FULL TRANSCRIPT OF THE PODCAST

Spring is budgeting time again for most arts organizations. As many will affirm, the pathway to setting achievable goals is often paved with fiscal potholes.

First, let me first throw a couple of eye-opening stats your way.

• According to Americans for the Arts, private sector giving to the arts increased by 5. 7 percent between 2016 and 2020

• And, over half of all arts funding in the United States comes from individual donors

• Additionally, in 2019, private sector giving to the arts, culture, and humanities, by all sources, individuals and foundations and corporations, was $21.64 billion. That was up 12.6% from $19.21 billion in 2018. When you adjust that for inflation it represents about a 10.6% increase.

A lot of money for the arts, a lot of commitment for the arts, and a lot more reliance on that commitment within the arts.

Now let's talk about some less statistical trends that the RSC team has noticed, and you might be noticing too.

Trends in Fundraising

Trend #1: Increased reliance on contributed revenue

In the past decade, there's been a noticeable shift in the arts and cultural sector towards increased reliance on contributed revenue. So less from earned revenue. Organizations are experiencing a balanced shift of earned revenue and contributed revenue to meet the overall needs of their budget.

It's now common to see philanthropic revenue covering 70% or more of the operating budget. So, it's been a big shift, particularly in the last 20 years, but looking at the last 5 years it's even accelerated.

Trend #2: Growth in individual contributions has increased in dollars, but it's decreasing in the number of donor households.

Again, for those of you who are in the field, not a big surprise, but still something that we have to pay attention to. It's a trend that has some benefits, but it also has some drawbacks. A significant positive trend has been the growth of individual contributions to arts and cultural organizations.

There are more people than businesses, there are more people than foundations, there are more people than government grants. And there's certainly just more consumers of the organization.

Just that pool of people is the one to focus on. Again, not a lot of surprises there. There is also a concerning trend to having fewer individual donors giving more dollars per capita, and that generally sounds great, but it's not always as great as it seems. Part of having a healthy fundraising program is having a well-balanced donor pyramid with donors both small and large and everything in between.

Recognizing the impact of individual’s support reinforces the need for fundraising strategies that prioritize cultivating and stewarding individual donors to sustain long term financial health. Finding donors and getting donors and keeping donors and upgrading donors has become a top priority like never before.

Trend #3: Impact of increased board and volunteer engagement is rising.

In the last decade, there's been so much competition for quality fundraising staff. I don't care what your budget size is. I think this is a truism all the way across. The competition for quality staff has become fierce.

The staff vacancies generally take longer to fill. People don't necessarily stay as long as they once did. Now, intersect those facts with an ever increasing need to raise more money. And you'll agree, I think, that reliance on highly engaged board members to help grow the fundraising program is becoming more and more clear and more and more necessary every year.

Okay, now we've established some observable trends.

Let's get to budgeting the revenue goals for the coming fiscal year. Setting fundraising revenue goals is a lot like sculpting a masterpiece. It takes time and precision and a good deal of creativity.

And if you don't approach it the right way, you could simply end up with a big lump of clay. And so let's avoid that. Nothing wrong with clay, but let's try to avoid that and let's talk about how to prepare for budgeting, starting with a handful of do's and don'ts.

Do’s

Let’s start with the do's.

Do #1: First of all, know your organization. If you're trying to prepare for better budgeting, know your organization is always number one.

Your organization has a distinct mission and vision and has financial requirements that have to be addressed, and those change over time. But this is the foundation upon which all fundraising efforts should stand. If fundraising goals are not aligned with the mission of the organization and its activities then there's something missing there and it puts reaching fundraising goals at a higher risk.

Do #2: Benchmark wisely.

Take a good look at past fundraising performance. and industry standards to set realistic yet aspirational goals. I put more weight on your past fundraising performance than I do industry standards, because overall industry standards, while helpful, do not really pave in detail the pathway you're trying to create for your organization.

But do learn from the past, learn from the past and learn from others’ past to set good benchmarks, particularly in the year that you're in so that you can continue to get smarter and smarter about goal setting.

