cut costs. Reducing cost without sacrific-ing revenue is the challenge.

Let’s focus on approaches two and three.

Volume 18 / Issue 3 / September 2015 7

Getting the Most from Your Lapsed Donor AudienceInviting your lapsed group to return as donors has many ingrained benefits. You do not have to pay for their in-formation (or trade for it) and you know they have some level of affinity to your cause. So how do you go deeper into your lapsed pool while still being profitable? Let’s ex-plore an example.

A large national charity was using the industry best practice of Target TAGs for lapsed audience selection. Performance was in decline, causing a reduction in their reliance on lapsed names to generate “new” donors. Bet-ter analytics enabled this organization to boost acquisi-tion net revenue by $800k in one year and by an addition-al $1.2 million year two. That is a $2 million swing in just 18 months! Of course, acquisition is still a current year investment for this organization, but the payback period is now quite attractive.

$1.2Million

So, how did they do it? By leveraging advanced ana-lytics to better understand the lapsed pool, they target-ed the donors most likely to make high-value donations. As a result, response rate increased by 6%, average gift improved by 80%, and $20+ donors increasing by 111%. Ultimately, income per donor solicited increased by over 100%. This improved targeting allowed them to triple the size of the lapsed audience that could be profitably targeted, and thus reduce their reliance on less profitable cold names. Think you are already good at targeting your lapsed donors? They did too, but analytic insight and a focus on net revenue per donor transformed their entire DM acquisition program.

Identifying More Valuable Donors in Cold AcquisitionOnly after optimizing lapsed acquisition can you turn to the pursuit of brand new prospects. As more and more organizations (both charitable and commercial) target the same pool of people, how do you focus your efforts on the right people? A national health charity was invest-ing $5+ million annually in doing just that. Unfortunate-ly, the organization was spending more money to acquire and retain new donors than these donors were expect-ed to contribute over the coming years. Through an ad-vanced cluster segmentation, this organization identified a potential annual net revenue increase of $1.3 million by removing the lowest value donors.

This advanced segmentation identified six major donor profiles. While many of these donor profiles were valu-able, two were consistently losing money. Below is a com-parison of a “high value” and a “low value” segment.

continued4

8 The Journal of the DMA Nonprofit Federation

Next, they created acquisition list tiers to identify those lists that were performing below breakeven and realized that half of the lists (approximately 60% of the names) were providing negative net revenue. So just cut these lists, right? Wrong. Advanced segmentation told us that there are good donors on these lists. The winning ap-proach overlaid the donor profiles on top of the list tiers and trimmed names that were from both the lower per-forming lists and the two lower performing profiles. Test-ing demonstrated that the “good” profiles from the lower tier lists outperform the higher tier lists in revenue and response. Too much value would have been left on the ta-ble by cutting entire lists.

Eliminating Unnecessary CostsSo let’s say that you, like these organizations, successful-ly targeted more valuable donors and generated millions in net revenue. Now, it is time to turn your attention to trimming costs. My favorite cost-trimming exercises are those that do not trim gross revenue. A great place to turn is one that is often overlooked – the cost of outside lists. A third organization took an analytics-based approach and reduced its annual list cost investment by 42%! Think about how much you would save with a similar reduction or even “just” a reduction of 20%.

The concept here is relatively simple – stop paying for duplicate names. Whether you know it or not, you are paying for the same name many times over. As a first step, check how many total names you purchased (by adding up gross names from each individual list) and how many unique names you actually mailed – the difference will surprise you.

In my opinion, the traditional list sourcing model is broken. Often, list recommendations are made based on aggregate level performance data. Most organizations do not have the capability of using individual level data or advanced analytics to make list decisions. Furthermore, the list brokers do not have the right incentives to fix the model. They have the incentive to recommend the data they “know” (often times their own data) and to ensure that you are buying more and more names from a more complicated list array. The right strategy is driven by an unbiased approach to optimization and fully aligns with your cost efficiency and performance goals. Simply put, you need the same group who sets your acquisition strat-egy to also make the list decisions instead of a group fo-cused on list building itself.

Tactically, there are two main techniques to achieve this goal.

1. Assess your response by assigning response credit to each of the lists on which an individual appears instead of the list to which an individual is ran-domly credited.

2. Focus on reducing overlap within these lists and building your target universe via the most effi-cient lists (i.e., those with the highest response and lowest per name cost).

The organization mentioned above was able to reduce name overlap from 39% to only 14% one year later. In that year, the highest overlap on a given list fell from a whop-ping 60% to 20%!

ConclusionInsight-based analytics focused on better understand-ing of who you are targeting is a powerful tool that may change your acquisition program today. Whether you go deeper into your lapsed donors, target only those new prospects who provide long-term value, or cut unnec-essary costs, you may achieve large net revenue gains within the next fiscal year. So the next time you sit in front of leadership, you may smile when they ask that question, knowing your organization is poised for an exceptional year.3

List 1

List 2

List 3

List 4

List 1

List 3

List 4

List 2

List 1

List 2

List 3

List 4

List 3

Response is randomly assigned to a single list, typically the list that got paid.

