Lagging indicators are easy to measure but can be hard to influence. For nonprofits, a clear lagging indicator that is easy to measure but hard to improve on is donations.
The problem with lagging indicators is, well, they’re lagging. It’s not too tricky when we are experiencing year-over-year increases in revenues but it quickly becomes a problem when the trend line starts to flatten or turns downward.
Since most nonprofits still measure their revenues and build their budgets against the previous year’s numbers, the trouble accelerates when donations slow — and slow they have.
According to the Fundraising Effectiveness Project, fundraising and the number of donors declined during the first six months of 2019 when compared to 2018. In short, the number of donors declined by 5.8% with a corresponding 7.3% drop in revenue.
The squeeze is exacerbated because bills still have to be paid and the spread between money received and money owed is widening. This is because many nonprofits operate in the red for most of the year, hoping and praying to break even by year-end. So, what happens when the revenues do not come in?
Unfortunately, too few nonprofits maintain reserves to cover the shortfall. So, belts are tightened. Programs are pulled back. New projects screech to a halt. The layoffs start. It’s like seeing a train wreck coming and there’s nothing you can do about it.
How can your nonprofit buck the lagging donations trend?
According to “Overcoming Barriers to Giving,” Fidelity Charitable’s study of over 3,200 donors, 64% of donors want to give more. While your donors may have other questions and concerns, demonstrating your nonprofit’s effectiveness has the greatest potential of encouraging your funders to increase their gift size or giving frequency, or both.
Here’s the skinny: Nonprofits want more funding. Funders want more confidence. More confidence comes from demonstrated operational competence. Funders with more confidence give nonprofits more funding. Operational competence can be measured and improved.
In his seminal work, Good to Great and the Social Sector, Jim Collins said it this way: “What matters is that you rigorously assemble evidence — qualitative and quantitative — to track your progress.”
Assessing competence against best practices and prescribed industry standards takes all the guesswork out. Jim Collins would be proud.
Are you ready to get beyond the symptoms to the core problem?
The Capin Center for Nonprofit Excellence provides smart online tools that measure and improve nonprofit operational effectiveness.