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Making Peace between Annual and Major Gifts

Create a culture that values and solicits both types of commitments-- from the same donor

By Fritz W. Schroeder

To the outsider, the terms "annual gift" and "major gift" are confusing at best. Because our fund-raising efforts and development staffs are predominantly organized according to the division between the two, however, it is important to understand and embrace these programs' differences as well as their interdependence.

Defining Annual Gifts

Most institutions' annual gifts fall within several general guidelines:

1. They are for current use. While endowment gifts secure the institutional future, annual fund gifts help provide for the "excellence of today." Donors make these gifts with immediately expendable assets that the campus applies to accounts or funds that are for current-use purposes such as operating expenses, scholarships, or outreach programs that enable it to maintain its mission and programs.

2. Ideally, they're unrestricted. Unrestricted gifts provide institutional leaders with the greatest flexibility to address immediate needs and opportunities. However, unrestricted annual giving presupposes trust in the administrators (the CEO, trustees, and so on) who will be "spending" the gifts received. This makes unrestricted dollars among the most challenging to raise and perhaps the most rewarding.

Conversely, hundreds of very successful annual giving programs do not strongly emphasize unrestricted giving, instead allowing donors to designate gifts for anything from the architecture school to the zoology department. The institution's decision to focus on unrestricted giving or designated giving balances its need for unrestricted revenue and its need to appeal to donor interests.

3. The size of the gift is not terribly relevant. Johns Hopkins University's annual giving programs receive gifts ranging from $1 to $100,000. For us, the deciding factor in counting a gift in the annual fund is whether the donor is able to repeat it in subsequent years. If we were to include a $50,000 gift in our annual fund figures one year, knowing that the donor does not have the capacity or inclination to repeat that size gift the following year, we significantly raise the expectations for next year's fund and we fail to create in the donor an awareness of the importance of annual support that might lead to a repeat gift.

There are exceptions, of course, such as one-time gifts made in honor or in memory of someone, but the inclusion of nonrepeatable gifts in the annual fund undermines the very premise of annual giving.

Defining Major Gifts

Programs for major gifts — or principal gifts, leadership gifts, or other labels an institution might apply — cultivate and solicit individuals who have the capacity and inclination to make contributions that are both substantial in size and transforming in nature.

"Substantial in size" implies that these gifts are extraordinary for both the donor and the institution. Because typical gift size can vary significantly from one institution to another, we might define "substantial" based not on specific dollar figures, but on its proportion to an institution's average annual gift. For instance, former Cornell University senior development officer David R. Dunlop suggests that a major gift might be 100 times the size of an institution's usual annual gift.

A major gift also transforms an institution by creating opportunities — endowing a scholarship, permanently funding a research project, or constructing a building — that have a permanent impact on its future. Both concepts — relative size and transforming nature — are important to understanding the annual gift-major gift relationship.

The Annual-Major Relationship

How do these distinctions influence the relationship between major gift and annual fund efforts? Let's start with a few basic principles:

  • Every individual associated with an institution has both the ability and the opportunity to make an annual gift. A smaller number of individuals also have the capacity and the inclination to make major gifts.
  • The most significant predictors of a donor's major gift interest and potential are (1) consistent annual fund giving and (2) gifts that steadily increase in size over time.
  • Donors can make major gifts to the annual fund. A $100,000 gift to the annual fund of an institution with an average annual gift of $200 is both significant and transforming in its ability to enable immediate change or growth in the areas the annual fund supports. We each may have donors who can and will make major gifts of this size, but have no interest in endowment or capital gifts. Instead, they prefer the immediate value of an unrestricted gift to be spent this year. Keep in mind, however, that such gifts will require a careful evaluation of your figures and projections for next year to account for the unusual spike in giving.
  • The strongest development programs are those that create strategies and institutional cultures that seek to maximize annual gift revenue and major gift commitments simultaneously.

Although these two types of gifts are complementary in nature, at most institutions there is an inherent sense of competition between annual gift and major gift programs. This competition is fueled by a few factors:

  • As the annual giving staff cultivates donors and moves them to positions at which major gifts seem likely, the annual fund may lose revenue if major gift commitments preclude ongoing annual support from these donors.
  • Both annual and major gift staff members are typically evaluated on their donor contacts, relationships, visits, and solicitations. As a donor naturally increases his or her giving over time, there can be tension regarding which staff member gets credit for such activities.
  • An annual fund job is sometimes seen as the first step on the ladder to a major gift career, sometimes creating an inappropriate sense of inferiority among annual fund staffers. Fortunately, the training, skill, and professional abilities of annual fund officers have increased their role in many development programs and made them peers with their other development colleagues.
Strategies For Collaboration

To build a successful relationship between major gift and annual gift programs, development leaders must make a commitment to the following:

Articulating clear donor strategies. Tension between the two programs can be abated if development leaders give sufficient thought to the role of annual giving in the long-term process of building relationships with prospective major gift donors. Soliciting major gift prospects for the annual fund can be an excellent cultivation tool as well as a way to provide a vital stream of annual income.

