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Nonprofit Payment Processing: The Only FAQ You’ll Need

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Nonprofit Payment Processing

Payment processing is a complicated topic that few nonprofit organizations dive deeply into. This is probably why large payment processors like PayPal and Venmo are popular options to fall back on. However, these might not actually be the best choices for your nonprofit.

Having a dedicated and secure payment processor is crucial for nonprofits that want to maximize their fundraising efforts and protect their donors’ information. This is especially true during a global pandemic, as online donations are likely the biggest revenue channel amidst social distancing guidelines and the indefinite pause on in-person fundraising events.

To best understand the payment tool that’s right for your organization and cause, it’s important to dive into what exactly nonprofit payment processing is.

Here at iATS Payments, we work with nonprofits to provide a safe and effective payment processing system to collect their online gifts. It’s always a good idea to review the basics, especially if you’re looking to upgrade your current payment tool or are simply in the market to invest in a new one.

We’ve created this guide to help nonprofits like yours fully understand nonprofit payment processing through the following frequently asked questions:

  1. What are the key terms to know?
  2. Why do nonprofits need a payment processor?
  3. What payment processing security features do you need?
  4. What’s the difference between ACH debit and credit card payments?
  5. What does the payment process look like?

Don’t worry if this seems like a daunting topic to dive into. These are questions that many nonprofit professionals find themselves asking, and the answers are more simple than you think. Let’s begin.

What are the key nonprofit payment processing terms to know?

One of the reasons why payment processing in general, let alone nonprofit payment processing, may be so difficult to understand is due to its jargon. Without understanding the specific terms involved, it’s easy for the words to fly over your head and important details to fall into the cracks.

Here are some key nonprofit payment processing terms to learn:

  1. Online Donation Tool. This is the tool your organization uses to accept online gifts. This is different from your payment processor as it doesn’t necessarily process the donor’s financial data. Your donation tool must connect to your payment processor to collect the donated funds from donors. Some online donation tools integrate with dedicated payment processing tools to make the experience more streamlined and prevent users from inputting information on a third-party page.
  1. Merchant Account. This is the account where your nonprofit holds and processes all donations, whether from debit or credit cards. However, this is not where you access the funds. Instead, they are automatically transferred from the merchant account to your main bank account. This account is either set up between a nonprofit and a merchant-acquiring bank with a small fee taken for each transaction put into the account, or, it can be provided by the payment processor.
  1. Third-Party Processor. This describes the outside tool that acts as the middleman between your organization (the merchant) and your donors’ banks. It transmits the relevant data to the issuing bank and authorizes each online gift. This helps nonprofits accept online funds without having to create their own merchant account. Since this processor doesn’t partner with a bank, it instead gives the nonprofit access to the processor’s merchant account. Third-party processors can either be large aggregators or a dedicated tool.
  1. Aggregator. This describes popular options like PayPal, a larger company that processes online transactions for multiple businesses or organizations. If you use an aggregator, your nonprofit funds go to the aggregator’s merchant account with other organizations’ and companies’ funds. While these may be easy to use, oftentimes the merchant is paid out only once a month instead of having immediate access to the funds.

  2. Dedicated payment processor. Instead of depending on a large aggregator to help process your nonprofit payments, consider a dedicated tool. This allows the entire process to be hosted within your online donation page. Here, you have your own merchant account, which is provided by the processor service.

Effective nonprofit payment processing can be done in a number of ways, and it’s up to you to figure out which option is best for your budget and donors. Consider investing in a payment processor dedicated to nonprofits specifically, so that its capabilities meet your unique needs.

Why do nonprofits need a payment processor?

Back when most donations were given through check or in-person, having a payment processor for your nonprofit was likely unnecessary. However, with the prevalence of the internet, online gifts are becoming increasingly more popular. According to Double the Donation, overall online revenue increased by 23% over the past year, up from 15%.

Now, with a global pandemic deterring most of your in-person donor engagements, optimizing your online payment process is more important than ever. Whether someone made an online gift, bought merchandise, registered for an event, or submitted their membership fees, the process should be quick, efficient, and secure.

As you can see, your nonprofit receives money online through many different channels. Having an effective payment processor is integral to the success of your organization and the safety of your supporters.

With that in mind, we do recommend a payment processor that is dedicated to only working with nonprofits. There are many special considerations that might come with online giving that a more general payment tool might not have. For instance, being able to process recurring donations might be one of them. Without access to fundraising-specific features to maximize your organization’s success, you’re likely not taking advantage of all opportunities.

What payment processing security features do you need?

A considerable component of an effective payment processor for any type of organization or business is how secure it is. Hackers and data breaches are some people’s biggest fear, especially if they lead a nonprofit organization. After all, your donors are submitting very crucial financial information just to support your mission. You don’t want the tool you use to be the reason their finances are compromised.

Let’s review some of the most essential security features your payment processor should have:

  1. VPN (Virtual Private Network). A VPN is one of the ways that organizations prevent fraudulent payments and unauthorized users. VPNs encrypt your data with a series of virtual connections and ensure that your internet connection is secure and that the data is safe.
  2. Payment Gateway. As soon as an online transaction is made, the donor’s financial information goes through your payment processor’s payment gateway. This helps protect vital data and prevent fraud until the funds reach your merchant account.
  3. PCI compliance. The Payment Card Industry group has a series of official safety protocols that each payment processor should adhere to. By following PCI standards for data storage, processing, and transmission, your payment processor can better prevent fraud. Any tool that handles transactions should at least be PCI compliant.
  4. PCI certified. Most business owners and organization leaders know that PCI compliance is important. So much so, that they will go the extra lengths to find a PCI certified tool. PCI certification has grown in popularity as data breaches become more common and advanced. However, this requires an intensive PCI DSS audit performed by a qualified security assessor. They need to validate the entire payment process and ensure that it upholds security standards.

As you can see, certain protective measures are necessary to ensure that all of your donor data is secure and safe. This is another reason why staying away from aggregators might be your best bet. Since they use a shared merchant account for many of their clients, if one of those clients’ data is compromised, it can be safe to assume that the entire merchant account is as well. Alternatives to PayPal such as dedicated payment processors are your best bet for security and ease of mind.

What’s the difference between ACH debit and credit card payments?

A wonderful aspect of online giving is the ability to accept different types of gifts. You no longer have to narrow your options to physical checks! What exactly can your payment processor tool handle?

According to this article, it’s important to make sure that your technology is doing all it can to maximize your fundraising efforts. For example, your nonprofit payment processor should be able to accept both debit and credit card payments. Before we dive into the debit and credit card payments, let’s discuss what ACH even is.

ACH (Automated Clearing House) is a generic term that describes all of the various forms of an online transaction between two financial institutions. This can include checks, echecks, payments taken directly checking or savings accounts, and even credit.

By accepting ACH transactions, your payment processing tool enables donors to use their debit card (or another form that requests money from their bank account) to make an online gift to your organization. ACH facilitates the electronic fund transfers from your donors’ banks to your own merchant account and usually takes around 72 hours to be completed.

However, your tool should also accept credit card payments. Since credit cards work on money that is essentially borrowed, each credit card must utilize a network (like Visa or Mastercard) to verify whether the transaction is within the credit limit. An ACH payment request is then sent to the relevant credit card network. If the network approves the transaction, those funds are sent to the merchant.

In order to increase online donations and provide convenience for your supporters, your nonprofit payment processor should be able to accept credit card and ACH direct debit payments.

What does the payment process look like?

To complete our nonprofit payment processing guide, let’s explore exactly what the payment process looks like. What happens when a donor makes an online gift? What steps does the gift go through before it’s accessible to your organization?

Here are the common steps:

  1. An online gift is made via your donation tool. All of the donor’s personal data should be automatically saved to your database.
  2. Your payment gateway receives the transaction request and will either verify it or flag it for fraud.
  3. If the transaction is approved, it is sent to the payment processor tool used.
  4. Your payment processor submits a fund transfer request through the ACH network.
  5. The ACH payment request is then either relayed to the donor’s credit card network or processed as an ACH debit payment directly with the donor’s bank account.
  6. If the transaction is approved again, the funds are sent back through the ACH network.
  7. The funds are then stored in your merchant account. If you use a payment aggregator, the funds will be deposited in a shared account to be distributed at a later date. If you have your own dedicated merchant account, you’ll likely receive funds quicker.
  8. Your merchant account begins the process of transferring the online gift to your own banking account.

Now you know exactly how an online gift is processed and finally ends up in your nonprofit’s own bank account. With this information, you can better pick a payment processor that matches your needs and increases your effective fundraising efforts!

Nonprofit payment processing might involve numerous steps and the knowledge of specific vocabulary, but it doesn’t mean you have to be in the dark. Having a better understanding of what goes behind each online gift and your payment processor’s exact capabilities can only help you improve future efforts and choose the best tool to do so!

