Rating Potential Donors A Resource of The Osborne Group, Inc

Rating Potential Donors

A Resource of The Osborne Group, Inc.

Ratings are Critical• Capacity to give• Inclination to give• Readiness to say yes

– Capacity and inclination are based on factual information and best practice formulas

– Readiness is a judgment call

(C) The Osborne Group.com 2

How Ratings Help

• They help you focus on the “Critical Few” – those individuals, corporations and foundations with the highest financial capacity to give

• Inclination ratings add another dimension – who is more likely to give

• Together they help you plan your work and set you up for success


Rating Potential Donors

• Capacity -- If they were so inclined, how much could they give?

• Inclination – How closely affiliated, interested in your work, philanthropic are they?

• Readiness -- How much time is needed to engage the potential donor before he or she is ready to say “yes?” to the amount and purpose that you are seeking?


1. Capacity

Rating for Capacity• This rating is

based on statistical giving trends and your knowledge of a potential donor’s income and assets


Giving in the US

• The average American gives 3% of his or her income to charity a year

• The average philanthropic and affluent American gives between 3% and 10% of income annually and/or 4% to 7% of net worth over one to five years

• The super wealthy give a smaller percentage


Calculating Capacity to Give

• Therefore, we determine capacity conservatively at 5% of salary or net worth depending on whether you are seeking an annual gift or a pledged major gift of $25,000 or more


Example of a Capacity Rating

• Mr. Smith has total wealth estimated at $5 million.

• To determine capacity, we estimate 5% of income and assets for a gift over 1 to 5 years.

• His capacity rating, therefore, is 5% of $5 million, which is $250,000 over five years or $50,000 a year.


Other Factors

• Income and assets are not the only factors we have to consider.

• Are the assets liquid or are they tied up in the main residence or in a venture deal or stock that cannot be sold?


What We Don’t Factor In

• When determining capacity to give we do not factor in:– How well the donor knows us, – Or, if he or she is ready to give us a gift.

• Those factors come into play when we’re rating for inclination and readiness.


Don’t Negotiate Against Yourself!

“Joe, our board member says that Mary is worth at least $20,000,000. Five percent of that is $1,000,000 but she would never give us that much. So what do you think we should use for capacity to give?”– “The most she’s ever given us is $1,000

so let’s rate her at $10,000.”


Capacity is Not Necessarily“The Right Solicitation

Amount”• It is an organizing

tool and one piece of the puzzle for determining the “Right Amount” to request when the time is right.

Name Capacity

Next Ask Amount

Joe $1m $10K

Mary $25k $15k


Capacity Ratings

• Should have coded dollar ranges

• For example,• C10 = $5,000,000

to $10,000,000• C9 = $2,500,000 to

$5,000,000

• It’s important to code with numbers and letters so that you can sort your reports electronically


When We Have Partial Information

• In 1996 the IRS published some very helpful information.

• They looked at the composition of estates of $600,000 or more at the time of death


Composition of Estates With Assets of $600,000

Plus1. Stock2. Real Estate3. Bonds4. Retirement assets5. Cash6. Life insurance

equity and annuities7. Other

• 33%• 28%• 13%• 12%• 7%• 2%• 5%


How To Use This Information

• While the information is dated,• And stock portfolios depend on the current

state of the market,• And debt is probably a larger percentage for

younger people than older,• These percentages can be a helpful

guideline in estimating net worth when you have only partial information.


Calculating Wealth Using IRS Information

• For example, if Mr. and Mrs. Jones own a home worth $3,000,000 and that is the only information you can find.

• You might say, as a guideline, that their real estate is probably about 28% of their net worth,

• And divide $3 million by .28 to estimate their net worth at $10 million.


Real Estate Values

• These are the easiest to find

• Just go to www.domania.com

• For most locations you can find the value of homes in your area


For Example

• Joe and Maria own a home worth $800,000

• Using a conservative 25% for the portion real estate represents, we would estimate their net worth at $3.2 million


“Right” Amount

• Capacity• Liquidity• Life stage

• Cost of “Right” PURPOSE

• Level of engagement and commitment to the cause


2. Inclination Ratings

Inclination RatingsRationale for Individuals• Is the donor philanthropic

– Gives to three or more charities at leadership AF levels + ($1,000+)

• Affinity– User of your service,

touched by your cause• How many degrees of

separation? – Someone you knows,

knows them well?

• Frequency of giving to your organization– Three years or more?

The more years the higher the score or frequency in one year

• How recent was the last gift? – Current, last year or two

years ago• Size of last gift

– Larger than your average gift or

– $1,000+


Major Gift Inclination Rating

* Individuals

• High = 10 - 12 points

• Medium = 6 - 9 points

• Low = 4 - 5 points• Remote = less

than 4 points

Criteria Points

Philanthropy 0-2

Affinity 0-2

Degrees of Separation

0-2

Giving Frequency

0-2

Timing 0-2

Size of Gift 0-2

© The Osborne Group, Inc.24

Planned Giving Predictor Rating

* Individuals

• High = 9 - 10 points

• Medium = 6 - 8 points

• Low = less than 6 points

Criteria Points

MG Inclination Rating 0-2

Problem PG can solve

2

Single/ Widowed 2

No dependent children

2

55+ years old 2


3. Readiness

Readiness is an Essential Code

• By when will this prospective donor say yes?

• Not, by when will we solicit this donor.

Rating Level

Capacity $500K - $1mil

Inclination Medium

Readiness 6-12 months


Readiness

• One can only rate readiness by meeting with donors and asking quality, strategic questions.


The Readiness Pipeline


G and UK Readiness Rating

• “G” is more than 12 months but unsure how long– In “discovery mode” and will rate for

readiness after completion of discovery visit and development of an engagement strategy

• You might want to have a code for Don’t Know -- UK


Together…

• …these three ratings provide you with a powerful management tool.

• Commit to all three and manage your prospective donor pool with acumen


Need More Information?

• If you would like to learn more about rating prospective donors, research, or any other aspect of fund development, contact us at 914 428-7777 or [email protected]


Feel Free to Use…

• This information is the copyrighted intellectual property of The Osborne Group, Inc. (TOG)

– 701 Westchester Avenue Suite 205W White Plains, NY 10604 www.theosbornegroup.com

• It cannot be copied, sold, or given away with written permission from TOG


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Rating Potential Donors A Resource of The Osborne Group, Inc