Turning the Tide in Charitable Giving Decline with the Investment-Driven Model™

15 Aug 2024

Fundraising, IDM

As we all now know, charitable giving in the United States, despite reaching a record high of $557.16 billion in current dollars in 2023 experienced a significant decline over the last few years. In my previous article Unpacking the 2024 Giving USA Report: What Does the Data Say About the State of Giving? I shared the decline reflects four trends:

Individual giving declined but remains the largest source of donations.
Giving by corporations remains the smallest source of giving, while bequests remain steady.
Shifts in subsector giving have emerged over the last few years.
Megagiving & giving by wealthy donors has decreased.

This downward curve, which reveals a real decrease of 2.1% when adjusted for inflation, is driven by a combination of economic, demographic and societal factors that are the result of a complex interplay of economic pressures, shifting donor priorities, and long-term trends that have reshaped the philanthropic landscape. While there are some signs of resilience and adaptation within the sector, the overall outlook for charitable giving remains challenging. A new approach is required by nonprofits to regain donor support, investment and confidence.

Hope on the Horizon: The Investment-Driven Model™ 

Convergent’s Investment-Driven Model™ (the IDM), has carved a niche in the nonprofit and philanthropy industry, delivering a transformative approach to fundraising that works for both small and large nonprofits. At its core, this process emphasizes a strategic alignment between fundraising objectives, outcomes delivered, and the overall mission of the organization. This article delves into the nuances of Investment-Driven Model™, its trademark principles, and its implications for the contemporary philanthropic landscape.

The Genesis of the Investment-Driven Model™

I developed the Investment-Driven Model™ to address a critical gap in traditional fundraising strategies, namely that the old school methods were not working as well as they used to and relied almost exclusively on emotional appeals. First introduced to the nonprofit world in 2007 in my book ROI for Nonprofits, the IDM emerged from the demands of those being asked for money, which is the ultimate donor-centered catalyst. Donors (or investors as we call them at Convergent), consistently asked for a more informed approach to demonstrating a return on their investment (ROI), ultimately providing nonprofit entities with a framework for raising more money by utilizing a transparent methodology that explains the outcomes delivered for the money being raised.

Experience had shown that as the amount of the “ask” increased, the more critical the prospective investor tended to be. As said to me years ago by the CEO of a Fortune 50 company when I asked him for a six-figure investment on behalf of a local nonprofit,

“If you can’t demonstrate your outcomes, 
you don’t have the right to ask for money.

If you can’t demonstrate what your outcomes mean to me,
you don’t have the right to ask me for money.”

Core Principles of the Investment-Driven Model™

The IDM is underpinned by several key principles that differentiate it from conventional approaches:

1. Impact-Focused Approach: Unlike traditional fundraising, which often relies on emotional appeals and the inherent goodwill of donors, Convergent’s model is grounded in demonstrating the economic value and/or impact delivered by the respective nonprofit involved in a fundraising campaign. This involves drilling down to the outcomes expected to be delivered, quantifying their value, and demonstrating to potential investors how their funding impacts the community.  

2. Alignment of Mission and Investment: The model stresses the importance of aligning the organization’s mission with the interests of donors and investors. By identifying shared goals and outcomes, organizations can create more compelling cases for support, fostering stronger and more sustainable relationships with their stakeholders. This allows a fundraising campaign to highlight the outcomes that matter to their investors, allowing campaigns to raise more money in a shorter time period.

3. Outcomes Matter: The IDM emphasizes results… the results that matter to their constituency. This is the group that matters, since they are writing the checks, and without their support, positive change cannot occur. At the end of the day,

People invest in nonprofits
because of the outcomes
they deliver.

4. Investor Relations: Organizations must articulate their value proposition clearly, highlighting how contributions directly contribute to achieving their mission. This involves crafting compelling narratives that resonate with donors’ and investors’ values and priorities. Nonprofits must learn to walk the walk, not just talk the talk. In other words, they cannot just change their vocabulary to investment-like terms; they must deliver the outcomes expected by investors if they want the funding to continue. 

Implications for Nonprofits and Those Who Invest in Them

The IDM has significant implications for both nonprofits and philanthropists. For nonprofits, it provides a framework for demonstrating accountability and effectiveness, which is increasingly important in an era of heightened scrutiny and competition for resources. By adopting this model, nonprofits can differentiate themselves, attract more substantial and sustained support, and ultimately achieve greater impact.