Using Strategic Communications to Increase a Nonprofit Board Effectiveness

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Nonprofit Board EffectivenessWant to take your nonprofit to the next level? Your board can help you do that. A strong nonprofit board offers insights and resources that help the organization solve complex problems and achieve bold goals.

However, recruiting smart leaders and planning productive meetings isn’t enough. Developing an effective nonprofit board requires strategic engagement and consistent communication.

Your board members won’t be able to offer meaningful help unless your organization makes them feel connected, appreciated and informed. And for them to feel this way, you have to invest in thoughtful onboarding when they join your team and outreach throughout their time of service.

Each nonprofit board member must understand how their strengths intersect with your needs. They require tools that allow them to share their passion for your work. And they need an authentic relationship with your organization that motivates them to roll up their sleeves when it matters most.

Build a Strong Foundation From the Beginning

Set clear expectations. Ask your board members for help with co-creating a nonprofit board performance policy. The policy should outline the key ways you expect each member to support your nonprofit. Be explicit about how you would like them to use their resources to elevate your work. Include a copy of the policy in your board toolkit, explained below.

Provide a nonprofit board toolkit. As part of on-boarding, give new board members the tools to understand and promote your work. Providing digital and print materials such as:

• Your nonprofit’s elevator speech
• One pagers on fundable programs
• Attractive and inspiring flyers and brochures
• Merchandise featuring your brand
• Social media content to share on their channels

Since social media is a key way for them to engage their networks, include social media tools such as suggested post copy, graphics and photos for social posts, profile cover photos, and profile frames. Give your nonprofit board members content they can use throughout the year and special assets for holidays and campaigns.

Explain their role in your culture of philanthropy. Ensure that your nonprofit board understands the importance of fundraising to your organization’s financial health and community leadership. Explain the key role everyone plays—including board members—in meeting your fundraising goals. When you share fundraising updates with them, emphasize the connection between your achievements and their individual efforts.

Build authentic connections. Create opportunities for your nonprofit board members to build relationships with the people inside your organization. This will help them forge a deeper connection to your mission. It will also help them better understand various facets of your work.

Familiarize nonprofit board members with the populations you serve. The best way to do this depends on the nature of your work, but board volunteering days can make a big impact, emotionally and intellectually.

When appropriate, invite them to staff activities like lunch and learn seminars, happy hours, or quarterly meetings. However, if your board will be in attendance, be sure to notify staff beforehand and give them background information on the members who will be there.

Keep Them Engaged Over Time

Develop a nonprofit board communication plan. Map out an annual calendar that outlines when and how you’ll communicate with your board. This will ensure this key group of stakeholders doesn’t fall through the cracks as you reach out to key audiences. It will also keep you accountable to sending them regularly scheduled updates.

Don’t just share major announcements and board meeting materials. Reach out with compelling news and updates from across your organization. Your communications will keep them interested while also reducing any blind spots they may have about how you operate.

Create an email newsletter. Make an email newsletter one of the key communications in your board communication plan. Your board members are already accustomed to building and maintaining relationships via email, so use this important channel to share helpful tools and information with them. By repurposing your nonprofit’s existing communications when possible, develop a brief, attractive newsletter with content such as:

• Relevant news stories
• Recent press releases
• Top-performing blog posts
• Short, simple program updates
• Major fundraising achievements
• Expressions of gratitude (highlighted below)

Keep asking for input. Request your nonprofit board members’ help when you see a connection between their resources and your needs. Just be sure your leadership team is aligned on the ask before you reach out.

For example, ask nonprofit board members for help with donor identification and cultivation. Be open, letting them know that you would be grateful if they’d strategically reach out to any contacts who may have an interest in your cause. Invite them to participate in conversations with like-minded donors. They can strengthen your outreach to donors with similar backgrounds.

And if other opportunities come up where board members can make a meaningful difference, don’t be afraid to ask. If you don’t ask, they may not realize how they could be supporting you.

Honor and thank your board. Weave gratitude into all of your board communications. When new members join, proudly announce their appointments internally and externally. This will demonstrate your appreciation to new members, acquaint staff with the board, and elevate your organization’s thought leadership in the public eye.

Share success stories with your board often, connecting mission impact with their dedication and support. Help them see themselves among the heroes in your organization’s story.

Follow your nonprofit board members online to stay in-the-know about what’s going on in their lives. Connect with them on LinkedIn and create Google alerts for their names so you don’t miss anything. Congratulate them on their accomplishments to show that you are invested in their success.

Commit to Invest in Your Board

An effective nonprofit board helps a mission-driven organization reach new heights. But to build a successful board, you must develop cohesive communication and engagement plans.

It’s crucial to reach out to your nonprofit board with transparent, informative and authentic communications. And you need to provide every member with tools and opportunities to share your work with their communities.

The good news is that if you invest in creating an environment where your nonprofit board can thrive, you’ll also be helping your nonprofit’s mission thrive.

Building a Nonprofit Digital Strategy: Key First Steps

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Nonprofit Digital StrategyWith the growing prevalence of the internet, the necessity of developing a digital strategy is not something nonprofits should overlook. Over the past several years, many nonprofits recognized this opportunity and began shifting to digital outreach. The pandemic accelerated that transition, and with social distancing guidelines in full effect, organizations can no longer interact with supporters face-to-face. In other words, having a digital presence is more important than ever.

To strengthen your online presence and connect with supporters during social distancing, you’ll need to develop a nonprofit digital strategy. In short, a nonprofit digital strategy is a plan to expand your organization’s reach online. It involves any outreach that takes place online, including your website, social media accounts, and any other marketing materials.

With many of your supporters already online, digital marketing is one of the most effective ways to reach them. However, with all its nuances, it can be difficult to know where to start (especially if you’re not particularly tech-savvy). To help, this guide will cover the essential first steps to improving your online presence:

  1. Upgrade your current technology.
  2. Define your overall goals.
  3. Develop a communication plan.
  4. Analyze performance data.

Developing a strong digital strategy will offer ongoing value to your nonprofit, both with fundraising and sharing your mission. If you’re ready to learn the necessary first steps, let’s get started.

Step #1: Upgrade Your Current Technology.

To truly maximize your online presence, you’ll need a dependable online fundraising solution. You likely already have a platform (or several) that you use, but it’s always worthwhile to check for potential areas of improvement.

Analyze your organization’s current toolkit and determine where it’s falling short. For reference, these are the core features your tech stack needs in order to ensure success:

  • Customizable donation forms. Your donation form is the core of your online fundraising strategy. In order to accept donations online, you’ll need a donation form located directly on your website. Further, you should be able to customize it to match your brand and collect the information you need.
  • Web development tools. A dependable content management system (CMS) will help you create a beautiful website that engages visitors and encourages interaction. Make sure your CMS is nonprofit-specific so that it includes all the fundraising functionality that generic website builders don’t offer.
  • Marketing tools. Proactive communication with supporters is one of the most important parts of fundraising. With software that offers dedicated marketing tools, you’ll be able to automate data from your CRM, segment your supporters into email lists, and schedule emails so you can stay connected and steward strong donor relationships.
  • Data and analytics. When used effectively, insightful analytics can inform future decision-making and improve fundraising efforts. Ensure your software allows you to monitor the most important data to your team, so you can visualize your efforts and locate areas in need of improvement.

Your online presence can mean the difference between exceeding fundraising goals and falling short. Especially as social distancing remains in effect, it’s important that you have a centralized system that allows you to continue fundraising and to connect with donors from afar.

Step #2: Define Your Overall Goals.

After you’ve solidified your toolkit, it’s imperative that you determine your desired outcomes for your digital strategy. Setting measurable goals prior to taking action will serve as a strong foundation and guide your strategy development.

If you’re struggling to determine which objectives to set, start with more general ideas, such as:

  • Increasing digital event sign-ups
  • Increasing member satisfaction scores (determined via surveys)
  • Raising a certain amount of money

Once you’ve set more general goals, you’ll want to nail down the specifics and make them concrete. To accomplish this, there are a few key steps to take as you set your digital goals:

  1. Analyze your current strategies. What gaps exist in your current digital process? Your updated goals should address any shortcomings, whether it’s an issue due to ineffective use of staff time or underperforming technology.
  2. Talk to key stakeholders. Those who are directly involved in executing your digital strategy may be able to provide insight into areas that need improvement. Ask your director, board members, and any other leadership for feedback on goals they think are worth considering.
  3. Review your long-term priorities. Each of your goals must align with your nonprofit’s long-term priorities, whether they’re financial, program-related, or mission-oriented. Take the time early on to ensure your digital strategy goals don’t contradict your broader goals to avoid conflict down the line.

Walking through these steps will guide you toward more concrete, actionable goals from the start. Whichever goals you choose, make sure they’re quantitative so that your team will be able to measure progress toward them. You’ll start off on the right foot by setting smart, achievable goals with realistic checkpoints along the way.

Step #3: Develop a Communication Plan.

Once you’ve implemented efficient technology and defined concrete goals, you’ll need to develop a communication plan to help you reach those objectives. Starting with your target audience, select the platforms that will likely yield positive results.