Remaining lists do not get the credit,hence resulting in incompleteattribution.

TRADITIONAL (CREDITED-ON)RESPONSE ATTRIBUTION

Response is assigned to each ofthe lists on which the individualexists.

This unbiased approach allowsus to look at the true performanceof each list.

UNBIASED (APPEARED-ON)RESPONSE ATTRIBUTION

Volume 18 / Issue 3 / September 2015 9

New in Print

The Resilient Sector Revisited: The New Challenge to

Nonprofit America

by Lester Salamon$19.95

What’s in a name? The Resilient Sector, like “For- Purpose,” the terminology coined by Adam Braun, CEO of Pencils of Promise & 2015 New York Nonprofit Conference Keynote, speaks directly to the misunderstood and sometimes even maligned nonprofit sector.

Our vocabulary, after all, plays a critical part in how others see us & how we see ourselves. As such, the word nonprofit is no longer part of Braun’s vo-cabulary. As Braun pointed out to the #NYNP2015 audience, Merriam-Webster defines non as “of lit-tle or no consequence : unimportant : worthless.” Given the crucial role of the For-Purpose sector in our society, Braun argues that nonprofit is a most unfortunate misnomer & should be purged from our collective vocabulary.

In his book, Salamon asks how the ever-resilient & in Braun’s terms For-Purpose sector forges ahead amongst the many challenges of operating in today’s world while promoting greater public understand-ing of its work. We put forth Salamon’s “renewal strategy” for your consideration in this offering from Brookings Institution Press.3

10 The Journal of the DMA Nonprofit Federation

T he Environmental Defense Fund advocates for the preservation of natural ecosystems and works to combat environmental problems. A noble cause

and organization, they depend on donors to succeed. His-torically, nonprofits have relied on direct mail campaigns, telemarketing campaigns, and fundraising events, and the EDF is no stranger to these ways of targeting donors.

However, these types of marketing cost quite a bit of money, and Emily Stevenson, Online Fundraising Man-ager for the EDF, has learned how to leverage email to achieve her fundraising goals while cutting costs. After having worked at other nonprofits prior to EDF who did not use email services like append and Email Change of Address (ECOA), she has seen firsthand the benefits from leveraging data as a nonprofit.

Direct Appeals & Multichannel MarketingSending emails before and after direct mail and tele-

marketing campaigns increases engagements significant-ly. According to MarketingSherpa, doing so may increase conversions by 27%. By sending emails alerting donors that they will receive a direct mail campaign or phone call, they are expecting to hear from you, and are more likely to engage. Follow up emails can include second chance offers to donate, or calls to action to donate online if they missed their chance on the phone. The EDF uses FreshAddress’s append service to fill the holes in their da-tabase and capture email addresses for their existing di-rect mail customers. This multichannel engagement can increase donations and brand recognition.

“Our direct mail file used to be significantly larger than our email file. With the appending service, we were able to target donors who were not already on our email list – it has drastically helped us to increase engagement,” Ste-venson says.

List Hygiene & MaintenanceMaintaining a clean, up-to-date email list may make all

the difference for nonprofits using email. The EDF cleans their list regularly to ensure that there are no spamtraps or other toxic email addresses that if sent to could dam-age their sender reputation. They monitor their deliver-ability like hawks, and if their percentage of emails deliv-ered dips below 98%, they raise a red flag and figure out the problem. Stevenson also recommends suppressing non-engaged emails to save money, and running Email Change of Address (ECOA) on inactive email addresses.

Email Change of Address and AppendingEmail lists decrease by an average of 30% a year due to

attrition. In order to stay up-to-date with donors, Steven-son uses ECOA to find updated email addresses for inac-tive and bouncing donors. This service uses change-pairs of opted-in email addresses to link an old email with a new one, therefore re-engaging customers who were lost over time. The EDF typically has email addresses for 1/3 of their direct mail file; by keeping up with ECOA and append, they have been able to keep from falling behind on those numbers as they acquire new direct mail donors.

“We always do ECOA and append before major cam-paigns like our annual fund campaign and during the holidays. That way, we are targeting the right donors at the right email address, and we can get maximum lift from our marketing efforts,” Stevenson says. “Running ECOA before paying to acquire names can help to ensure that you aren’t overpaying for email addresses of mem-bers you already have. This has saved us immeasurable amounts of money!”

List Segmentation & Donor TargetingSegmenting donors by current versus lapsed donors, by

value of donations, and time of last donation can help to increase engagement. Through analysis and evaluation of how long a non-donor has been on an inactive list, and targeting messaging to re-engage, your email marketing dollars will be spent in the most effective way possible. It is also important to test messages by segment and look closely at your results. By targeting non-responders and subdividing even further, you can hit home with your email campaigns and get better returns by sending the right message to the right audience.

Triggered Emails/Content OptimizationEmails that are triggered by the user’s behavior have

some of the highest possible open rates. The EDF sees 50-70% opens on donation receipt or confirmation of registration. These emails are the best targeted emails because they help to identify hand-raisers and willing participants. Stevenson suggests that in these triggered emails, always be sure to include a next step. She has used surveys, calls to action, social connect and share buttons, and links to visit their blog. She also encourages recipi-ents to see if their company supports matching gifts.