Using the annual fund to feed the major donor pipeline. Annual fund officers can enhance their relationships with their colleagues by identifying major gift prospects. Any time an annual fund officer can share news of a prospective major donor and facilitate the major gift staff's introduction to that individual, the partnership between the two programs is strengthened.

Promoting the "dual ask." The responsibility for sharing goes both ways. Once the annual giving officer introduces a donor to his or her major gift colleague, there is an implied trust that annual gifts will continue to be a part of that donor's relationship with the campus. The process that accomplishes this goal is typically known as the dual ask or the double ask: asking donors to support the annual fund in addition to their major gift commitments.

The Dual Ask in Practice

A dual ask may seem like a straightforward request, but it takes a determined effort by development managers to educate both donors and staff about the importance of both types of gifts and the importance of involving major gift donors — the best friends of the organization — in all aspects of its mission.

There are three common approaches to the dual ask. The most direct is to include the annual fund in the major gift solicitation. For example, a major gift proposal for $100,000 payable over four years might include an annual fund request for $8,000. The donor's gift each year would be $27,000: $25,000 toward the major gift commitment and $2,000 for the annual fund. This strategy is most effective with donors who have demonstrated strong, consistent participation in the annual fund.

Another approach is to invite the donor to earmark a portion of his or her major gift commitment to the annual fund. Thus, the previous example of a solicitation for $100,000 might consist of $96,000 for a capital project and $1,000 per year for the annual fund. This strategy is effective with donors who do not have a track record of making annual fund gifts and might not understand the importance of both types of giving. This approach enables these donors to gain an understanding of the annual fund while fulfilling their major gift commitment.

This approach has a negative side, however, in the perceived "discounting" of endowment and capital needs. If your organization requires $100,000 to name a scholarship and you offer it to a donor for the $96,000 as described in the previous example, you will need to work carefully internally to determine a specific protocol for this process and a way to explain the apparent discrepancy to other donors.

A third approach is simply to encourage major gift donors to consider the annual fund when you carry out the major gift solicitation. While this is not the strongest strategy, it is better than sending no message at all.

Separate But Equally Important

Why is the dual ask such a big deal? If you consider it strictly from a financial perspective, it preserves and protects a vital stream of income — funds that are primarily unrestricted and earmarked for current use.

In most situations, you approach major donors to ask for large gifts to capital projects, endowments, and other permanent, long-term programs. If you neglect to ask them for an annual gift, too, you sacrifice that income stream while donors complete their larger commitment. Clearly, a six- or seven-figure endowment does more to protect the future of the institution than a $1,000 annual gift. But if you create a culture in which you don't sacrifice one gift in favor of the other, you will be stronger today and in the future.

Perhaps most important, if you identify a donor who gives $1,000 to the annual fund and solicit that person for a multiyear, six-figure major gift, what happens at the end of the payment schedule? Have you clearly communicated that you hope and expect the donor to resume annual gifts once he or she has fulfilled the major gift commitment? If not, there is a strong chance the person may not return as an annual donor.

If you don't have a dual-ask culture at your institution, calculate the opportunity cost of not making annual solicitations of major givers. Identify the number of major donors who do not make annual gifts and assign an average "lost" gift amount. For example, if your minimum gift-club level is $1,000, assume that, at the very least, all of your major gift donors can and should make annual gifts that qualify them for this club. Multiply that gift-club level by the number of major donors who are not making annual gifts. The total is an estimate of your total possible gain if all major gift donors also made annual gifts.

Next, examine the number of major gift prospects who are excluded from the annual fund because they are in active stages of identification or cultivation. Using the same approach, calculate the lost revenue from this group. This results in an estimate of the revenue you're losing by intentionally excluding major gift prospects from the annual fund.

These findings may be politically sensitive, so be judicious as to when and how you present them to your development colleagues or volunteer leaders. They can inform a discussion of how the institution can benefit by creating a complementary, not antagonistic, relationship between these parts of the development operation.

About the Author Fritz Schroeder Fritz W. Schroeder

Fritz Schroeder became vice president for development and alumni relations at The Johns Hopkins University in October 2012 and has just completed his 20th year at the university in progressively senior management roles.

He provides leadership and oversight for the entire fundraising and alumni efforts of the university and Johns Hopkins Medicine, and serves as the institution's chief fundraising officer. He is responsible for planning and executing the university's current comprehensive campaign, "Rising to the Challenge," which recently increased its goal to $5 billion and will conclude at the end of fiscal year 2018.

Schroeder joined Johns Hopkins in 1996 as director of annual giving and became executive director of development and alumni relations in 2000. During this time he had responsibility both for alumni outreach and for annual giving programs, serving as the executive director of the alumni association.

In 2004, he became associate vice president for development and alumni relations, with a promotion to senior associate vice president in 2006. He shared responsibility with deans and directors for the university's decentralized fundraising operations in the schools and other units, provided leadership for centralized development support offices, and took the lead on strategic planning, budget planning and oversight, trustee stewardship, prospect strategy development and general organizational issues.

Schroeder joined Johns Hopkins from the University of Maryland at College Park, where he had served since 1989 in a number of roles, including director of annual giving from 1993 to 1996.

He is a graduate of James Madison University and earned a master's degree in business administration from the University of Maryland at College Park.




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