Let’s explore three digital marketing outlets that any nonprofit digital strategy should take into account along with tips for successfully using each:

  • Your website. Your nonprofit’s website is likely the first stop on anyone’s journey to learn more about your cause. It houses information pertaining to your programs, your work, and involvement opportunities. The best nonprofit websites include valuable content that can be shared across all outlets to drive traffic back to the site itself. This includes a well-designed donation page, your volunteer form, blog content, and more. Any outreach (e.g., emails, social media, etc.) should direct users back to your website, so the onsite content must be optimized to convert them into donors, volunteers, or advocates.
  • With all the hype surrounding social media, it can be easy to neglect a tried-and-true method: email. Use your emails to promote new content on your website as well as involvement opportunities. Adjust your messaging and target email subscribers using segmentation, which involves grouping your supporters into meaningful groups (e.g., major donors, recurring donors, volunteers, etc.). Learn about this strategy in depth with Doubleknot’s ultimate donor segmentation guide.
  • Social media. With an estimated 6 billion social media users worldwide, there’s a good chance some of your existing supporters and future prospects have social networks. Harness the power of the share button with digital content such as engaging videos, powerful imagery, inspiring donation appeals, and content on your website, such as informational blog posts. Interact with followers in the comment section and invite them to share your posts with their personal networks for an even greater reach.

For the best results, you’ll want to implement a combination of various channels, which is a popular strategy known as multichannel marketing. However, investing time in several platforms may ultimately turn into a waste of resources.

Instead, you’ll need to select the digital channels that make the most sense for your team and its conversion goals. This allows you to refine your messaging, instead of sending mediocre outreach across several platforms. To explore this concept further, take a look at CharityEngine’s multichannel fundraising guide, which provides tips your team can implement.

Developing your digital plans with each specific outlet in mind will allow you to create effective messages. Doing so in advance will give you sufficient time to create content that’s optimized to attract attention from each outlet’s audience.

Step #4: Analyze Performance Data.

Once you’ve reached your marketing or fundraising goals, it can be easy to stop there. However, to solidify your digital presence, you’ll need to continuously analyze performance and update your strategy as you go. Identifying which conversion metrics you’d like to track early in the process will help you determine progress and overall performance as your strategy unfolds.

The specific metrics your team will need to gather and analyze depend on the type of campaign you’ve hosted. Specifically, these are common data points that can be used to inform your future outreach strategies:

  • Donor Acquisition
  • Donor Retention
  • Volunteer Applications
  • Event Registrations
  • Email Subscriptions

If you’re struggling to determine which metrics to track, base them off of the goals you set early on. From there, break down the quantitative metric that measures that specific outcome. For instance, if your goal was to increase the effectiveness of your email campaigns, you may consider measuring open rates, conversion rates, and unsubscribe rates.

Without analyzing progress, the time and resources you’ve invested in developing a digital strategy will go to waste. By taking this extra step, you’ll continue improving going forward and maximize your potential.

There are many steps involved in creating a nonprofit digital strategy. Remember, the right technology will serve as the foundation for your plans and will open the door to a number of possibilities. Go into it with a strategic game plan, and you’ll be sure to expand your audience and reach your conversion goals.

If you’d like to learn more about developing a strong digital presence, check out DNL OmniMedia’s nonprofit digital strategy guide. You’ll learn about a range of steps your team can take to solidify your digital outreach plans and improve outcomes. Best of luck!

3 Key Benefits of Nonprofit Integration Software

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Nonprofit Data IntegrationNonprofits have sometimes lagged behind their commercial counterparts in the adoption of technology. However, one observation that’s safe to make is nonprofits have generally come to realize that ‘best-of-breed’ solutions support a more effective IT structure overall than integrated software systems.  Best-of-breed applications generally provide a better solution for doing that one thing that needs to get done, with richer functionality, and a better user experience both for the nonprofit and the supporter / patron / constituent.

The wrinkle, though, is that best-of-breed – or ‘point’ – systems are generally unconnected and unintegrated, creating a bunch of data siloes, none of which provide a full picture of a supporter’s / patron’s / constituent’s overall involvement.  One system may contain data related to event history and interests; another, email activity and newsletter preferences; a third, volunteer assignments and hours; a fourth, online donation history; and so on.

So – data from point systems need to be integrated into the main CRM system of record.  When systems are not integrated, when key information is maintained in siloes and not consolidated, fundraising initiatives can become crippled. This occurs because fundraisers – up and down the pyramid – are missing fundamental information that can help them build relationships, send the best possible messaging, and elicit support to further the mission.  And worse, when some of that siloed information is stale or just plain wrong, and not updated or corrected, relationships with supporters can be damaged and opportunities missed.

The Three ‘Cs’ of Nonprofit Data Integration

The benefits of using data integration technology – specifically designed and built for nonprofits – can boil down to three ‘Cs’ – Currency, Cleanliness, and Completeness.  When a nonprofit’s database system of record is current, clean, and complete, data can be used confidently and strategically to drive increased donor acquisition and retention.  This is done through cogent messaging and other fundraising interactions that leverage that very data to create a personalized and compelling experience for prospects and existing donors alike.

Currency

The currency, the freshness, of a nonprofit’s data will directly inform the messaging and interactions that take place between fundraisers and their donors and supporters. Consider, for instance, these three examples:

  • If gift data is not up-to-date in the system of record – and if direct marketing segments are pulled before the most current gift data has been imported from the website or the lockbox system – current and lapsed donors may be pulled into the wrong marketing segments and sent inappropriate solicitation messaging.
  • If supporters’ event participation is not up-to-date in the main database, they may be sent the wrong stewardship information or not sent anything at all related to the event in question.
  • And, if email (or mail) preferences are not current in the main system, supporters may be sent the wrong email (or mail) at the wrong time (or to the wrong place).

Nonprofit integration software can ensure that data from all best-of-breed point systems are incorporated into the main database system in a timely and time-efficient manner, so that information is always fresh and current.  Similarly, solid integration software can also take care of the ‘round trip’, so that the ancillary systems are sure to get updates – eg, street and email address changes or offline gift detail – that come into the main database first.

Cleanliness

The greatest enemy of credibility with supporters is unclean data.  This includes everything from erroneous biographical and mailing information, to duplicate records, to names and addresses with improper casing (eg, stan macmillan rather than Stan MacMillan).

Certainly, as a baseline, biographical and mailing data should be accurate.  Names and addresses should be spelled properly; incorrectly spelled email addresses will certainly bounce back.  With more and more biographical data coming into main systems from external online sources, very often it’s the supporters themselves who inadvertently misspell their own information when entering it on a donation page, or when updating their record online after a change in address or marital status.  Donors and even first-time newsletter subscribers have been known to enter information in all lowercase (ohara, mcdaniel, sunset blvd.,) because it’s easier.

Standard import tools typically will not catch these errors and will often create new duplicate records for individuals if, for example, their incoming email address does not match the email address on the existing record.  Think of this scenario – Stan MacMillan, a donor already in the system, makes a new online gift of $100, but inadvertently mistypes his email address.  The standard web donation import does not match his mistyped email with his actual email, and so creates a new (duplicate) record for him incorrectly, but now with a bad email address, plus, his giving history on his actual record is now understated.  He also gets no acknowledgment because of the erroneous email address.  This has all at once become problematic – and ‘unclean’ – on so many levels!

Nonprofit integration software can ensure that your system of record is always clean and pristine by using sophisticated matching and scoring criteria to indicate whether a ‘new’ record coming in from an external source is actually already in the main system.  In the example above, the integration software would have matched the gift from the person with the mistyped email address with the right donor record, added the gift, and discarded the erroneous data.  The donor would have gotten a proper acknowledgment in a timely fashion.  Further, the software would also properly ‘case’ person, company, and street names.  In addition, it could translate input abbreviations such as ‘NYC’ to ‘New York’ or ‘Chi-town’ to ‘Chicago’, etc.

Completeness

When data are maintained in siloes and not integrated, nobody within the organization can ever have a complete picture of their supporters.  Just as bad, nobody in the organization can get an effective handle on groups of supporters who have characteristics in common – because information about them is fragmented and segregated.

By effectively consolidating data from various best-of-breed point systems into a single system of record, users across the organization are afforded a full, comprehensive, and complete picture of every supporter.  And, just as important, they can effectively and confidently compile discrete groups of supporters with common characteristics, so they can be engaged in the most meaningful, effective ways possible.

As you’re considering the various apps and integrations available for your CRM solution (whether that’s for Salesforce, Raiser’s Edge, Blackbaud CRM, or other systems of record), be sure to choose integration software that will connect all of your systems together to consolidate data effectively.

Nonprofit integration software makes it easy and effortless to consolidate data from ancillary systems into the main CRM, and because the process is not complicated, data can be integrated daily or as often as is necessary.  Plus, as discussed above, the software will ensure that only new data are added to existing records, that duplicates are not created, but that valid new records are added with proper attribution. Not only this, but integration software will ensure all of your systems are in sync rather than relying on one-off apps and integrations.

