The real cost of restricted gifts

publication date: Jun 18, 2018
 | 
author/source: workshop by Susan Horvath, Colin Hennigar

There is a new breed of donors. While unrestricted gifts used to be standard, today, restricted gifts are more the norm. There are ways that smart fundraisers can make sure to meet donors' needs in this new era.

What is the difference between unrestricted and restricted gifts?

Restricted gifts occur when the donor has specified a purpose for the gift. With an unrestricted gift the donor has not specified a purpose for the gift to the organization. Some organizations will also internally restrict gifts; this is by Board mandate and can be changed. Gifts restricted by donors cannot be changed unless the donor agrees.

A conversation about restricted is not a contrast between good and bad gifts. All gifts are great. Restricted giving involves complications but it is still generosity.

We know that letting donors do restrictions will maximize the gift.That is why we ask for restricted gifts.. We want to encourage bigger giving. That is perfect if the donor wants to give to something that we were going to fund anyway. This is a situation when the priority matches the vision. 

Anything a donor will fund will have costs. All are legitimate costs. Often finance might separate these things out. So we need to create the ask that includes these things. The speakers noted they would not roll fundraising costs silently into program cost. Name these costs as something a bit more descriptive, for example, salaries are often a program cost.

Restrictive gifts are a challenge when they take a charity in a new direction. All gifts are not good if the gift takes us in a direction where the charity doesn't want to go. Gift acceptance policies are important including when you will not accept a gift. This includes gifts that are not in alignment with the organization's priorities.

The cost to unrestricted donors of restricted gifts

Unrestricted gifts used to be our bread and butter. By and large, organizations rely on $25 donors to cover fundraising costs and other costs not covered by restricted gifts. This is a bit of an ethical consideration 

When your funding model has a tipping point and your annual fund and events are no longer covering your administrative costs, this is when organizations start to consider levies. Some charities impose a 20% levy for each restricted gift. This may lead program staff to go around the fundraisers to try to get a gift directly.

There are a lot of costs in fundraising. Being transparent with donors about fundraising costs helps with raising more unrestricted gifts. As part of telling the story of the gift, it is important to remind donors of costs of reporting, donor management, database, gift processing, recognition, IT, office supplies, human resources, marketing, and PR. With great accountability, a charity can show how one small area gets benefits from the whole organization.  

Communicating the need to partners and donors

As staff, it is important to be careful that donors don't feel that a restricted gift is less valuable by feeling shamed. It is also important that we make sure we are transparent in our proposals about the levy. That also ensures good stewardship so donors aren't surprised.

Another option, is that the first gift has a 5% levy for a gift brought into the organization by program staff. As part of the stewardship, it is important to ensure the donor understands that the second gift will have a larger levy. Some organizations pro-rate the levy or cap the levy.

A conversation about the levy can be challenging so the speakers recommended practicing this difficult conversation. Part of this difficult conversation is to remind donors who give restricted gifts that their gifts are underwritten by unrestricted donors. 

When one charity rolled out the levy, they began the process by writing a personal letter from the President to every restricted donor from the last five years. As a part of this letter, it is important to not use jargon. It is important to say to a donor "it's not overhead, it is cost to report to you about the impact of your gift, it is correct receipting to you based on CRA guidelines, maintaining your information on the database so that we can stay in touch with you for reporting and receipting." These are examples of this tough conversation.

New ideas

There are some new ideas in regards to unrestricted giving. For example, a matching donor for annual fund can provide much needed leverage. This kind of a match can double an annual fund.

Another example is to make an existing part of the operating program its own area and raise money in that way. Finally, it is worth reminding donors that having more unrestricted gifts allows charities to be more nimble and innovative.

 

Susan Horvath, CFRE is the President and Chief Executive Officer of ROM Governors. Susan is a seasoned philanthropic executive with diverse leadership experience in the healthcare, education and research sectors. As President & CEO of the Royal Ontario museum Governors, Susan is inspired by the opportunity to build on her lifelong passion for the ROM and her love of helping donors realize great impact through philanthropy. Susan has held leadership positions with AFP, CAGP, CCAE and several healthcare and community organizations. Susan was recognized in 2016 with AFP’s Outstanding Fundraising Professional Award.

Colin Hennigar is the Vice-President, Major Gifts of the SickKids Foundation. Colin Hennigar is Vice President of Major Gifts at SickKids Foundation, responsible for leading strategies for individual giving. Prior to joining SickKids as an Associate Director in 2010, Colin held a number of roles at the Royal Ontario Museum Governors Office during the largest fundraising campaign in the Museum's history, Renaissance ROM. He is an Advisor to the Sandals Canadian Foundation, Senior Associate with the Woodmark Group of North American children's hospital foundations, and Instructor at the George Brown College Business, Arts, & Design Program. Colin graduated from the University of Toronto with a Bachelor of Arts in Fine Art History and Classical Civilizations and a Masters Degree in Museum Studies.



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