The last post reached the conclusion that a philanthropically-led benefaction model of giving is intrinsically high risk. It does not deliver enough accountability for donors and leaves the door open to dysfunctional, self-cannibalising fundraising. There are two obvious candidates for an alternative model.
Firstly, charities can try to treat donors as investors…
We all understand how a regular corporation works, delivering financial value to its shareholders by finding, serving and keeping its customers better than the competition. It is held accountable through annual reports and quarterly statements. But its impact is clear and (CSR-aside) one dimensional – it rewards investors in the form of dividends and stock price rises (hopefully). The whole system is actually highly transparent and incredibly simple.
So if ‘investment’ is your mental model for how charities use donors’ resources (especially money), then your challenge as a charity leader is simply to explain the value you create, describe how you create it, and justify how you will keep doing it efficiently and effectively. It’s all about telling your impact story in the clearest and most substantive way possible.
In practical terms, you might start by describing the social or environmental problem or the beneficiary need you are trying to address. You would lay out a theory of change (your best hypothesis on how you think your actions will make a difference to that problem). You would then identify the most influential change-points within that system; decide what sort of evidence would indicate you were being successful; and proceed to measure their improvement over time. This is your social investment impact – which then needs to be communicated with enough relevance, richness and reliability to encourage continued donations. Ultimately, this is a data-led problem. Technology can fix it, along with some new market scrutiny.
That impact also needs to be explained to a whole range of intermediaries and scrutineers who might recommend your charity or influence its reputation. Donor communications in this model amounts to ‘investor relations’. It’s almost totally focused on resolving CAF’s ‘scepticism’ problem, and hence it spawns valuable tools like the Fundraising Standards Board tick – indicating that a charity adheres to good fundraising good practice.
The same logic also launches initiatives which seek to offer (questionable) proxies of organizational effectiveness – such as the proportion of funds allocated to administration. These have been widely criticized for suggesting unfair comparisons which cannot apply across disparate causes and organization types. Focusing on these narrow efficiency metrics might also tend to deter charities from raising incremental funds through lower-margin channels, even when those incremental funds would all create social or environmental good. Donors have been unreasonably persuaded to look at efficiency as a level playing field, when it is actually anything but.
And there’s another risk. If you take the investor analogy too far and too financial, you will also tend to encourage simplistic decisions that try to align executive pay that track the turnover or financial margin improvement of the organization – rather than aligning reward to its true social impact. There is an inherent conflict of intent here.
Or treat them as customers…
The alternative corporate-inspired approach is to treat individual donors as customers. This model takes you in completely the opposite direction in terms of value-creation. It relies on ‘marketing’ disciplines and mostly tackles CAF’s ‘confusion’ problem.’ Instead of focusing on the social need, it starts out, in principle, by using techniques like audience insight and competitive analysis to figure out what potential donors might actually like to ‘buy’. And then, within reason, it builds it for them.
If a charity sees its donors as customers, then its challenge is to assemble the ‘product’ (stories, plans and moments of social impact) that most closely resemble donors’ emotional needs and then offer it to them, in combination with the best possible (most cost-effective) service package. As a charity manager, you explain a problem you can solve; tell donors how much it will cost to fix, and ask them clearly and compellingly to help.
Seen as customers, donors are entitled to respectful communication and to receive a clear duty of care. And there is abundant good marketing and customer service practice to call on: respecting donor choice, seeking feedback, investing in differentiating experiences – and gradually stretching your brand to new areas of impact that donors may find relevant and credible. These all go with a commitment to the marketing territory. All of which technology can help with!
Problematically though, in practice, this means that a donation product may have minimal relevance to a charity’s holistic social impact, as long as it has donor-appeal. At the extreme, in some Charity Shops, for example, there may be little or no customer engagement with the underlying cause they are actually raising money for. This is charity engagement as mass consumerism – not customerism.
On occasion – say when a humanitarian crisis hits, or a distinct new programme, campaign or appeal is launched – there is no need for any intelligent mediation of needs. In these situations, the social or environmental need, together with the proposed solution, can simply be presented ‘as is’ to existing or new donors, with a straightforward request for funds. When this happens, donor communication is essentially just marketing redux: ‘sales’ – a single, context-free transaction, which can feel a lot like old fashioned benefaction.
Why does any of this matter?
The point of laying out the charity accountability story in such lengthy, and simplified terms is that this underlying tension between conflicting accountability models – kind benefactors vs savvy investors vs deserving customers – goes a very long way to explaining why some charities can struggle to keep their donor relationships above the transactional. It suggests why they so often seem to behave in contradictory ways. And where and how they need to innovate.
The simple strength of the original benefactor model was its triangulation of trusting money, a compelling cause and a trusted manager. It left – and still leaves – charity managers free to innovate and do what they arguably do best – passionately addressing the problem at hand. For very many, perhaps the bulk of, small charities it still works just fine. However in a scaled-up, sceptical and increasingly confused world, it just brings too much risk. It’s fundamentally opaque.
The great strength of the investor mindset, by contrast, is that the real social impact IS the product. The sustained improvement in beneficiaries’ lives (or animal welfare, or environmental outcomes, or policy direction etc.) is what donors as investors are explicitly paying for. So there is, in theory, a perfect alignment of interests between beneficiaries and donors.
However, the equally significant downside to this model, is that in reality most people generally just don’t care that much about the minutiae of charitable causes (suggestively, only 30% of charity-givers in the UK make use of direct debits, for example). Instead, in the words of Xtraordinary Fundraising’s CEO Stephen Butler:
“They want to solve a problem, and even better solve a problem with an associated price tag”.
The big advantage of the customer model, therefore, is that it recognises this competitive context of giving and the need for continual innovation, interaction and excellent, differentiated service. Its downside is that what donors end up ‘buying’ is potentially not what is actually being delivered by the organisation. The marketing approach also runs counter to the needs of the charity’s managers. As far as possible, many larger Charity managers want to drive up unrestricted funds, to spend against long-term, and ever-changing priorities which they are best places to understand. So although donations may ‘symbolically’ buy particular outcomes (a goat, a hour of nursing time etc.) there may actually be only a tenuous link to their activity. And to put one in place at that level of granularity would be prohibitively expensive.
What the customer model gains in specificity, it loses in completeness. What it gains in authenticity, is loses in relevance.
Charities, then, are in a bind. When their funders have such utterly different motivations, and these motivations demand such utterly different engagement, in order to ‘account for impact’, they need a fundamental shift in outlook.
This future accountability model – which understands this multi-faceted relationship – is actually already here, and leverages the power and insights that come from social interaction. It’s just not evenly distributed yet.
The third and final post in this series will start begin to look at the clues…
Tim Kitchin is client service director and director of consulting at Copper, the digital marketing agency.