Do #3: Engage stakeholders.

Bring your board and your staff and your other key stakeholders into the conversations.

And you say, about budgeting? Yes, about budgeting. It's good that they know what fundraising is trying to accomplish, not just in terms of raising money, but also in terms of making sure that your organization's mission can really be fulfilled. And so it's good to bring people into that so that they have a full understanding and appreciation for what your organization is trying to accomplish fiscally as well as artistically.

Do #4: Look at diversifying the revenue streams.

In the statistical information I noted earlier, there are more people than companies, there are more people than any other institutional funding, but at the same time, having diversified revenue streams is wildly important. And this is a multi-year commitment, of course, that you have to look at.

In terms of effort, don't put all your eggs in one basket and just because there are more individual donor prospect, don't think “well that's all I have to focus on.” You still need sponsorships from corporations. You still need grants. You still need foundation giving and other sources of revenue. We're not just looking to grow revenue – we're also looking to make sure that we're tamping down potential risk.

Do #5: Track and adjust.

I'm a big believer in measuring and I think you need to look not just dollars, but keep looking at activities, number of donors, number of prospect types.

Track those things that help you build that donor pyramid and diversify the revenue streams. Look to track the ever-changing landscape of potential funding, so you can account for the new funders that come in, the donors that pass away or go away or move on or move away.

Those are things that you have to pay attention to. Know your trends in terms of dollars, donors and gift averages, and then take that information to make adjustments. In addition, if there are things that you've learned in the past year or two, specific things that you know about specific donors that might affect your ability to reach certain goals, you should track those, and you should take those into account.

Okay, now we're going to get to the fun part, the “Don't list” because there are a lot of things not to do.

Don’ts

Don’t #1: Do not set unrealistic goals.

Now I'm ambitious and a big goal setter, and I hope you are too. But I would say number one is, be ambitious, but stay grounded. Be real, keep it real. Setting unachievable goals is a pathway to failure.

Often we'll just back into a goal because marketing does this and sales does that and here's some other sources of revenue and here's what's left and fundraising, that's what you have to do. That is not a good prescription for setting achievable goals.

Don’t #2: Don't neglect data analysis.

Don't overlook the power of data. Base your goals on concrete historical evidence rather than speculative overreach.

Don’t #3: Don't forget about donor relationships.

Despite what sometimes we talk about, fundraising is not about the money. It's about building meaningful relationships with your prospects and your donors, and I don't want you to lose sight of the human element amidst the numbers that you're creating.

So when I say there's some creativity involved, this is the creativity. Your organization will need to invest in time and money, human capital, and other things in the process of cultivation, as well as stewardship, on both sides of the ask.

And so that idea of saying, where do we go through this entire process? Who do we need? Where do we get them? How do we introduce them? How do we work with them and cultivate them? And there's the back end of how do we keep them and how do we upgrade them? At the end of the day it is about the relationships that influence the numbers.

Don’t #4: Don't underestimate the costs.

It's amazing to me how some organizations that we work with will come back with 1% or 2% cost to raise a dollar. And that's all in staff. That's everything.

When you think about 70% or more of your revenue being leveraged on 1%, 2%, or 3% of your expenses, that's really risky. And so don't underestimate the real cost, financial cost, time cost human resource cost of what it's going to take to meet the goals that you're setting.

You need to factor in all the expenses, hard costs and the soft costs, even if it doesn't impact your budget line. But you also have to think again about the human capital and the time commitment to get things done. Is it a high leverage, high return activity that you're looking at? Are you comfortable spending the money on that?

Don’t #5: Don't ignore the feedback that you hear.

Your donors and your stakeholders are your greatest allies and your best advocates. Listen to their feedback and adjust your strategies accordingly so that you can raise more money from more donors who will stay fans of your organization for a longer period of time.