Quality Data

The Director of Development Services at a large nonprofit – $100 million in annual contributions and some 25,000 monthly donors – was ‘gushing’ about her integration software.  She had at first marveled about how quickly the gift information and biographical updates were getting into the system – no more working overtime, no more sacrificed weekends or vacations.

But she soon realized that the true benefit of current, clean, and complete information was as much strategic as it was tactical.  High-quality data – integrated into the CRM expediently and conveniently – gave her fundraising colleagues the head start they needed when pulling marketing segments so that campaigns were never delayed.  And, they now had the ability to test discrete segments based on timely nuances in supporter behavior.  And the most recent donors could be easily suppressed so as to not get embarrassing solicitations so soon after making a gift.

That’s just one example.  Nonprofit integration software will eliminate the data silos that are the natural result of using best-of-breed solutions to effectively run the various pieces of a sophisticated and multifaceted fundraising organization.  Such technology can ensure that data are integrated into the CRM system expediently, that records are properly matched, and that new records are only created when appropriate.  It can clean-up issues like improper casing, bad abbreviations, and misspellings.  And, it can furnish users with a comprehensive view of the supporters with whom they work.

The Nonprofit Board’s Role in CEO Selection

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Nonprofit CEOHistorically, incumbent CEOs of not-for-profit organizations anointed their successors, by preparing one or two strong internal candidates, thereby ensuring leadership continuity and the CEO’s legacy. However, that often doesn’t work. Too often, when I’ve assessed internal candidates to replace a retiring CEO, I find no one ready to take the helm. Then the search for external candidates begins.

In all cases, selecting the right person from among internal and external candidates remains the single most critical task the nonprofit board has. This requires a systematic three-step process that readies both internal and external candidates for transition to the executive chair.

Nonprofit Board CEO

Step One: Revisit the Mission and Strategic Principle

Success depends on a strong strategic principle—a shared objective about what the nonprofit organization wants to accomplish. The mission explains why the organization exits, and the strategic principle guides the company’s allocation of scarce resources—money, time, and talent. Revisiting both when a new CEO takes over helps to ensure a successful future.

Directors of successful nonprofit boards assume the roles of the architect, steward, and guardian of the strategic principle. This job cannot be outsourced, completed, or scheduled, and it’s the most uncertain thing directors do because it involves speculation about unknowns and requires a journey into murky waters.

nonprofit leader rolesThe strategic principle doesn’t merely aggregate a collection of objectives. Rather, this simple statement captures the thinking required to leverage a unique contribution that forces trade-offs among competing resources, tests the soundness of initiatives, and sets clear boundaries within which decision-makers must operate. When leaders face change or turmoil—and CEO selection brings both—the strategic principle acts as a beacon that keeps the ships from running aground. Even when the leadership changes, or the economic landscape shifts, like the mission, the strategic principle remains the same.

Assuming the nonprofit board started CEO succession 3-5 years before the incumbent’s departure, directors have already committed to identifying and developing internal candidates. They have given these candidates exposure to the board, key clients, and stakeholders. Similarly, the board has at least a rudimentary plan for transitioning leadership.

Sometimes directors don’t have the luxury of developing and monitoring a succession plan and then creating a timeline for transition, however. Too often, a crisis shortens the timeline and forces the board into an even higher-stakes situation with the cost of picking the wrong CEO even more ominous.

The transition from one CEO to the next is a risky endeavor fraught with opportunities to lose top talent, stakeholders, and key customers. When the board takes its eyes off the strategy, these risk factors become more threatening. Ideally, directors have consistently and conscientiously monitored the company’s strategy to determine how to align their objectives with the company’s current leadership capabilities to set the stage for the future leader.

Step Two: Set Criteria for Selecting the New CEO

Directors who have focused on CEO competencies through systematic evaluations start the selection process ahead of the game. These boards have regularly considered potential replacements, should the incumbent CEO leave suddenly and unexpectedly, and they have ensured the organization is sufficiently talent-laded to allow for a seamless succession. These kinds of boards are as stellar as they are rare.

Setting the criteria for the new CEO starts with decisions about what the success factors for the new CEO will be. These decisions often begin with an evaluation of the incumbent CEO, but they can’t stop there. The board’s tendency will be to try to select a clone of the existing CEO, even though the strategic direction of the company promises to vary drastically from the current one.

Directors should develop a clear view of what will make the new CEO successful and express their expectations about financial targets, the complexity of the changing organization, the scope of the CEO’s role, and general market conditions. If no agreement about the abilities and vision of the next CEO exists, agreeing on a candidate will prove impossible.

When directors develop a shared perspective about the future and the strategic challenges the company and the new CEO will face, however, they take the first critical step toward a successful transfer of power. The next step involves defining the capabilities the new CEO will need and the specific qualities, skills, and behaviors the person should demonstrate.

When I work with nonprofit boards on CEO selection, I start with general questions that include the following:

  • What type of person will “fit” the needs of the future company?
  • How will want this person to demonstrate a passion for our mission?
  • Should the new person fit the existing culture?
  • Or, should a new leader use a turnaround style to overcome obstacles the culture has created?
  • What values should the new CEO evidence?

I ask nonprofit board members to start the selection process by finding candidates that I call “multi-business leaders.” In large organizations, these people typically run a major part of a large organization or smaller organizations that report to the parent. At other times, the candidates have managed other managers. Keep in mind that often the best candidates will not come from the nonprofit arena. Rather, they will have gained valuable experience in running a for-profit company that will easily apply to a nonprofit.

In all cases, taking on the CEO’s role should represent a significant step up—not a huge leap. Candidates should evidence all the multi-business success indicators and demonstrate a willingness and ability to move to CEO-level performance. This is how I think about how a multi-business leader transitions to the CEO chair:

Decision Making / Problem Solving – Multi-Business Leader

  • Aptitude for making sophisticated financial decisions related to profit and loss
  • Three to five- year vision
  • Skills for blending specific business strategy with overall enterprise strategy
  • Talent for critiquing strategy by asking questions and requiring support data
  • Complex thinking to manage more than one business
  • Decisiveness
  • Global perspective
  • Creative problem solving

Decision Making / Problem Solving – CEO

  • The knowledge of how to use financially presented data to make sophisticated business decisions
  • Visionary thinking—five to ten-year focus
  • Ability to handle ambiguity and a willingness to embrace it
  • Skills for setting priorities effectively
  • The ability to see patterns and contradictions
  • A knack for anticipating consequences
  • Knowledge about how to grow the business organically and acquisitively
  • Insight to create policy that will affect everyone in the enterprise
  • A logical, dispassionate approach to problem-solving

Task Orientation – Multi-Business Leader

  • Strong change orientation
  • Ability to handle risk
  • Value of and responsibility for unfamiliar functions
  • Focus on both short- and long-term objectives
  • Resourcefulness to be alert to opportunities
  • Portfolio management
  • Talent for working under time constraints
  • Strong knowledge of operations
  • Industry knowledge
  • Evidence of a “can do” attitude

Task Orientation – CEO

  • Willingness to create disruption
  • Enthusiasm for creating risk
  • Stock price / shareholder value / financial solvency focus
  • Passion for developing business
  • An eagerness to form relationships with the company’s key customers
  • A persistence for achieving desired outcomes

Leadership Skills – Multi Business Leader 

  • Ability to trust others in the chain of command to handle the day-to-day decisions related to running the businesses
  • Strong commitment to developing the bench
  • Strong delegation skills
  • Willingness to remove “C” players
  • Talent for asking the right questions to draw out the ideas of others
  • Obvious maturity in use of power
  • Proven track record for selecting top talent
  • Strong conflict resolution skills

Leadership Skills – CEO

  • Willingness to develop a successor
  • Takes charge and stays in charge
  • Capacity to lead disparate entities, often geographically dispersed
  • Ability to set the pace of change and to orchestrate it well
  • Capability to serve as a trusted exemplar
  • Skill for articulating the vision
  • Crisis management experience
  • Commitment to ongoing learning
  • Management of top and bottom lines
  • Emotional fortitude
  • Courage
  • Ability to handle failure
  • Talent for building cohesive efforts
  • Strong persuasion and negotiation skills
  • Ability to inspire followership
  • Experience in leading rapid growth

People Skills – Multi Business Leader

  • Succession planning—ability to select and develop leaders of leaders
  • Facility for serving as a source of advice and wisdom
  • Cross cultural awareness
  • Agility to balance the different needs of various stakeholders
  • The skills to put others at ease in social situations
  • An ease in most social situations

People Skills – CEO

  • Contagious enthusiasm that gets people excited
  • Expertise in serving as a sounding board for those facing tough calls
  • Proficiency for building strong Board of Director relations
  • Experience in building investor relations
  • A strong community orientation
  • An understanding of natural sources of conflict and the competence to work through them
  • Strong command of the language
  • Readiness to create a culture characterized by results, respect, and integrity

Once the search committee has set and prioritized the criteria for selection, it is ready to develop the roadmap for a successful transition.

