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When you are trying to raise a large amount of money, either through a capital campaign or major gifts program, knowing “who to ask” might be the most important information you can find. But how do you find this information? The answer is prospect research. Prospect research helps fundraisers to identify donors who have the ability to make a big gift, are connected to your organization, and are likely to give.
Prospect research can be as simple as a Google search done by a person in a one-man shop, or as complicated as having a full time staff equipped with pay-for-play databases. No matter what resources you have, the goal is the same. Asking the right person for the right gift at the right time.
Prospect Research Basics
Prospect research tries to answer two major questions for your front-line fundraisers.
- Who should they be asking for gifts?
- How big a gift they should request?
Your fundraisers only have a limited amount of time. They can’t talk to every person in your donor database (unless your database is very small, a different problem altogether). The answer to the first question gives them a way to prioritize their list of donors so that they are fishing in the pond where the big fish are hanging out. Prospect research will fill your fundraiser’s calendars with appointments that have a good chance turning into a big gift.
The second question is likewise important because the right information can help a fundraiser ask for the right gift. It’s like Goldilocks and the three bears. If the ask is too big, you risk embarrassing or offending the donor. If the ask is too small you, risk leaving a bunch of money on the table. But if the ask is just right, your donor will leap at the chance to make the best gift they can.
Who should they ask?
One of the major misconceptions about prospect research (if people are thinking about it at all) is that the prospect researcher is someone who can get you Bill Gates’s cell phone number. Most prospect research should not focus on finding donors “out there” in the mythical land of the richest people in the world. Real prospect research will focus on your existing donors, trying to find donors who have already given small amounts but can give a much bigger gift.
Two major characteristics come into play when you’re screening for who you should ask.
- Capacity – Capacity is quite simply the ability to make a major gift. Do they have the necessary cash, either in cash flow or in assets, to make a major gift?
- Affinity – Do they like your organization? Have they given before? Have they ever donated before?
Giving capacity is the amount of charitable giving that a person is capable of doing. What kind of information do you think would be useful for determining capacity?
- Real estate holdings
- Business ownership and estimated business revenues
- SEC reported stock holdings for officers at public companies
- Estimated annual income based on income averages for different professional fields
- Connection to a family foundation or private foundation
- Board memberships
- Political giving
- Charitable giving
You should notice that all of this information is available to the public, if you know where to look for it. You are not violating your donors privacy by searching out this information. If you are ever tempted to violate a donor’s privacy by searching for information that is not public, don’t. You risk destroying your relationship with the donor, as well as potentially breaking the law.
Another source of information on capacity is peer screening. Rather than searching out publicly available data, you’re asking the opinions of people in the know. In a nutshell, peer screening brings together a group of highly connected volunteers, presents them with a list of potential donors, and asks these questions: 1. Do you know them? 2. What kind of gift are they able to make?
Prospect researchers are able to take all of this information and plug it into formulas that give an estimated giving capacity.
Just because a person has enough money to make a big gift doesn’t mean that they will give that big gift to you. In prospect research, affinity means how closely connected the person feels with your ministry. The greater the affinity, the more likely you are to get a gift.
RFM - Recency, Frequency, Monetary
One common way to measure affinity is called RFM, which stands for Recency, Frequency, and Monetary.
- Recency – When did the donor last give to your organization? Contrary to popular misconception, a recent gift is an excellent indicator that the person is likely to give again. The gift is fresh in their minds, as is the reason that they chose to give that gift.
- Frequency – How often do they give? The more frequently a donor gives, the more connected they feel to the ministry.
- Monetary – How much have they given? It only makes sense that a person who has given a large amount over a long period of time is more likely to make another big
gift. Research also shows that this is true.
One powerful way to use RFM for your prospect research efforts is to do a database screening. One way that this might be done is to assign a score to each donor based on each of these three categories. How does this work?
Say you have 100 donors. For each category, sort them from best to worst, and assign them a score based on their place in line. This is not necessarily as simple as a score from 1-100, because you might have more than one donor whose last gift was on the same day or who have given the same amount. So you’ll need to come up with (or find) a grading scale that will give each donor a fair score. Once you have your three scores, add them up for an overall RFM score. The donors with the highest RFM should be at the top of your list.
A different way to use RFM is to use these measures to filter your donors. So you might do a screening of your database that only gives you donors who have given in the last year and have given a cumulative total of more than $3,000. While you might miss some big fish with this method, you’ll still find more potential prospects than you can handle.
How much do you ask for?
The second important task of prospect research is deciding what kind of request to make. A general rule of thumb is that you can ask for 1-5% of net assets over three to five years. Net worth can be estimated by taking what information is available and comparing it with IRS reported averages. So for example, if Bill lives in a $1.5 million home, the IRS says that on average real estate is 11% of net worth. This gives us an estimate of $13 million for net worth, which leads us to conclude that Bill might be able to give between $130,000 and $650,000 over 3-5 years.
Another way to find gift ranges is to work with a wealth screening vendor. A number of companies exist that gather data on individuals and use mathematical models and artificial intelligence to determine a donor’s giving capacity. Three of the big dogs in this field are DonorSearch, IWave, Lexus Nexus for Development, and Wealth Engine. These companies will do some of the leg work that an in house prospect researcher might do, for a price.
The limits of prospect research.
Prospect research seeks to give front line fundraisers the best possible information so they can spend as much time as possible talking to the right people. But it does have its limitations. Outside research will never substitute for a personal conversation with the donor.
While RFM scores might indicate who is likely to make a major gift, until you pick up the phone and try to set up a meeting, you aren’t going to know whether they will be responsive to your invitation. Until you start talking to them about their giving capacity, you won’t really know what kind of gift they can make, and are willing to make.
Prospect research does not replace the face-to-face interactions that you should be having with your donor. Instead, it should inform those conversations and help direct your efforts in trying to have those conversations.
The more time you spend with people who have the ability to make a gift and demonstrated fondness for your organization, the more big gifts you will bring home. And this focus is what Prospect Research is all about.