I'll give you a real life example. You're doing cultivation events, you're doing in home events and you've done 20 of these over the last three years. And right after COVID, it was great. People came back out. They were really engaged, but now that you look at it over a three year period the effectiveness is starting to erode. People don't talk about them as much, they're not as excited about coming. That's a piece of feedback that as you budget, because it costs time, money, and other resources, you have to really take into account, should we continue to do this kind of cultivation in this way?

Maybe the answer is yes. But ask the question, take the feedback that you're hearing and the observable trends that you're also seeing and incorporate those together so that you can make better decisions on how to spend your money and your time and your resources, utilizing your resources.

It's a very simple list of do's and don'ts. Don't allow the simplicity of this to fool you because the goal creep is real, meaning it's very easy to tack on another 2%, 3% or 5% onto an already ambitious goal.

It doesn't feel like much to add another 2%, but that could be $100,000 or $500,000 depending on your organizational size. But goal creep is saying, if we add just another 2% onto something that's already ambitious, it makes balancing your budget possible, even if only on paper. The board can pass it and feel good about it. It's also really easy to forget how many donors will add up to that 2%, 3% or 5%. What we like to say at RSC is we'd like to see three names attached to every dollar budgeted so that we could be wrong twice and still win.

If you're saying, “hey, add another 5% and we don't know where any of that money's coming from, we have no idea.” That's a really high-risk decision that you're making. And it's one that starts you off really on your heels from day one of the new fiscal year. So just be very careful about that.

Alright, so I've been in the weeds, so let's come up a little bit out of that and talk a little bit more about just some two or three common errors that I think arts fundraising managers, administrators, and board members.

Common errors

Common error #1: One of the most prevalent mistakes I see time and time again is the failure to align fundraising goals with the organization's overall strategic plan.

Preparing a fundraising plan and goals in a vacuum is a really bad idea. If the fundraising message doesn't align with the strategic plan which means then your case doesn't align with the activities that you're doing, asking for money might become very confusing and a self-competitive mess both internally for you as an organization and for your donors.

And one of my sayings has often been is if your donors are confused, they're going to stop giving because they don't know what's going on. The confidence level drops quickly when they become confused. You need to make sure that the strategic plan and how your fundraising program operates and communicates are in really sharp alignment.

Common error #2: The temptation to chase after quick wins at the expense of long term sustainability.

And I mean that not just in terms of asking them, but for the organization’s activities.

I think we've probably all seen organizations do something for the money a donor wants to support, but that maybe it isn't in the plans. It isn't in the strategic plan. It may not even be within the vision of the organization. But sure, it’s easy to take that money and try to make it work. Landing the big grant or the sponsorship or the gift, can be a wonderful short term boost, but it comes with a price. If that program doesn't have a foundation built on who you are and what you do and why you do it, you can really drift as an institution. It can cause more damage than it does good.

I'm not saying don't ever do it, I'm saying really pick it apart and examine it before you make that decision to accept some kind of gift that falls off the normal pattern of your strategic planning.

Common error #3: Using a spray and pray approach to fundraising.

We can’t throw the net out and hope we catch a few fish. Or throw spaghetti at the wall and hope it sticks.

Spaghetti is cheap. Fundraising is not cheap. The spray and pray method almost always costs more than it yields. So instead, what I say is, focus your efforts on targeted strategic initiatives that align with your organization's mission and values. We don't need to try to be all things to all people all the time for the sake of trying to raise money.

While we've got to expand our donor base and our sponsorship base, we can’t just throw a bunch of messages out there to a bunch of people all the time and see what comes back. It's going to cost you way too much time. It's going to cost you way too much money. And it's not going to have a very sharp effect.

Prioritize building a recurring group of highly dedicated people at all gift levels – that's the long term play for fiscal health and achieving goals and fundraising.

So I'll stop there. I applaud all of you because I know it's no small task to set those goals year over year. It's no small feat to accomplish them. Just keep in mind as you're going through this season right now of creating your plan, it requires careful thought, some collaboration, a little bit of creativity, certainly some analysis and with that you can paint a bright future for your cause.

If you remember just one thing from today I think that it's to approach your budgeting process with wisdom and thoughtfulness and creativity.