Step Three: Develop the Process for Selection

The CEO selection process should be a systematic, thorough process that gives the board impartial, indispensable data they will need to make selection decisions. Done well, this process will protect the financial aspects of the organization, prevent the departure of key talent, avoid costly hiring mistakes (usually four times the CEO’s base salary), build confidence among all stakeholders that the board has selected the best person, and engender legally defensible hiring decisions—thereby reducing risk.

I recommend the following ten-step approach:

  1. Create a profile of the leadership attributes and behaviors needed to successfully fulfill the role and responsibilities.
  2. Review the profile with the entire Board of Directors and refine as needed.
  3. Conduct individual discussions with each board member regarding the nonprofit organization, strengths, challenges (internal as well as industry-driven), and leadership needs in the future.
  4. Explore recruitment options for finding this person if no internal candidates appear to be ready.
  5. Set the ideal timeline for hiring and transitioning leadership.
  6. Evaluate all internal candidates by doing following:
    – Assess performance in their business units.
    – Review personal performance for the past three years.
    – Interview each candidate.
    – Conduct 360 interviews of their peers, direct reports, and board members.
    – Administer assessments to internal candidates to determine decision making skills, learning ability, financial acumen, critical thinking, business-related personality traits, and leadership style.Debrief each internal candidate’s data, pointing out how to leverage their strengths and mitigate their limitations, thereby improving performance in the short run.
  7. Debrief all findings with the search committee to make recommendations about developmental needs for candidates and likelihood that each will be successful in the CEO role.
  8. Review the process and candidate evaluations with the full board, recommend one of the candidates for promotion, or when necessary, suggest opening the search to external candidates.

Plan the Transition

I cannot overstate the value of choosing an internal candidate. When this happens, there’s very little that needs to change about pre-boarding, exposure to the board, structured time with the current CEO, and getting to know the executive team. When the board has chosen an internal candidate, therefore, directors should concentrate on developing and implementing a communication strategy for the entire nonprofit organization and a timeline for the transfer of leadership. A major concern should be retaining the other candidates who did not receive the promotion. The chairman of the board and the incumbent CEO should have private conversations with each candidate before telling anyone else inside or outside the company what the decision has been.

When directors cannot promote from within, they need a different approach. First, they should tell any internal candidates before opening the search. Some people may be disappointed, but if the company’s leaders treat them with respect, they are much more likely to remain in place. If they feel blindsided or deceived, you can bank on one of two things: the loss of a top performer or a decline in performance from that candidate. Effectively managing the transition brings other benefits too.

  • People experience fewer distractions.
  • Customers don’t feel the change.
  • Revenue remains steady.
  • The risk of losing talented people abates.
  • Repute in the industry increases.
  • Morale improves.

Conclusion

Nonprofit organizations experience vulnerability during any major change in leadership, but a well-defined approach to CEO selection significantly mitigates those risks. However, all the effort is only worthwhile if the board makes the right decision. Interviews, resumés, and references won’t give directors all the vital information they’ll need to make one of the most critical decisions that they simply can’t get wrong. They need more than subjective opinions that can be both biased and wrong. Instead, they require objective data and reliable data to help them choose the person who will have the most power in the organization. 

Nonprofit Revenue and Leadership Mindset – Interesting Must Read Data Points

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Nonprofit Revenue ReportWhat are nonprofits—your peer organizations—really experiencing during the pandemic in terms of revenue losses or gains?

That question became the springboard for my colleague Karen Eber Davis and I to explore in a recent national study we developed and executed.

In the June 2020 survey, 124 nonprofit leaders from across the U.S., representing organizations of all sizes and subsectors, shared their revenue stories and visions ahead in light of the pandemic and other upheavals.

Nonprofit Revenue 

Not surprisingly, the majority of participants (74 percent) anticipate decreases by the end of 2020, compared with 2019. An earlier survey by LaPiana Consulting reported similar findings. Declining earned revenue related to programs was of most significant concern for 41 percent of our respondents, followed by individual donations, including bequests (20 percent). These results are similar to other earlier surveys by the Nonprofit Finance Fund and the Independent Sector.

All was not bleak. Some 24 percent of participants reported expecting their revenue to remain the same or increase by year’s end. One respondent actually anticipates an increase in revenue of 50 percent or more by the end of 2020.

Interestingly, the revenue stream that gave them most hope was income from individual contributions, 33 percent, the very same source that greatly concerned other leaders.

Institutional and corporate foundation grants and gifts, 27 percent, is the second highest source of optimism among nonprofit leaders.

Nonprofit Leadership Mindset

Our analysis moved beyond just data to uncover leadership mindsets. Here participants fell loosely into three categories in terms of processing the enormity of the changes facing us all.

Commentary from one segment of participants reflected hopelessness or a sense of defeatism. A second group reported just the facts, while a third are actively and creatively searching for solutions. This third group can serve as the avatar for all leaders in the sector—resilient, optimistic, adaptable, and even entrepreneurial. Some individuals see the fruits of their strategies paying off. They are deepening their relationships and expanding their visibility. Many are trying new ways—especially through digital experimentation—to reach their audiences, fulfill their missions, and generate revenue in the process.

To learn more and read respondents’ thoughts first hand, download the full report for free (What’s Really Happening with Nonprofit Revenue? Here are the Real Answers).

The report includes:

  • Summer 2020 observations from nonprofit CEO across United States,
  • Insights from nonprofit fundraising and revenue experts Karen Eber Davis and myself,
  • Recommendations on how nonprofit leaders can get their organization on a resilient path
  • Resources for your nonprofit team.
  • Timely guidance for nonprofits on how to become resilient during the COVID-19 pandemic.

We share the findings, our insights, and recommendations for individual nonprofits and those who serve them. You will also find a link in the report to a webinar with even more information plus additional resources.

Three Steps to Address Endowment Spending in the Time of the Great Pandemic

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Much has been written of high market returns over the past few years, and the COVID-19 pandemic will certainly lead to higher volatility going forward. What hasn’t been written is that these data points have created a precarious situation for endowments and the organizations they support: Spend rates are up or at unsustainable levels, often beyond realistic expectations for real returns.

If real returns for most portfolios are unlikely to meet these increased spending goals, what should endowments do to adjust to this new market reality?

The resolution is not simply an exercise in math, in providing guidance for expected returns from a given portfolio, then backing out a realistic spend rate. Such an approach may avoid disaster, but it does not resolve a common issue connected to spend rates and to portfolio construction: a communication disconnect between the investment and operational sides of an organization.

Endowment Spending

This is not to say that the investment committee and operational management are necessarily at odds, but that they are often both working toward the best interests of their organization—using differing definitions for “best interests.” Operational management is fulfilling the daily work of an organization now and planning for the immediate future. This requires growth and thus increased expenditures, which stresses all sources of funding and may lead to a request for more endowment dollars. Meanwhile, the investment committee is ensuring perpetuity, funding part of the organization’s mission today, but not at the expense of its future. Those viewpoints are always going to be at least somewhat at odds.

To further complicate the situation, we are all human. Increasing spend rates have many complex justifications, but in the end, increased endowment spending is a direct result of human decisions made with human expectations: Returns have been strong for years; we can afford to spend more.

Optimism is a part of human nature, as is the desire for independence, which leads to the second reason for increasing spend rates: a desire to minimize reliance on increasingly uncertain sources of public funding given the fiscal pressures that states and local governments are facing during the pandemic.

That second reason is a valid desire. The market pressures that create lower expected returns long term can also depress public funding and philanthropy, putting even greater pressure on the endowment. How should a nonprofit’s investment committee manage this perfect storm?

Start with getting both sides together.

Investment consultants should do this at the start of a client relationship; in-house teams would be wise to put such a meeting on their next agenda. Have both sides bring short- and long-term goals and be prepared to talk about how they define the best interests of the organization. The goal is as great an understanding as possible about all aspects of the business that affect funding requirements: risks, needs, long-range plans, regulatory, donor community’s appetite to give, and non-financial market pressures; everything.

Have a candid conversation.

Identify consistencies and inconsistencies. Don’t stop there: Discuss how those goals and plans affect budgetary needs and all sources of income, not just the endowment. There are four primary sources of non-endowment funding for most nonprofits: philanthropic donors, public funding and grants, operational revenue for entities like colleges and hospitals, and current and future debt financing. A well-designed portfolio shouldn’t operate in a vacuum, as though it were unaffected by the business end of the organization.

It is part of an interrelated funding system that includes both operational and investment levers. The manipulation of those levers can affect how much pressure is put on an endowment, regardless of whether the manipulation takes place on the investment or operations side of the house. Too often, portfolio decisions and spend rates are set without a full understanding of the business pressures that the organization faces operationally. Businesses experience operational volatility; it’s an accepted part of the for-profit world and is no doubt a main concern of the operational management team at a nonprofit.