“The best returns come from better targeting. We’ve found that segmenting our lists and targeting the right

Volume 18 / Issue 3 / September 2015 11

people has been the best way of moving the needle,” Stevenson says.

Subscription Preference Options / Unsub-scribe Links

Having a clear way for your email recipients to unsub-scribe may seem like shooting yourself in the foot; how-ever, it is actually beneficial to highlight the link. By elim-inating frustrated subscribers, you decrease the risk of a recipient clicking “spam,” thus weakening your sender reputation. Another tip that Stevenson uses is a manage-able preference center that allows subscribers to choose how frequently they would like to receive emails and on what content. This will also allow you to easily filter out unengaged donors.

“People who don’t want your emails are not qualified leads and you only hurt yourself by emailing them!” Ste-venson says.

Moving from offline direct mail and telemarketing campaigns to email and multichannel marketing takes time, patience, and diligence in following proper proto-cols. Stevenson warns nonprofit marketers to follow all of the steps or risk becoming blacklisted as a sender. “En-suring our lists have valid email addresses and constantly updating our lists has made all the difference, especially during our major holiday and annual campaigns,” she says. There are countless email tools and services that nonprofits may use to re-engage, rediscover, and renew donor activity!3

Learn more about FreshAddress’s services at www.freshaddress.com.

Visit the Environmental Defense Fund at www.edf.org to learn more.

How Nonprofits Can Leverage Email to Increase Donor EngagementA Whitepaper from

FreshAddress and

the Environmental

Defense Fund

12 The Journal of the DMA Nonprofit Federation

The Macroeconomics of FundraisingUnderstanding How Economic Conditions Affect Your Success

As a fundraiser, you are well aware of your internal program’s performance metrics. Changes in average gift sizes, donor retention rates, and revenue may all be tracked back to changes in your campaign strategies. But a variety of factors drive donors’ giving behavior, some related to your organizational decisions and some related to the world around you. Are you stepping back and looking at how larger macroeconomic forces may affect your results? The donorCentrics team within Target Analytics recently studied aggregate giving behavior data, key economic indicators, and findings from the Giving USA Foundation, publisher of Giving USA reports, to review which external factors have the highest correlation to, and may help predict, charitable giving. All fundraisers should review this informative and relevant study to help drive smarter fundraising years down the line.

MICROECONOMICS\ˈmˈ-(ˈ)krˈ-, e-kˈ-ˈnä-miks, -ˈˈ-kˈ-\The study of the economic decisions and actions of individual people, companies, etc.1

MACROECONOMICS\ˈma-krˈ-ˈe-kˈ-ˈnä-miks, -ˈˈ-kˈ-\The study of the large economic systems of a country or region.2

Microeconomics versus MacroeconomicsMost fundraisers are well versed in the microeconomics of their programs. They understand the factors that affect their everyday business decisions: RFM segmentation, response rates, average gifts, postage rate changes. They know how these factors influence decisions about hiring, expansion, and budgeting.

Few fundraisers take a step back to consider how mac-roeconomic factors also affect their results.

The nonprofit sector is not an island; it is a part of the broader economy. It represents about 5% of that economy in the United States, both in the form of the goods and services that nonprofits provide, as well as the amount of money that individuals and institutions spend on non-profits. The macroeconomic factors that influence the rest of the U.S. economy necessarily influence the non-profit sector as well, and often have a significant impact on the success — or failure — of fundraising efforts.

Macroeconomic Factors and Nonprofit FundraisingThere are many external factors that can affect movement in charitable giving. And different external factors can affect different industry sectors and different donor pop-ulations in different ways. But there are a few economic indicators that rise above the rest to be universally useful for monitoring and explaining, and sometimes even pre-dicting, donor behavior.

The Giving USA Foundation, which publishes Giving USA, the national standard for reporting on American charitable giving, has done intensive research to find the best possible model for estimating annual revenue. They have found that three of the factors with the strongest relationship to individual charitable giving are: income (which is represented roughly in this analysis by the Gross Domestic Product), wealth (which is represented rough-ly in this analysis by the S&P 500 Index), and tax policy

Carol RhinePrincipal Fundraising Analyst, Target Analytics

Helen FlanneryProduct Development Manager, Target Analytics

Volume 18 / Issue 3 / September 2015 13

(since charitable giving rises when charitable tax deduc-tions are higher).3 Of these, the S&P 500 Index is actually the strongest predictor of changes in charitable giving.

The bulk of charitable contributions in the United States come from high-income and high-net-worth indi-viduals. These are the people who tend to itemize their tax deductions; they invest disproportionately more in the companies listed in the S&P 500; and their charitable giving behavior is disproportionately affected by changes in tax policy.

In our own donorCentrics Index of Direct Marketing Fundraising, which focuses on small and mid-range di-rect marketing gifts of less than $10,000, we have seen that overall revenue trends for these more typical donors still follow changes in GDP and the S&P 500 quite closely.

