Fundamental Questions to Build a Compelling Case for Your Endowment Campaign
Endowments offer distinct appeal and benefit for nonprofit organizations of all sizes. Yet, only one in nine (11.2%) nonprofits managed endowment funds as of 20171.
As a viable fundraising strategy for nonprofits with established annual giving programs, endowments can provide a sustainable source of funding in a new era of constant change and elevated uncertainty. At Creative Fundraising Advisors (CFA), we frequently partner with organizations who are looking to take their individual fundraising strategy to the next level with an endowment.
For nonprofits in the early stages of exploring or building an endowment, the answers to these fundamental questions can inform your strategy and build the foundation for a compelling case for support:
- What is our objective for starting an endowment?
The perpetual annual income provided by an endowment can be used to offset operating expenses, protect and sustain core programs, and provide overall financial stability to hedge against uncertainty and better counter longer-term forces of change.
Consider your nonprofit’s mission-critical services and core operational costs. Identify which of those priorities are consistently insufficiently funded as well as those with the lowest levels of funding diversification and greatest exposure to potential shifts in funding. These priority areas will serve as key inputs driving the overall purpose and objectives for your endowment.
Your case for support should be clearly linked to your future vision and the distinct purpose your endowment will serve. Whether your organization is seeking to sustain and expand programs, respond to emerging needs, or simply ensure long-term organizational stability, building a compelling case for support clearly tied to the purpose and impact of your endowment will increase donor confidence and inspire larger gifts.
- What is an appropriate financial goal for our endowment?
When it comes to endowments, there is no “one size fits all” approach. With an average annual payout of 5%, the impact of an endowment truly depends on the size of your nonprofit and your objectives for the fund.
For smaller nonprofits, an additional source of revenue to cover core administrative functions or support a mission-critical program is valuable at any level. For larger organizations, generating a significant percentage of the annual operating budget or sustaining entire programs or positions to allow for programmatic continuity will inform the ideal target for your endowment.
Regardless of the size, endowments are a powerful emblem of stability and permanence that can inspire visionary mindsets in organizations and donors alike.
- Do we have a strong base of donors to fund an endowment?
Endowments have the potential to inspire giving at transformational levels from current donors. The ideal endowment campaign prospects will have a demonstrated commitment to your nonprofit, usually over several years and often through engagement beyond financial support, as well as the financial capacity to give. Completing a donor wealth screening process, often completed as part of a feasibility study, will identify the strongest endowment campaign prospects based on these factors and help to establish an achievable short-term goal for your endowment fund.
As CFA shared in our recent Exploring Endowments discussion, endowment gifts can come in the form of outright investments or as deferred planned giving vehicles. An outright endowment gift gives donors the opportunity to fund their annual gifts in perpetuity while planned gifts may come as the donor’s last and largest gift.
While larger organizations may be more likely to secure larger outright endowment gifts, nonprofits of all sizes can leverage planned giving opportunities to inspire significant investments for the future. Whether gifts are made in the present or future, endowment funds are powerful in their permanence, serving as an ongoing tribute that will sustain the donor’s values and organization’s impact into posterity.
Regardless of the size of your organization, endowment building is a strategic decision that requires significant commitment, in-depth analysis, and significant understanding on the part of leaders and board. Endowment campaigns require a strong vision for the future of your nonprofit as well as strong personal relationships with a critical base of top donors. With a clear case for support, an endowment will provide your most steadfast donors a clear and compelling opportunity to invest in a future where your organization is doing your best work.
At CFA, we often recommend including an endowment campaign as a component of a capacity-building campaign, which can generate giving momentum and interest in the long-term vision for your organization. An endowment can also pair well with a capital campaign to sustain the operations of a new building, or to support a strategic initiative after a campaign has concluded.
If your organization is considering an endowment campaign, contact CFA today to explore how we can help.