Market volatility is something that investment committees talk about often; almost daily in an uncertain financial market. But operational volatility is often absent in investment discussions. It should not be absent. A regular open communication session helps ensure that changing operational needs are part of investment decisions.

Revisit this collaborative planning session regularly.

It doesn’t need to happen annually; probably somewhere between one and five years is right for most nonprofits. Let your nonprofit’s unique situation determine the timing. Higher volatility than expected—for either markets or operations—may indicate that it’s time.

This approach may seem outside the scope of investment consultants to some. After all, we are not management consultants, paid to improve business operations. But this approach is critical to helping nonprofits make smart decisions. Our bias, always, is to ensure that investment committees and organizations make decisions grounded in reality, not grounded in hope. Excess optimism and excess pessimism both are not good for long-term investing, but reality is.

Client history #1 – a too optimistic spend rate

The value of this approach becomes apparent quickly for many clients, even when their situations seem to be strong. One community hospital engaged us just after the Affordable Care Act (ACA) took effect. They had a high spending goal for their portfolio at 5.5%, well above the national average of 4.4%, but attainable based on the previous three years’ returns. Going forward, however, 5.5% would be difficult for a hospital endowment—to achieve the long-term returns necessary to sustain it, they’d need to take on disproportionate risk for a hospital. Such risk may not have been unreasonable in the right circumstances, if, perhaps, other funding sources been solid.

But at that time, they—like all hospitals—were uncertain of how the ACA would affect reimbursements and revenues. Few hospital CFOs then held any confidence in revenue projections. Worse, the same market factors that weaken returns often cause donors to decrease giving. At the exact moment that they needed to throttle back endowment risk and spending, they were uncertain how or if they’d be able to meet future budgetary needs. It was a triple threat.

We had to have an uncomfortable conversation once we got both teams in the same room.

The hospital was still fiscally strong at that time, and was a valuable asset to its community. By bringing the finance team in and showing them the reality of the risk to the endowment—which was not on their radar because they were by necessity mired in day-to-day operations—we were able spur a review of overall budgeting, fundraising, and financing. We were the bearer of bad news—they couldn’t rely on higher endowment spending—but the result was a donor drive that used all the information we’d provided on future market returns and the long-term health of the endowment. That drive succeeded. It raised funds to bridge the gap and ensure that they could weather the expected and potential revenue changes. The negative became a positive.

Client history #2 – a too conservative approach

On the opposite end of the spectrum, another client faced an enviable nonprofit situation: Their operational revenue and donations were both excellent. They were a valued part of their community. Their spending rate was realistic.

Despite no apparent problems facing the endowment, we brought both teams together for a collaborative discussion. The investment committee still faced a dilemma: The operational side was conservative and had been building up cash reserves far beyond common standards for days cash on hand for health-care entities. They had about a year and a half of cash on hand, millions of dollars earning little interest or contributing to the long-term success of the organization. The investment committee was stunned.

We had to engage in a tough series of discussions about the point at which conservatism is no longer in the organization’s best interests but is actually detrimental to long-term independence. Those reserves were so strong that including them in the portfolio decisions allowed them to take more risks and provide more long-term returns and stability.

Had we not engaged those conversations, the portfolio would have been structured differently and the investment committee would still be unaware of significant cash reserves.

Communication is the key

While this holistic analysis is not a panacea, in our experience, there is tremendous value in connecting these two parties. In practice, the focus of each can be very different and in direct conflict with the other, leading to a divide in communication and collaboration. This is not a fault of either team; it is simply a result of the typical structure of nonprofits and their endowments. There is no one-size-fits-all investment strategy, but communication is a one-size-fits-all solution that can strengthen not just the investment portfolio, but the organization overall.

This eyes-wide-open approach leads to stronger decisions and a stronger organization over the long haul, able to manage both market and operational volatility. The focus of this communication and of portfolio structure should not be on predicting, but on preparing. A prepared endowment makes for a powerful future.

Pain Points for Nonprofits and How to Handle Them

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Nonprofit ResourcesMany small businesses and organizations face various types of challenges. Some of these challenges are broadly encountered, and some are industry specific. In this article, I will address challenges specifically related to nonprofits. These challenges are:

  • Retaining and engaging donors
  • Implementing IT infrastructure
  • Marketing
  • Attracting volunteers
  • Creating brand awareness
  • Fundraising
  • Recruiting board members
  • Budgeting

I will briefly discuss each of these challenges and their solutions.

Retaining and Engaging Donors

We all know that donors are the backbone of nonprofits. Without donors, a nonprofit will not survive. You should strive to make donors feel welcome, keep them engaged and make them feel that they are an important part of the organization. All these efforts will lead to future donations and support.

There are numerous ways to retain donors. They should be allowed to contribute through fun and unique ways. For example, you could arrange a charity sports tournament. This way, donors and players will be engaged in an activity while raising money for the nonprofit. It is a win-win situation for everybody involved. Here are some more examples:

  • 5K Run/Walk
  • 50/50 Raffle
  • Auctions
  • Bake Sale
  • Bingo Game
  • Charity Calendar
  • Charity fashion show
  • Gala events

Keep the donors engaged by communicating with them via an e-mail newsletter. Notify them about completed and upcoming projects and programs. Show them gratitude by thanking them for their donations. Offer a monthly donation option to improve the chances for retaining donors for a longer time.

Implementing IT Infrastructure

Today, a digital presence for nonprofits is not an option. It is a must! But implementing and maintaining an IT infrastructure comes with a high price tag. You need staff and money to implement these things. Under ideal circumstances, a professional IT services company should be hired for this task. They will assess your IT needs, create a road map for implementing the strategies and maintain the newly created IT dept.

But we do not live in an ideal world. Nonprofits are usually short on funds. Due to this, they put their IT needs on the backburner. But there are some resources available to nonprofits which will provide you with free or discounted hardware and services. These resources are:

Nonprofit Marketing

The purpose of nonprofit marketing is to win support for their causes and to attract members and donors. This presents its own unique challenges. Here I will explain some issues related to nonprofit marketing.

Overcoming a Tight Budget

Tight budgets are a major issue for all nonprofits, but especially for small and local nonprofits. No organization can grow without marketing, but one with limited funds also cannot afford to get all the tools and manpower necessary to create this growth. To overcome this issue, you can market via e-mail to reach potential donors and to keep current donors informed about new developments at the nonprofit.

Focusing on a Target Audience

Another issue is understanding your target audience. It is very important to figure out what type of audience you are trying to attract. Keeping that in mind, make sure that your marketing campaign has a platform and language that best speaks to that audience.

Leveraging Social Media

Social media is everywhere! We cannot avoid it in the 21st century. Platforms like Facebook, Instagram and Twitter can be used to advertise your message and stay in touch with donors and attract new members. Potential donors who are interested in donating for a niche nonprofit will likely check out your nonprofit on social media. If these donors notice that the last update was many years back, they may assume that the organization is no longer in existence. Nonprofits need to stay active on social media and post relevant material in their niche. These platforms are also a wonderful resource for crowdfunding campaigns. Use some marketing templates to create ads and post them on social media. If your nonprofit is local, make sure your ads are targeting the right location.

Millennials are known for their online presence. They use social media platforms for almost every aspect of their lives. If you want to attract younger donors, a crowdfunding campaign is the way to go.

Google Ad Grants is another source of funds specifically for advertising. Nonprofits need to qualify for getting Google Ad Grants. Check out google.com/grants for further details.

Attracting Volunteers

Volunteers are crucial members of any nonprofit. Some nonprofits may have a couple of employees, but others totally depend upon volunteers. If your nonprofit is run entirely by volunteers, there may be inconsistencies due to a high turnover rate and problems related to marketing campaigns. However, if you can manage to hire even a part time employee/consultant, you should do it.

If hiring marketing help is not feasible due to a tight budget, you still have options. Schedule regular meetings with volunteers, keep them informed about the latest projects, and show them your gratitude. Additionally, SCORE is another source for volunteer help. It is a volunteer network of business experts sponsored by the Small Business Administration. They can guide your organization in creating a marketing strategy.

Creating Brand Awareness or your Nonprofit

Branding is the practice of establishing an organization’s image and reputation. Common examples of well-established brands in the nonprofit industry are the American Cancer Society, the Red Cross, Habitat for Humanity, and the Make-a-Wish Foundation of America. Most people think that the word ‘branding’ is reserved for large for-profit corporations and enterprises. However, branding is as important for nonprofit organizations as it is important for big and small businesses. This cannot be emphasized enough. The benefits of branding are making an organization stand out, increasing trust and loyalty among supporters and donors, and growing awareness for easier fundraising. All these factors lead to growth of the organization.

Before you start building your nonprofit’s brand, review your mission and vision statements and ask for feedback from the Board, volunteers, and donors. Focus on the target audience. Keeping their interests and motivations in mind should increase the conversion rate to donors and supporters. Keep brand elements consistent, such as your logo on the web, flyers, e-mails, brochures, etc. Community outreach will solidify your brand and help win the support of donors and the community. And last but not least, your branding should be able to touch the heart of your audience. If your audience can relate to your cause and mission, then it is very likely that they will become your donors and supporters.