We have also found in our own research that interest

rates can provide some context for revenue changes as well, and that unemployment rates and population

growth can also be helpful in understanding changes in donor numbers.

We will examine these factors in detail on the following pages.

Gross Domestic ProductGross Domestic Product, or GDP, is one of the most help-ful indicators for tracking and explaining changes in rev-enue across the nonprofit industry.

GDP measures the total market value of all goods and services produced domestically in a given time period. This means that it essentially represents the amount of money being spent in the entire national economy — which allows it to serve as a rough parallel to changes in national income, and as a general proxy for overall eco-nomic health.

Research by the Giving USA Foundation tells us that charitable giving revenue growth rises during periods of strong economic growth (when GDP is growing well) and slows or even falls during periods of relative eco-nomic weakness (when GDP is sluggish or declining).4 As the Foundation says, “Giving by individuals is closely linked with income and wealth, and the willingness of in-dividuals and households to give to charity is also asso-ciated with financial security. As the economy continues to trend upwards at a moderate rate, contributions from individuals also continue to rise.”5

Non-profit giving is not limited to a simple up-and-down correlation with GDP, however. The Foundation

has reported in their publication Giving USA that during harder economic times, charitable giving falls as a per-centage of GDP.6 Charitable giving in the United States has been about 2% of total GDP for more than forty years. In boom times it has reached as high as 2.3%, and in re-cessions it has dipped as low as 1.7%. This means that in a slow economy, not only does giving slow down, but it also declines as a proportion of the average American’s spending dollar.

In other words, in recessionary periods, people not only spend a lower dollar amount on charities, but they also allocate to charities a smaller fraction of the money they do spend — thereby compounding the effects of an economic decline on fundraising.

Our quarterly donorCentrics Index of Direct Market-ing Fundraising has consistently supported these find-ings. Median index revenue trends have generally fol-lowed national economic performance, as represented by GDP growth and decline.

According to the National Bureau of Economic Re-search, the United States economy entered a recession in December 2007 and emerged from it in June 2009.7 Nonprofit direct marketing revenue in the donorCen-trics index declined throughout 2008 and in early 2009 during the worst parts of the recession, and donor de-clines intensified during that time. We reported overall revenue declines in seven consecutive editions of the index (Q2 2008 through Q4 2009), with some of the steepest downturns coming in the first half of 2009.

continued�

14 The Journal of the DMA Nonprofit Federation

Many indicators of US economic health, including GDP growth, have remained sluggish since the end of the recession in 2009. Similarly, nonprofit revenue growth in the donorCentrics index has been weak since the de-clared end of the recession. Most organizations partici-pating in the index have only just this year regained the ground they lost during the recession five years ago.

Further Giving USA Foundation research indicates that, in the past, once a recession is over, it has taken an average of three to four years for inflation-adjusted char-itable giving to rise back up to pre-recession levels.8 And the Foundation is optimistic that total charitable giving could recover completely by 2015 or 2016.9 However, the recession of 2007-2009 was one of the worst in recent memory and the post-recession recovery has been one of the slowest, meaning that the nonprofit industry may still have to contend with the ripple effects for some time.

S&P 500Change in individual wealth is another key determinant of change in charitable giving. And the Standard & Poor’s 500 Index (S&P 500) serves as a good proxy measure for the growth and decline of personal wealth.

The Giving USA Foundation found, in fact, that the S&P 500 was the strongest single predictor of charitable giving out of all the factors they considered for their an-nual revenue estimate models.10 The S&P 500 is far more volatile than the comparatively stable charitable giving trends, but the two travel up and down together — with changes in giving usually lagging changes in the S&P 500 by one to two years. “Because stock market values are an indicator of financial and economic security,” the Foun-dation explains, “households and corporations are more likely to give when the stock market is up.”11

This is particularly true, they found, for high-net-worth donors, who are more likely to be directly invested in the stock market. In addition, gifts of appreciated stock make excellent charitable giving vehicles for high-net-worth donors when their investments are doing well.

Again, our quarterly donorCentrics Index supports the relationship that the Giving USA Foundation found between giving and the S&P 500 — even though our In-dex analyzes giving from a relatively lower net worth stra-tum of direct marketing donors. Over the past ten years, as the S&P 500 has risen, so has overall index revenue; and when the S&P took a dip during the recent recession, overall index revenue declined shortly thereafter.

Tax PolicyIn order to encourage private philanthropy, Congress introduced a charitable contribution deduction into the federal income tax code for the first time in 1917. Since then, tax policy — in particular, this deduction for char-itable giving — has influenced people’s charitable giving decisions.

