With grant funding in question, individual donors are more important than ever. And as if fundraising wasn’t hard enough, it’s getting harder; the Fundraising Effectiveness Project (FEP) reports that both retention rates and total donors fell by 5% in 2024.
But you already know it’s a challenging time. We’re here to help, not share information you don’t need.
Drawing on the latest research, this article will make the case that professional accounting infrastructure isn’t a cost, but an investment that will yield dividends while buying you more time to focus on program services.
Let’s dive in.
| Take note: This article incorporates information from the Fundraising Effectiveness Project (FEP) Survey, the Lilly Family School Focus Group Study, and the Bank of America (BoA) Study of Charitable Giving by Affluent Households. We hope our writing is valuable, but encourage you to skim or read the linked primary sources for yourself. They’re exceptional resources in and of themselves. |
Building Loyal Donor Bases: What Motivates People to Stay?
Monthly recurring pledges are the hallmark of a stable nonprofit. First-time donors are unpredictable, and big picture strategic planning is difficult without a concrete budget. But what motivates donors? Why do some stay, and others leave?
The Lilly focus group can shed some light. For starters, some things are out of our control.
Participants cited explosive current events as catalysts for first-time giving. While you should undoubtedly incorporate news of the moment into fundraising, new wars in Europe, global pandemics, and major protest movements don’t happen every day. Moreover, economic conditions also fluctuate. Wealthy donors, particularly those who give through foundations or donor-advised funds, often base contributions on their performance in the stock market. People prioritize personal stability over philanthropy during bad years.
However, there are things within our power. This is perhaps the most critical information from the study. Emphasis ours:
“Donors expressed a greater desire for nonprofit organizations to communicate the impact of programs and services and to be informed in more engaging and personal ways. People shifted their giving to organizations that demonstrated impact and efficacy, which actively engaged in communication and education, and which personalized donor engagement.
– Lilly Family: Understanding How Donors Make Giving Decision.
People give, and keep giving, to nonprofits that clearly communicate how their money is making a difference. This is where accounting infrastructure plays a role. After all, how can you illustrate impact without reliable figures to share?
Donors Consistently Report Wanting to See Impact and Efficacy
The Lilly Focus Group report is lengthy, but one message is seen over and over: donors want to feel like their money matters, and they expect nonprofits to prove it.
- “They appreciated organizations’ efforts to present the impact of donor gifts and planned to continue contributing to organizations with clear and consistent communication.” – page 7
- “This questioning of where the money goes instilled a greater sense of selectivity and caution in most donors, along with a greater desire to engage in research and communication before they commit their support.” – page 16
- “Respondents’ accounts also suggested that a lack of impact or tangibility could be another cause of decreased giving” – page 18
A similar theme appears in the BoA Study of Affluent Charitable Giving.
When asked about their motivations, the second most prominent response was “because I believe my gift can make a difference.” When asked what matters after making a gift, the top response was “spending the money mostly on program activities,” followed by “demonstrate sound business and operational practices, including full disclosure of financial statements.”
Plus, it’s aggravating to show up in somebody’s inbox only when you’re asking for money. Lilly participants shared frustrations with charities that did this. I’m sure you’ve experienced this yourself— political campaigns are notorious for hit-and-run fundraising.
Financial reporting isn’t about making sure you can file an accurate Form 990, though that matters. It’s an opportunity to build donor trust, prove their dollars are being put to work, and encourage one-time givers to become longtime supporters.
How to Leverage Accounting to Demonstrate Impact and Efficacy
Here are a few concrete steps:
- Include donor dollars at work in every major campaign. Don’t just ask for money. Show what $50, $500, or $5000 achieves. It makes giving feel more like an investment.
- Send short impact updates between fundraising asks. These can be monthly or quarterly emails with metrics, photos, and brief stories showing progress. Make it a rhythm, not a one-off.
- Develop a dashboard or infographic with key financial and program metrics. You don’t need a data scientist, just a few reliable numbers and visuals. You can include this information in your annual report, campaign recaps, or your website’s “Why Give?” page.
- Track progress over time. Create continuity in your reporting by following up on stories or initiatives you previously shared with donors. Help them see the long-term arc of their contribution.
This is where strong accounting infrastructure is an asset. Without accurate, up-to-date data, it’s almost impossible to demonstrate outcomes clearly or credibly communicate cost-effectiveness.
Accounting isn’t just about compliance, it can be a storytelling tool that helps your organization build trust.
What Happens to Organizations Without Transparent Financials?
Kony 2012 is the perfect example of what happens when you have a compelling message, but don’t effectively communicate how funds are being used.
For those who don’t remember, a nonprofit dedicated to stopping Joseph Kony, a Ugandan warlord, released a documentary-style video that went viral. It was a masterclass in emotional storytelling and racked up 100 million views in just six days.
While the video inspired millions, donors started asking questions they weren’t ready to answer. Where was the money going? Why are they spending so much on filmmaking? Is Kony even relevant anymore? Trust crumbled. Donations stopped. And the nonprofit shut its doors shortly after.
A good story might convince a donor that your cause is important, but you need to prove trustworthiness too. Accounting infrastructure is a component of that.
Don’t Make the Fundraising Mistake Other Nonprofits Are Making
According to the FEP survey, just 18% of first-time donors repeat, while a staggering 84% of seven-time donors stay with your organization. A similar pattern separates small and large-dollar donors. Micro givers ($1-$100) stick around just 21% of the time, while major gifts ($5k or more) are repeated in more than 50% of instances.
Yet, there’s a puzzling disconnect in where nonprofits put their effort. Over half of total donors made micro donations, a cohort comprising just 2% of all dollars raised. Similarly, nearly 70% of donors were first-time givers, despite this subsection accounting for just 20% of all dollars raised.
A handful of loyal donors is worth more than an entire room of brand new small-dollar donors, and yet most organizations are putting their attention precisely on the less valuable group.
Why? It’s tough to say. However, failing to share stories of impact and efficacy with new donors is a likely culprit.
The Case for Outsourcing Your Accounting
People who work in the nonprofit sector are inspiring. They dedicate their careers to causes that make the world a better place, often working under challenging conditions with limited resources. But despite their versatility and tenacity, they can’t be specialists in everything.
Small organizations usually have a bookkeeper, but they’re a volunteer or a part-time employee at best. This keeps expenses to a minimum, but accuracy, timeliness, and report usefulness often suffer.
On the other hand, it’s rare to find a midsize or large nonprofit without a full-time staff person handling accounting. Sometimes this person is in-house, but is often outsourced as well.
It’s more expensive to pay for help than to rely on a volunteer, but the quality, speed, and accuracy can more than offset the added expense. Plus, by outsourcing, an organization can save the annual expense of a full-time employee. It’s a happy medium between free and full-time help.
Outsourcing comes with other distinct advantages as well:
- Scalability: Organizations can adjust services based on needs and budget.
- Expertise: Many outsourced accountants have specialized experience working with nonprofits, ensuring adherence to best practices and compliance.
- Diversity: Because they work with a broad client base, outside firms can bring fresh perspectives and innovative ideas to your organization.
- Time Savings: Freeing up staff and leadership from administrative tasks lets them focus on mission-driven work rather than struggling with spreadsheets.
And of course, donors are more confident in organizations that share clear and accurate financial reports.
We’re indinero, your trusted accounting, tax, and CFO firm. Our expert team transforms financial management into an afterthought, so you can focus more on your mission. When the time is right, contact us for a free consultation. We’d be delighted to learn how we can serve your organization.
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