Fundraising

No matter whether you run a well-known nonprofit or a local charity, fundraising will be one of your organization’s biggest challenges. We all know that fundraising is regulated by state laws. Make sure that your nonprofit has all the tax documents which should be made available to the public. Consult your tax accountant in case you need help with this. Fundraising can be challenging and lots of mistakes may happen in the process. There are lots of different approaches nonprofits use to increase fundraising. Here are some of those ways.

Encouraging Recurring Donations

Encourage your donors to give a recurring donation every month, regardless of the amount. With this approach, you can improve online fundraising performance, increase monthly revenue predictability, and retain donors for a longer period.

Utilizing Mobile Fundraising Methods

Mobile fundraising is a way to raise funds using mobile devices. Overall, nonprofits have been increasing their mobile fundraising efforts every year. This is generally achieved through methods including QR code promotion, text-to-give technology, and websites using a ‘Donate’ button. QR code stands for Quick Response code. It is a square, encoded image meant to be scanned by mobile devices to access a web link. It is very easy to create a QR code by using a website such as qr-code-generator.com. Text-to-give technology is also a common tool to raise funds for nonprofits. On your website you can also install a ‘Donate’ button to make it easier for the donors to give money. There are quite a few popular web apps and platforms which can be used for mobile fundraising, such as givelify.com and givelively.org.

Creating Powerful Imagery

Humans are visual beings. Most people like to look at things before they decide to buy them. To take advantage of this, create powerful and compelling images related to your brand. These images will also get attention from the donors and evoke emotions. When people connect on an emotional level with a certain cause and mission, they are more likely to donate.

Maintaining Data Security

Data security is paramount as it not only maintains the safety and privacy of your donors’ data, but also your reputation as an organization. Make sure your web site and all other online platforms for donations are secure. Consult your IT department to implement all the necessary steps to make the platform secure. Additionally, most donors do not like to fill long forms and give out private information. Create a simple donation form which requires the least amount of information from a donor.

Appreciating Donors

It is a very nice gesture on behalf of a nonprofit to give something in return to the donor. Some examples include:

  • Tote bag
  • Wall calendar
  • Binoculars
  • Camera case
  • Water bottle

Giving merchandise to donors in return for their donation can not only further encourage them to donate in the first place, but also serve as an extra opportunity to promote your branding via a logo.

Maintaining Donor Engagement

Finally, create a way for donors to keep in touch. When donors give money for a certain cause, chances are they will come again some time to donate money. Suggest they opt-in to receive e-mail updates about your organization and future fundraising efforts.

Recruiting Nonprofit Board Members

Another factor for the success of an organization is having and retaining effective board members. Finding, vetting, and recruiting the ‘right’ board members is a challenging task, but it must be taken very seriously. Here are some tips which can be used by nonprofits for cultivating the right board members.

Choosing Board Member Qualities

You first need to figure out what type of board members are needed to advance your nonprofit’s mission. Do you need a board member with community connections or financial expertise or human resources management experience or simply prior nonprofit experience? Additionally, consider whether you want to require potential board candidates to work as volunteers for some time before taking the position. Some nonprofits take this approach so that both parties can decide whether they are a good fit for each other.

Appointing a Nominating Committee

Lots of nonprofits use a ‘nominating committee’ to recruit board members. This nominating committee should have devoted members who are focused on the organization’s mission and good governance. Its members should put some serious efforts in recruiting potential board members, working closely with the executive director in pursuit of this goal.

Setting Expectations for Future Board Members

Make sure you are up front with nominees regarding their future responsibilities, especially as they relate to fundraising. No one is happy if these types of expectations are not revealed before these board members join the organization.

Considering External Search Resources

Some nonprofits have started realizing that they need to use a search firm to recruit the right board members. Ask for recommendations for finding good search firms that focus on nonprofits. Generate a list of questions to ask the search firm about their background and experience in recruiting board members. Interview several of these firms before you select the right one. You can also use job boards for recruiting board members. BoardNetUSA.org helps nonprofits and board member prospects find each other.

Prioritizing Diversity

Board composition reflects organizational values. It should also reflect the community you are serving. Having a diversified board both brings multiple perspectives to a cause and helps attract a wider swath of donors. Board members should be required to attend training on race and diversity issues.

Nonprofit Budgeting

A budget is a guide containing an estimate of income and expenses for a given period in the future. It is usually the budget committee’s responsibility to propose a budget and the board members’ responsibility to review that budget and provide feedback. The approved budget should be used as a guide for all the financial activities throughout the year. But budgeting also comes with its own challenges. Here are some of those challenges and how to manage them.

Managing Unstable Funding

Nonprofits may face instability in their revenue cycle. This instability may result from donors falling through on donations or foundations withholding grants. These types of challenges can occur at any time. To avoid these issues, your organization should always be looking for new funding opportunities. The best practice is to review the budget periodically as well as compare it to the actual cash flow and expenses. Sometimes it may be necessary to amend the budget during the year.

Diagnosing a Budget Deficit

There can be several reasons that a nonprofit may have a budget deficit. It may be related to income reporting requirements by Generally Accepted Accounting Principles (GAAP). According to GAAP rules, you may need to report a grant one year but receive the money next year. Another reason for a budget deficit can be due to a shortage of funds to pay bills. This type of deficit can be managed by adjusting payment terms with creditors and increasing additional fundraising efforts. Structural deficit is another possible type of deficit and can occur due to a long-term shortage of funds and decay of facilities. This type of deficit can indicate larger financial issues and requires serious assessment of the organization’s financial health.

Planning Finances

Many nonprofits do not have staff who have proper knowledge about budgeting tasks and thus cannot put together a proper budget. This issue can be managed by implementing a budgeting tool such as planning software. Budgeting software automates the coordination of an organization’s financial resources and expenditures.

All these challenges for nonprofit organizations are not a comprehensive list. Countless complications exist in all business organizations and sometimes they can change without warning. But the main conclusion is to remain flexible and mission-focused to see your nonprofit grow.

How to Keep Your Board Members Engaged All Year

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Nonprofit Board HelpThere are volumes written on staying engaged with your professional work, how to motivate employees, and communication in the workplace. That’s great for businesses, but how do nonprofits keep volunteer board members engaged in their work? Busy professionals who are donating their time to a cause want to do well in their board service, but they may need a little help. Here are some ways to keep them excited, involved, and effective with nonprofit board work all year round, even if they are remote or only meet quarterly.

Engage Board Members, Make It Personal

Humans are hard-wired to pay more attention to human faces than any amount of text or audio presented in a meeting. If many of your board members are remote or rarely meet in person, it is crucial to maintain that human element in your communication and meetings.There are a number of ways you can do this. Provide a people directory with everyone’s photo to help new members feel familiar with the other board members. If you have remote meetings, ask everyone to use their video cameras during the meeting. You might be surprised at how much this simple measure does to personalize the experience.

Create even more rapport by developing a buddy or board mentor system. Sometimes just the accountability of knowing even one person will be working with you on specific goals or looking for your attendance at the meeting is enough to get that extra effort from a board member. Additionally, it is a great opportunity for members to learn from each other and discuss how they can advance initiatives. This works especially well at knitting a geographically far-flung board closer together.

Communicate, Communicate, Communicate to Your Board

Have you ever heard the advertising adage that a person needs seven impressions of your brand before it “sticks” in their mind? Obviously, you don’t want to bother your board members seven times about every initiative, but it is hard to underestimate the value of multiple nudges. Some board members will favor email while others may prefer to keep tabs on goals with your board portal. Regardless of the medium, don’t be shy about sending a variety of updates, reminders, and nudges for key deadlines. The first reminder might catch a board member at a busy time, but the second could allow them to take action on the goal.

It isn’t enough to just communicate regularly, however. It is also helpful to make the communication as specific as possible. Many people will ignore an email to the whole board, but it is much harder to sleep on an email that starts out with their name and has information specific to something that board member is working on at that time. Be sure to keep it balanced between reminders or asks and recognition or celebration. If every time you contact your board members it is to nag them about some initiative, they will quickly learn to dread (and eventually ignore) your communication. Everyone appreciates someone noticing their hard work and small successes. Get to know your board members well enough to know if they’d appreciate a public shout-out or prefer a personal note.

Progress Should Be Visible to Your Board

Similar to our propensity to react to human faces, people love visually scannable information when possible. There are two big advantages to this. First of all, with publicly visible graphs or charts, it is simple for your busy board members to glance at the dashboard and see how things are trending. You could send a three page report that no one has time to read, or you could provide three visuals that get eyes on them every time.

Second of all, visuals have a wonderful way of “gamefying” board service.Is it halfway to your big event and only a fraction of the tables are sponsored? Time to kick it into high gear. Are you just dollars away from reaching the campaign goal? Every board member wants to be the one that closes the gap. Celebrate progress and ask for help as transparently as possible with a real-time, visual representation of your goals.