Charitable giving is one of the primary ways that high-er-income taxpayers reduce their tax liabilities. It is un-likely that the deductibility of their gifts affects which organizations donors decide to support, but it almost cer-tainly does affect how much they decide to give, as well as how much they choose to leave to nonprofits as charita-ble bequests. The amount of charitable deductions is one of the most important pieces of data used by the Giving USA Foundation to estimate total giving in the United States each year.12

The Tax Reform Act of 1986 is a notable example of how tax policy directly affects charitable giving. This act took effect in 1987 and eliminated a large number of de-ductions, including the charitable deduction for people who did not itemize deductions on their tax returns. Giv-ing from individuals dropped from over $67 billion in 1986 to less than $65 billion in 1987 (a decline of 3.8%), because many donors “pre-paid” their charitable gifts in 1986 to get the largest deductions they could before the new tax laws went into effect the next year.13 1987 is still the only year in which the Giving USA Foundation re-ported a decline in charitable giving when there was not a recession that year—a decline that was likely entirely due to a change in tax policy.

Another example — one that we are experiencing the effects of now — is the “Pease Limitation,” which was add-ed to the tax code in 2001 and which has gone through a number of adjustments in the past decade. The Pease Limitation essentially limits the total amount of most otherwise allowable itemized deductions, including the charitable deduction, for many upper-income taxpayers. Of the roughly $240 billion given by individual donors in 2013, $199 billion (about 83% of the total) came from itemized deductions.14 These are higher-net-worth do-nors who will be most affected by the Pease Limitation. Limiting the deductibility of charitable gifts and thereby reducing the incentive for high-net-worth individuals to give, puts a very large amount of charitable revenue in potential jeopardy.

Volume 18 / Issue 3 / September 2015 15

continued�

16 The Journal of the DMA Nonprofit Federation

Interest RatesInterest rates have been falling for most of the past six years. Before the recession of 2007-2009, interest rates were between 4.5% and 5%. The recession caused them to drop to about 2%, and then monetary policy pursued by the Federal Reserve Bank drove the interest rate down to less than 1%.

Lower interest rates lower the cost of mortgages, help-ing the housing market. They also lower the cost of busi-ness loans, encouraging investment in new and expand-ing businesses. This disproportionately helps younger people, who are more likely to engage in these kinds of transactions.

On the other hand, lower interest rates mean lower returns on savings vehicles such as treasury bills, cer-tificates of deposit, and mutual funds. This dispropor-tionately hurts older people, who are more likely to be retired and reliant on these more conservative, inter-est-bearing investments.

This has meant a decline in the income of older individu-als—the segment of the population that makes up the ma-jority of the donor class. According to a McKinsey Global Initiative study published in November 2013, for example, donor-aged adults in the United States lost $2,000 or more compared with their 2007 interest income.

Anecdotally, in our donorCentrics benchmarking groups, we have started to see high-value older donors giving smaller gifts. If this continues, it could have a large negative effect on charitable giving in the U.S.

UnemploymentIn our donorCentrics Index of Direct Marketing Fund-raising, we have reported declines in overall donor pop-ulations in almost every quarter since the third quarter of 2005 (the quarter that included Hurricane Katrina). These declines are due primarily to declines in new do-nor acquisition.

There is likely no single cause of these declines. As we have said in our index analysis, falling donor populations in the index may be due to a mix of factors, including a changing generational profile in the United States, chang-ing attitudes of donors about giving, and a change in fo-cus by fundraisers toward higher-dollar donors.

And there are, undoubtedly, economic reasons as well. As we have seen in looking at Gross Domestic Product, charitable giving goes down when the economy struggles. In a recession, donors cut back on both the amount of

money they give and the number of organizations they give to.

In the donorCentrics Index, we have also seen an in-verse relationship between the unemployment rate and the number of donors giving to participating organiza-tions. While we do not have the data to say that this is causative, this makes intuitive sense; when people are not employed, they are likely to have less disposable in-come and to not be as disposed to give what they do have to charity.

The unemployment rate is the number of unemployed people looking for work divided by the labor force. It does not include those who have stopped looking for work, which happens more and more as a recession drags on. Another measure of the workforce that includes peo-ple who have stopped looking for work, and which may better reflect true employment, is the labor force partic-ipation rate: this measures the percent of the population over the age of 16 who are employed. The participation rate has been steadily declining, along with index donor numbers, for the past five years. As of December 2014, it reached a 35-year low of 62.7%.

PopulationThere is at least one other major macroeconomic factor that likely lies behind today’s shrinking donor files. And that is that the pool of possible donors is simply not as big now as it was even ten years ago, and it will continue to shrink for at least the next decade.

Older people generally donate more to charity than younger people; they are more likely to give in the first place, they give more, and they give more consistently. The vast majority of donors to the organizations in our donorCentrics nonprofit benchmarking groups are peo-ple who are over fifty years old, and for many organi-zations the average donor age is in the seventies. If we assume that the likely nonprofit donor pool consists of people who are fifty years old or older, then the number of people likely to give to charity is lower now than it was ten years ago, and is destined to get even lower.

There was a baby boom in the 1950s and early 1960s when birth rates skyrocketed after World War II. The tail end of this boom generation is just entering their fifties now.

Following the baby boom, birth rates plummeted, cre-ating what became known as the “baby bust” of the late 1960s and 1970s. The people born during these bust years

Volume 18 / Issue 3 / September 2015 17

continued�

18 The Journal of the DMA Nonprofit Federation

are the people who will be entering their fifties over the next ten or fifteen years.

