A tsunami of financial risk threatens nonprofits that do not cultivate tomorrow’s major donors today.  The revenue of small and mid-sized nonprofits is often overly concentrated among a small number of major donors, which poses great risk. The loss of one or two major donors (aka whales) can significantly impact the organization’s ability to function.  At the same time, the pool of donors in the U.S. has been shrinking and competition over major donors is more intense than ever.

Nonprofits should not stop catering to major donors, but for the sake of the organization’s longer-term health, ramping up efforts to recruit new donors will enable it to diversify its revenue and ensure greater sustained impact.  

Why Pursuing Small-Dollar Donors Is a Smart Strategy For Diversification

We’d all love to diversify with more major donors and even mid-level donors if we could, but we all know they don’t grow on trees.  Acquiring new supporters with small-dollar donations is all about “getting them in the door” and establishing a relationship with your organization.  Fortunately, small-dollar donors bring in revenue that’s unrestricted in what it can be used for.  These new donors not only represent greater revenue diversification going forward, but also a more diverse profile of donors compared to the small cluster of large donors.  

Small-Dollar Donors Doesn’t Mean Chump Change

At their most basic level, small-dollar donors who are nurtured appropriately should average several hundred dollars over a 5-year horizon.  Assuming you acquire them for $100-200 on average, you get a 2-3X return on investment (ROI).  Looking at a longer horizon and estimating a donor’s lifetime value, the ROI grows handsomely.

Small-dollar donors can also be monthly sustaining donors, who generate more reliable revenue, allowing the organization to plan and budget more effectively.  In our experience, some new donors can be compelled with emotional appeals to become monthly sustaining donors straight away.  In other cases, we trade up a new one-time donor to a monthly sustaining donor with some nurturing.  Monthly subscriptions and monthly memberships have become so pervasive across e-commerce, media and services, has normalized the option to be a monthly supporter of charitable causes.  

Bequests turn out to be another source of revenue where historically small-dollar donors play a significant role.  According to research by the Stanford Social Innovation Review, “Small-dollar donors make up the lion’s share of planned giving at most organizations” even though they are not typically the target of outreach.  The Review goes on to say, “Bequests from middle-class donors frequently exceed $100,000, and some colleges report that their typical bequest is 2,500 times their average annual gift.”  Last year, US nonprofits received more than $42 billion in bequests, per Giving USA.  

The Great Wealth Transfer is Coming

Looking at the bigger picture, the U.S. is expected to have an $84 trillion Wealth Transfer in the next 10 years as Gen Xers, Millennials and Gen Z stand to inherit large sums from their elders.  Nonprofits must establish relationships today with tomorrow’s major donors.  Being on their short list of charitable organizations before they inherit a windfall is critical.  Aside from probably having different interests from their parents and grandparents, their communication habits are different, which requires a more contemporary approach for nonprofit organizations.

The Laws of Large Numbers and Averages

Whether you use the latest sophisticated wealth screening tool like Hatch or leave if up to the law of averages, some of the new donors will become mid-level and major donors.  A few dozen out of 1,000 new donors would be a hit rate of 0.36%.  How many of us have heard a story about a major donor hiding in plain sight?  Just recently, a development officer from a large hospital foundation told me about a man who had been giving $100 a year until she spoke to him and got a $300,000 check, which was way more than she was going to ask.  “We had no idea,” she said. 

We’ve got to start somewhere to build a pipeline of major donors.  Casting the net wide and nurturing those donors wisely will bear fruit.  Michael Bloomberg’s first donation to Johns Hopkins was $5 after he graduated before eventually giving millions and ultimately more than $3.3 billion. 

How to Attract and Retain New Donors

Here are 7 tips for winning with small donors:

1. Reach sustainability through scale, enabled by digital. The sustainability that small donors contribute is achieved through scale and efficiencies.  There are certain fixed costs related to attracting and retaining donors—making an ad, writing an email, managing the media.  Your ROI improves significantly when you amortize your fixed costs over 10,000 or 100,000 donors vs. just 100 or 1,000 donors.
2. Go where their attention is.  The average American spends over 4 ½ hours a day on their smartphone, and the majority of time spent is on social media and video apps.
3. Leverage the strengths of the platforms. Bring your mission to life and inspire action with emotion-driven videos.  Harness the powerful targeting.  Facebook and Instagram are most efficient while YouTube and ConnectedTV/Streaming apps provide a captive audience that have to watch the whole ad.
4. Test, learn and optimize to figure out how to acquire donors.  Test different creative assets and target audiences. Establish your own benchmarks and keep improving.  Scale your investment based on your growth ambitions and budget constraints.  Event dollar invested is an opportunity to learn.
5. Rinse and repeat to drive retention and sustaining donors.  Retargeting donors using paid digital media is economical (costing a fraction of a cent per impression) and email is practically free to send.  Event dollar invested and email sent is an opportunity to learn.  Direct mail is testable, however, these donors already established their relationship with the organization digitally.
6. Identify high potential donors.  Run your donors through a wealth screener quarterly to identify those people with a higher capacity to give and/or track record making larger gifts.
7. Do fewer bigger better.   Focus on doing fewer channels better and scaling those before jumping into a broad multi-channel campaign and spreading your resources thin.

Note: No whales were harmed in the creation of the illustration.  It was created using Copilot AI by Microsoft.  We do not support the hunting of any whale or animal.