Keep It About the Mission

We all know about creating “mission moments” in a meeting to keep board members in touch with the effects of their work. You can take this a step further to increase the connection. Have board members take turns every month reporting on a specific chapter or organization and some interesting results they’ve had in the recent past. Board members also feel more connected to something that they can articulate themselves. Research activities you can do with your board, such as practicing elevator pitches of why they’re invested in the organization, brainstorming sessions on the vision of the nonprofit, or interviewing each other about how they came to the organization and summarizing it in a sentence or two for the board. Not only do activities like these get board members thinking about why they volunteer their time for board service, it also offers great discussion material during meetings about the direction of the organization.

Connection Is Crucial

It can be a huge challenge to keep a group of perhaps spread out, busy, volunteer board members thinking about their board service between meetings. It’s not impossible, though. With some effort around building rapport, making information easily digestible, and motivating for progress, your board can stay a productivity machine all year long.

About Boardable:

Boardable is an online board management portal that centralizes communication, document storage, meeting planning, and everything else that goes into running a board of directors.

A Primer for Nonprofit Investment Committees: Active vs Passive Management

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Nonprofits should consider their objectives, time horizons, tax sensitivities, and aversion to tracking error before choosing one over the other.

Nonprofit InvestmentsThe active versus passive investment management discussion has intensified as of late due to active management’s recent inability to outpace their passive benchmarks. Some may have a knee-jerk inclination to fire an underperforming manager, but the data show that investors are better off staying the course.

A 2012 study by Towers Watson that simulated 10,000 different scenarios found that over a three-year period, institutions that fired underperforming managers ultimately underperformed institutions that stayed committed to their managers.

Managers with high active share will look especially different from their benchmarks. The more a manager varies from its benchmark, the higher the likelihood of extended periods of under- and out-performance. Performance itself should never be the sole determinant for firing a manager. Instead, investors must understand why performance is suffering and determine if it is likely to persist. This paper explores the reasons why active managers suffer bouts of underperformance and seeks to educate investors on the appropriateness of active and passive investments in their portfolios.

What is Active and Passive Management?

Passive investment strategies are rules based and typically track indexes like the S&P 500. Active managers are investment experts who build portfolios “Markets are not perfectly efficient, and they probably never will be, but that in itself isn’t a stamp of approval for active management. Managers must be able to capitalize on these inefficiencies and deliver results that consistently are above benchmark.” consisting of the most attractive investments in a universe, according to their own processes (irrespective of the benchmark).

Passive management has proven to be a viable strategy and has recently gained market share versus active management. It stresses low costs, tax efficiency, and the concept of market efficiency. Passive management gives investors cheap exposure to the market without the potential for above-market returns; after accounting for fees, it almost guarantees below-market returns. Active management, on the other hand, has the potential to generate both above-market and below-market returns.

Market Efficiency

The Efficient Market Hypothesis (EMH), in its strong form, says that markets are efficient, security prices reflect their fair value, and active management can’t generate excess returns. There is a degree of truth to the EMH, but it varies by asset class. On average, less efficient categories have the best chance of outperforming their respective benchmarks on a consistent basis. These categories tend to be non-U.S. or niche, which are less researched by U.S. investors.

The categories that have the most difficulty outperforming on a consistent basis tend to be more cyclical in nature. This is because it is more difficult for managers to forecast future earnings or prices in more cyclical markets.
When using active managers, Canterbury generally recommends using managers with excess (gross-of-fees) return expectations that are at least double their fees. This will give investors a cushion if a manager does not perform in line with expectations or is out of favor for an extended period of time.

Markets are not perfectly efficient, and they probably never will be, but that in itself isn’t a stamp of approval for active management. Managers must be able to capitalize on these inefficiencies and deliver results that consistently are above benchmark. We expect active managers in some asset classes to be able to do this; however, they aren’t going to do it over every time period. Excess returns tend to occur in cycles, and investors should expect sustained periods of underperformance and outperformance. We will take a look at a few of the market conditions that cause these cycles in relative underperformance, to help manage investor expectations:

  1. Bull Markets: Active managers are generally more conservative and take less market risk. Active manager betas, on average, are less than 1.0 (in bull, bear, and full market cycles), and their upside and downside captures are less than 100%. Less market sensitivity will mathematically equate to underperformance in up markets and outperformance in down markets, which has been the case. Conversely, if you risk adjust these returns (solve for alpha), active managers will outperform in bull markets and underperform in bear markets.
  2. Irrational Exuberance: Active managers tend to do much better when markets are rational. In rational markets, fundamentals matter and security prices move toward their fair value. In irrationally exuberant markets, we see security prices move independently of fundamentals toward bubble levels (think tech in the late ‘90s). The majority of active managers believe their processes allow them to uncover mispriced securities, but this process does not work during periods of irrational exuberance, when mispriced securities become more mispriced.
  3. Interest Rates and Central Bank Easing: Active managers are expected to struggle in ultra-low interest rate environments where access to capital is easy. It allows companies that are struggling financially to cheaply refinance their debt well out into the future, which in turn increases their solvency and stock price without regard for business fundamentals. Active managers who have a quality bias typically avoid these types of companies. Most experts feel that as interest rates rise, fundamentals should matter more, as dispersion between good and bad companies increases.

Investors should not attempt to time the market when it comes to choosing active versus passive investing. Cycles are hard to predict and can last longer or shorter than anyone anticipates. It is our recommendation that investors commit long term to whatever investment strategy they choose, whether that be active, passive, or a diversified combination of both.

Median Managers

Sometimes too much emphasis is placed on the average. Just because you average a speed of 65 MPH when driving on the freeway, doesn’t mean you would expect to drive 65 MPH on the Freeway during rush hour. Different scenarios drive (no pun intended) different expectations. As a firm, we attempt to understand our strategies in such depth that their performance relative to our expectations is more important than their performance relative to a benchmark in the short term. Furthermore, we allocate a lot of resources to our manager due-diligence process, to identify investment managers that we expect to perform above median. We understand it’s impossible for them to be in the top quartile every month, quarter, or year, but we strive to find those managers that will be there over full market cycles.

Our due-diligence process is both quantitative and qualitative. We will screen on factors that have had predictive power in choosing exceptional managers such as manager tenure, expenses, volatility, downside capture, and alpha over previous cycles. Even more important than these quantitative factors are the people, philosophies, and processes our managers employ. If an active manager does not have a value proposition — a competitive advantage or edge versus its benchmark and peers — we will not consider them as an investment for our clients.

Investment Horizon

An investor’s time horizon plays an integral role in the decision to invest passively or actively. The data suggest that active managers have a higher probability of success over longer time periods. The frequency in which the median large core manager outperforms the S&P 500 increases from 62% to 79% when extending the holding period from one year to five years. Canterbury would advise investors with a holding period of a year or less to utilize passive management a as a quick and effective way to get market exposure.

Management Fees

Passive management generally offers lower fees relative to active management. For example, Vanguard offers an S&P 500 ETF and mutual fund, each with an expense ratio of four basis points. Separately managed accounts for similar strategies can be had for less than 15 bps. This is in stark contrast to some actively managed large cap mutual funds that have expense ratios closer to one percent
Passive strategies that track the same index have similar objectives, so investors should generally invest in the one with the lowest fees (all else being equal). Fees for active management can vary widely, as can the quality of the managers. This makes it more difficult to choose the appropriate manager, but fees should play a role in that decision.

Tax Sensitivity

If taxes are a concern, passive investment strategies will generally incur less of a tax burden than active strategies, and in certain cases (a separate account optimized for tax-loss harvesting), can generate tax assets (sometimes referred to as tax alpha). Most passive strategies will replicate market-cap weighted indexes that take a mostly buy-and-hold approach, thereby generating very little in the way of capital gains. Active managers attempt to add value through buying and selling securities to lock in gains and mitigate risk, which creates turnover. The higher an active manager’s turnover, the more likely they are to generate capital gains (especially in upward-trending markets) and be less tax efficient.

Conclusion

Active and passive management strategies serve different roles in investor portfolios, and neither is better than the other. Active management, with proper due diligence, has the ability to produce above-market returns. Passive management creates a level of consistency that allows investors to invest in products that more easily meet their expectations.

About Canterbury Consulting
Canterbury Consulting is an independent investment advisory firm based in Newport Beach, CA, overseeing $22.8 billion in assets as of June 30, 2019. Canterbury provides consulting services to tax-exempt organizations, including community foundations, educational endowments, religious organizations, arts and cultural foundations and health care organizations, as well as individuals and family offices. Founded in 1988, the firm designs and manages custom investment programs aligned with each client’s goals. Canterbury acts as the investment office for its diverse clients and provides objective investment advice, asset allocation, manager selection, risk management, implementation, and performance measurement. Canterbury Consulting strives to deliver performance and service that exceeds the needs and expectations of its clients. Learn more about Canterbury at www.canterburyconsulting.com`

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