In our donorCentrics Index, donor counts last peaked in 2005. Part of the reason for that peak was the extraor-dinary giving in response to the Gulf Hurricanes and the Indian Ocean Tsunami, but it also happened to be the time when the population of US-born people turning 50 was at its peak. This could be a coincidence — or an indi-cation of things to come.

For the past few decades, lifespans have not been in-creasing fast enough to make a significant difference in the pool, and, although there is immigration, most im-migrant populations do not become donors until the sec-ond or third generation living in the United States. Given this, if we assume all other factors to be equal, we should not be surprised by dropping donor populations, and we should not be surprised if they continue to drop for the next several years.

What Does This Mean for Nonprofits?For the past several years, nonprofit organizations have been facing challenges in the form of lackluster revenue growth and declining donor files. We do not believe that these trends can be entirely ameliorated or reversed by focusing entirely on microeconomic, internal tactics. In order to expand, organizations need to focus on strategies that address the changing macroeconomic environment in which we find ourselves.

Traditional methods for reaching donors will likely continue to reach older Americans, but are less and less effective at bringing in new, young donors. Direct mail, in particular, will become less viable as a means of fundrais-ing. In our donorCentrics benchmarking groups, direct mail still currently represents close to 80% of all gifts, but that percentage has been steadily shrinking for the past ten years.

Many nonprofits have looked to online fundraising as a replacement for direct mail. As it is currently used by most nonprofits, online fundraising techniques mirror the techniques used for direct mail; by and large, this has proven effective, but online giving still represents just 5% of all giving. It will not soon make up for the decline in direct mail for most organizations.

The challenge for fundraisers is to devise ways to make the case for giving using the full range of channels avail-able to them. These include direct response television

and radio, face-to-face and door-to-door canvass, events, inserts in publications, catalogs of symbolic gifts, and telemarketing, in addition to the internet and tradition-al direct mail. Fundraisers will also have to learn to use the newer channels of crowd sourcing, micro loans, text giving, do-it-yourself fundraising, and other social media driven activities.

� The fastest growing innovation in fundraising in the United States, and one that may help to ad-dress these issues, is monthly giving. In other parts of the world, monthly giving is widely used, but it is relatively new in this country. Until recent-ly the only nonprofits with large monthly giving programs were those raising funds through child sponsorship, but monthly giving now makes up a substantial proportion of giving to animal welfare and public radio organizations, as well as the seg-ment of the market represented by international non-governmental organizations. These organi-zations have encouraged, and invested in, the im-plementation of monthly giving programs at their U.S. offices — and, in response to their investment, there are more direct response television programs and more vendors available for canvass.

The good news about monthly giving is that it is attrac-tive to younger donors. Most people who are acquired as monthly donors are 10-20 years younger than the average 50+ year old donor acquired through other channels.15

� Another encouraging trend is an increased em-phasis on planned giving. More than 80% of Americans donate to charity each year,16 but few-er than 6% leave any part of their estate to char-ity.17 The biggest reason for this disparity is the lack of investment in planned giving by most charities: people do not leave gifts because they were not asked to do so. Planned giving can in-clude some complicated vehicles, such as chari-table remainder trusts, and so seem complicated to fundraisers, but most planned gifts are actu-ally relatively simple bequests. Fundraisers need to implement donor education programs around planned giving, and need to ask for the gifts.

� As evidenced by the success of micro-loans and crowd sourcing, today’s donors are looking for tangible, substantial results from charities and they want more control over where their money goes. This can be accomplished by giving donors choices. Choice does not necessarily have to mean restricted giving; it can be executed in a way that allows the donors to voice their opinion about what they feel is most important, while still sup-porting the organization as a whole.

Americans are philanthropic. They respond in great numbers to disaster relief efforts; they volunteer at local events; they participate in walk-a-thons and bike-a-thons. Fundraising in the nonprofit sector will grow if fundraisers are able to reach new, younger donors in ways that meet the needs of both the donors and the organizations.3

About Blackbaud

Serving the nonprofit and education sectors for 30 years, Blackbaud (NASDAQ: BLKB) combines technology and ex-pertise to help organizations achieve their missions. Black-baud works with more than 28,000 customers in over 60 countries that support higher education, healthcare, human services, arts and culture, faith, the environment, indepen-dent K–12 education, animal welfare and other charitable causes. The company offers a full spectrum of cloud-based and on-premise software solutions and related services for organizations of all sizes including: fundraising, eMarketing, advocacy, constituent relationship management (CRM), fi-nancial management, payment services, analytics and verti-cal-specific solutions.

About Target Analytics

Target Analytics, a division of Blackbaud, delivers data-driv-en, collaborative solutions to help not-for-profit organiza-tions increase support from their supporters and further their missions. Target Analytics offers the only comprehen-sive analytics solution for donor acquisition and cultivation, prospect research, and collaborative peer benchmarking, as well as access to exclusive data and fundraising exper-tise, to maximize fundraising results at every stage of the donor lifecycle.