For philanthropists, the Investment-Driven Model™ offers a rigorous approach to evaluating potential investments. It allows them to make informed decisions based on expected outcomes, aligning their financial goals with their philanthropic values. This alignment not only enhances the effectiveness of their investments but also ensures that their contributions lead to meaningful and measurable change.

Real-World Applications

The Investment-Driven Model™ has been successfully implemented across various sectors, including education, healthcare, and social services. For instance, in the education sector, schools and educational nonprofits have used the model to secure funding for programs that demonstrably improve student outcomes. By showcasing the ROI of these programs, they have been able to attract significant investments and scale their impact.

In healthcare, organizations have applied the model to fund initiatives that improve patient care and health outcomes. By quantifying the benefits of these initiatives, such as reduced hospital readmissions or improved patient satisfaction, they have made compelling cases for support, attracting investments from foundations, corporations, and individual donors.

Summary

Convergent’s Investment-Driven Model™ represents a paradigm shift in the way organizations approach fundraising. By focusing on impact, aligning missions with investor interests, and the outcomes delivered, this model offers a robust framework for achieving sustainable financial support and maximizing impact. As the nonprofit and philanthropic sectors continue to evolve, the IDM will likely play an increasingly pivotal role in shaping the future of fundraising and sustainable nonprofit investment.

In difficult times, experts can guide the way. Convergent Nonprofit Solutions understands the importance of nonprofit organizations and their role in communities nationwide. Look to Convergent Nonprofit Solutions to help you navigate opportunities and challenges.

About The Author

Tom Ralser, CFA

Principal & Director of Asking Rights

Department: Team

“Why should I give your organization money?”

When I began in this business in 1995, this is the question I was first asked to answer. Not only was this asked in my first feasibility study by a prospective donor, but from a company perspective, it became the driving question that would allow us to become leaders in the industry.

Since then, I have strived to not only address this question but improve and refine the answer. In the early days of economic development projects, it was relatively easy to answer. Since then, I have applied my approach to answering this question to virtually every type of nonprofit. The narrower term “ROI” has given way to the broader “OVP” (Organizational Value Proposition®) which is more appropriate for social missions and my focus on outcomes delivered has led to a revolution in addressing the motivations of givers, transforming them from nominal donors to major investors.

My work is not yet done. As investors in nonprofits become more sophisticated and demanding, the bar is continually being raised. Stay tuned.

Tom has worked with organizations of all kinds, from Chambers of Commerce to religious organizations, national museums to rural health networks, and local youth organizations to international research institutes. He pioneered the concept of applying return on investment (ROI) principles to nonprofit fundraising, and fundraisers have described his work as the “silver bullet” that justifies larger investments in nonprofit organizations.

Hundreds of organizations have utilized Tom’s sustainability planning techniques to ensure they can thrive in a tight money environment. He holds the Chartered Financial Analyst (CFA) designation, which provides the framework for his Investment-Driven Model™ of fundraising, and led to the development of the Organizational Value Proposition®, which is widely used by corporations, foundations, and individuals as confirmation that the nonprofits in which they invest are truly delivering outcomes with values. His specialty of utilizing for-profit concepts and methods in the nonprofit world has helped nonprofits raise over an estimated $1.6 billion in the 22 years he has worked with them.

Tom is a frequent and highly acclaimed speaker, addressing topics about attracting new funders, outcome-based sustainability planning, and delivering value to investors.

Summary of Experience

Personally involved in over 600 nonprofit funding projects in all 50 states.
Author of the books ROI for Nonprofits: The New Key to Sustainability, Asking Rights: Why Some Nonprofits Get Funded (and some don’t), and the companion workbook, Developing Your Asking Rights.
Holds the Chartered Financial Analyst (CFA) designation, ranged by Economist as the “gold standard” for investment analysis.
Session leader and/or keynote speaker at dozens of conferences throughout the nonprofit sector and country. A sampling includes:
- Planet Philanthropy (2016) Keynote Speaker.
- National School Foundation Association Annual Conference (2016, 2017) Presenter.
- Association of Healthcare Philanthropy Big Ideas Conference (2017) Presenter.
- Council for Advancement & Support of Education’s Conference for Community College Advancement (2017) Presenter.
Founding Director of Western Colorado Bureau of Economic and Business Research at Colorado Mesa University, where he was a tenured professor.
MS in Finance from the University of Utah and BS in Marketing from Illinois State University.