Volume 18 / Issue 3 / September 2015 19

References

1 Merriam-Webster Dictionary, http://www.merriam-webster.com/dic-tionary/microeconomics. Retrieved December 4, 2013.2 Merriam-Webster Dictionary, http://www.merriam-webster.com/dic-tionary/macroeconomics. Retrieved December 4, 2013.3 Partha Deb, Mark O. Wilhelm, Patrick M. Rooney and Melissa S. Brown. “Estimating Charitable Deductions in Giving USA,” Nonprofit and Voluntary Sector Quarterly 2003, 32, 548.4 The Giving USA Foundation, Giving USA: The Annual Report on Philanthropy 2006, pp. 22. 5 The Giving USA Foundation, Giving USA: The Annual Report on Philanthropy 2013, p. 26. 6 The Giving USA Foundation, Giving USA: The Annual Report on Philanthropy 2006, pp. 29.7 National Bureau of Economic Research, NBER Business Cycle Dating Committee Announces Trough Date, September 20, 2010, http://www.nber.org/cycles/sept2010.html. Retrieved March 22, 2012.8 Giving USA Foundation, “Giving Recovery after Economic Depres-sion or Recession,” Giving USA Spotlight, Issue 2, 2009, p. 8. Article written by Melanie Miller, Sarah Schaefer, and Corinne Wagner of the Center on Philanthropy at Indiana University.9Giving USA: The Annual Report on Philanthropy for the year 2013 (2014). Chicago: Giving USA Foundation, pp 2-3.10 Partha Deb, Mark O. Wilhelm, Patrick M. Rooney and Melissa S. Brown. “Estimating Charitable Deductions in Giving USA,” Nonprofit and Voluntary Sector Quarterly 2003, 32, 548.11 The Giving USA Foundation, Giving USA: The Annual Report on Philanthropy 2013, p. 27.12 Partha Deb, Mark O. Wilhelm, Patrick M. Rooney and Melissa S. Brown. “Estimating Charitable Deductions in Giving USA,” Nonprofit and Voluntary Sector Quarterly 2003, 32, 548.13 The Giving USA Foundation, “Giving During Recessions and Eco-nomic Slowdowns,” Giving USA Spotlight, Issue 3, 2008.14 The Giving USA Foundation, Giving USA: The Annual Report on Philanthropy 2014, p. 27.15 Helen Flannery & Rob Harris, 2009 donorCentrics U.S. Recurring Giving Benchmarking Analysis, March 2010, https://www.blackbaud.com/files/resources/downloads/Research_RecurringGivingSumma-ry_March2010.pdf. Retrieved December 18, 2013.16 Gallup, Inc., “Most Americans Practice Charitable Giving, Volunteer-ism”, Gallup Lifestyle Poll, Conducted December 5-8, 2013. http://www.gallup.com/poll/166250/americans-practice-charitable-giving-volun-teerism.aspx. Retrieved December 23, 2013.17 Russell N. James III, American Charitable Bequest Demographics (1992-2012), p. 21. Original survey data is from the Health and Re-tirement Study by the University of Michigan (2013). http://www.pgdc.com/pdf/american-charitable-bequest-demographics-1.pdf. Retrieved December 23, 2013.

20 The Journal of the DMA Nonprofit Federation

Xenia “Senny” Boone, Esq.General Counsel & Executive Director | DMANF

Policy Brief, 9/15The DMA Nonprofit Federation protects and defends nonprofit fundraising across marketing

channels to advance responsible data-driven fundraising and marketing. Our policy focus

continues to be preserving charitable giving incentives, supporting postal reform to maintain

a stable United States Postal Service, preserving marketing channels for fundraising, and

reviewing unreasonable fundraising solicitation regulations impacting nonprofit organiza-

tions and suppliers working on their behalf at the state level.

Nonprofit Disclosures: California Assembly Bill 556 — Nearly SignedNonprofits and those working on their behalf face unreason-able new legislative proposals as the states seek to pursue a handful of bad actors who take advantage of donors while skirting basic fundraising regulations. The DMANF works to ensure unreasonable fundraising regulations do not block the legitimate practices of reputable organizations.

The California Attorney General teamed with Califor-nia Assembly member Jackie Irwin to introduce a bill that would impose new notice requirements on charities that use the services of “fundraising counsel” (distinct from “fundraising solicitors”) due to recent litigation involving Help Hospitalized Veterans, a charity under scrutiny for alleged misuse of donor funds in fundraising campaigns. The implication is that without such disclosure, donors are being misled, which is not the case.

In fact, the new reporting provisions would impose thousands of dollars on nonprofit organizations who bear the cost of compliance. Simply disclosing that an organi-zation is using fundraising counsel does not address the heart of the matter—the potential for fraudulent bad ac-tors who are misusing funds and pursuing them through existing regulations.

The DMANF worked with a dream team of nonprofit organizations to clarify and improve AB 556. We await California Governor Jerry Brown’s signature on the bill after the bill passed in both California chambers.

The new language: � Provides clear direction to fundraising counsel for charitable purposes and clear and important distinction of the roles of commercial fundraiser for charitable purposes;

� Clarifies “custody or control of funds” and defines “caging companies”; and

� Prohibits fundraising counsel from being compensated by a percentage of donations received; and

� Harmonizes and unifies provisions of the bill relating to actual custody of contributions.

We believe these changes appropriately clarify the legal responsibilities and prohibitions of both charitable fund-raising organizations and fundraising counsel and give added weight to the state’s policies on charitable giving. Indeed, we believe the changes keep faith with the intent of the bill to provide transparency to Californians who donate to charitable organizations.

We anticipate Governor Jerry Brown’s signature in

September/October, 2015.

Charitable Tax Deduction and Other Giving IncentivesWe have been successful defending the charitable tax de-duction for individuals, but a reduction to the deduction could be “on the table” as part of overall tax reform and fodder for incoming Presidential candidate policy platforms.

Donors who itemize their taxes may claim up to 35 percent of the amount donated to charities. This giving incentive must be preserved at its current rate. President Obama included a proposed limit on the charitable tax deduction in his FY 2011 budget to change the deduc-tion from 35% to 28% for couples making $250,000 or on individuals making $200,000, stating this would raise $179.8 billion over 10 years to help pay for government programs, and continues to support reducing the de-duction. Presidential candidate Hillary Clinton recently

Volume 18 / Issue 3 / September 2015 21

echoed President Obama’s 28% cap by proposing this re-duction to help pay for tuition assistance at colleges and universities.

We anticipate more proposals to reduce the deduc-

tion in 2015-2016 as the Presidential campaign inten-

sifies. We will update members if a legislative propos-

al surfaces.

Postal Legislation and Nonprofit Mailing RatesThe nonprofit postal rate discount is essential to help eligi-ble nonprofit mailers mail affordably. We have succeeded in pushing back an effort to drastically raise rates in postal re-form legislation over the years—but rates rose under the “Ex-igency Rate” case decision which tacked on a “surcharge.”

On July 29th the Postal Regulatory Commission (PRC) resolved the postal exigency price increase “surcharge” dispute dating from December 2013. The exigency rate surcharge is meant to allow the USPS to recover its loss-es from the Great Recession. The PRC order entitles the USPS to recover $1.191 billion in additional contribution, for a total exigent rate adjustment of $3.957 billion. This means that the USPS may continue to include the exigen-cy rate surcharge for an additional 8 months until that amount is recovered from mailers, including nonprofits. Although the continuation means the 4.3% surcharge paid by mailers does not decrease, the PRC order benefits mailers in the long run by bringing finality to the exigen-cy surcharge and by providing certainty to future postal price setting.

The mailing community, including nonprofit organiza-tions, had feared the exigency rate surcharge would be made permanent without adequate justification. DMA and others argued against a permanent surcharge as the exigency case made its way through the Court of Appeals and the PRC remand. (The USPS had originally sought $8.6 billion in a surcharge for an additional 4 years.) The USPS is appealing the PRC decision, please stay tuned.

We oppose rate increases that will raise rates on

nonprofits and other mailers and lead to permanent

mail volume losses for the USPS.

Telemarketing, Robocalls and Autodialers — “Clarified” Rules by FCCNonprofit organizations use telemarketing, an important channel, for inbound and outbound fundraising. Due to an increase in bad actor activity with robocalls on mobile devices, federal agencies (FTC & FCC) have taken a sharp look at current rules. As a result, new clarifications issued in July must be reviewed by nonprofit organizations to en-sure compliance.

On July 10, 2015, the Federal Communications Com-mission (“FCC”) released the text of its omnibus Declar-atory Ruling and Order (“TCPA Declaratory Ruling and Order”) which the Commission adopted by a 3-2 vote almost a month earlier, on June 18, 2015.

In the ruling, the FCC responded to 21 petitions by a number of companies and trade associations, including the DMA, regarding the requirements of the Telephone Consumer Protection Act of 1991 (“TCPA”). The ruling, which applies to phone, text, mobile outreach, redefines the equipment definition for “autodialer,” specifies liability for calls to “reassigned” telephone numbers, allows call-ers to contact the reassigned number one time (only) to confirm whether or not the number has been reassigned, provides consumers with a right to revoke consent (as re-quired by TCPA) by any “reasonable” means, and estab-lishes new exceptions for financial and healthcare-related calls. The ruling clarifies that carriers and VoIP providers are allowed to implement call blocking technologies upon the request of consumers who want to use such technolo-gies to block unwanted calls. It permits entities to send a one-time text immediately in response to a consumer’s re-quest for information, and provides an additional 90 days to replace prior consents (a DMA petition request) with consent obtained using the language required in the FCC changes that took effect in October 2013.3

Summaries of each issue we are currently monitoring

If you have questions about these

and other issues and/or would like to

participate in our grassroots efforts in the

event of a legislative concern, please contact

Senny Boone at SBoone@the-dma.org or

Alicia Osgood at AOsgood@the-dma.org.

More photos on our Facebook page!

22 The Journal of the DMA Nonprofit Federation

New York Nonprofit Conference August 2015

Volume 18 / Issue 3 / September 2015 23

New York Nonprofit Conference August 2015

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