Restricted giving doesn’t sound like a good thing, just from the sound of it. The idea of restricting anything, especially giving, doesn’t seem like it could be the best course of action.
But as it turns out, not only are restricted gifts something every nonprofit should be offering to their major donors and prospects because it is good service, but they result in more revenue, and bigger gifts.
Why is that? Read on to see how restricted giving taps into core and primal social emotions for donors. These social emotions are what motivate the greatest acts of generosity.
Restricted giving describes any situation where a donor attaches conditions to their gift. This could mean designating their gift for specific programs or campaigns within your mission. It might include instructions as to when the gift should be dispersed, such as in installments over a period of time. There are countless ways to structure a restricted gift.
But the overarching idea is that a restricted gift cannot be used by the nonprofit in any way it wants, whenever and however it decides. There is some type of caveat that comes with restricted gifts.
Restricted vs unrestricted gifts – see why organizations and donors don’t always see eye to eye on this.
There are so many intricacies that can play into this, so let’s look at some of the broader types of restricted giving.
An endowment allows a donor to make a large gift at one time, but then specify when and over what approximate time period that money might be distributed.
For example, a business owner could donate a building to a nonprofit but require the nonprofit to rent it out or sell it, and then use portions of the proceeds every year. Suppose the building sells for $2 million. The endowment terms could specify that $50,000 will be given to the nonprofit every year, with the remainder being invested.
The reason to do this – from the donor’s perspective – would be to create a perpetual funding source for a nonprofit they care about deeply, assuming a successful investment strategy.
Here, a donor gives a gift with the specification that it must be given out to beneficiaries of the nonprofit. This doesn’t only apply to college tuition, though it often does. There could also be scholarships for summer camps, retreats, musical instrument instruction, and many other programs. The idea is that the donation pays for program participants to get accepted to something they otherwise could not afford.
Suppose a donor gives $250,000 and wants it to fund scholarships for a program with a $5000 tuition. With zero investment, this is enough to pay for 50 scholarships. With even conservative investment, it could fund even more.
The motivation for this is that the donor wants to know their money is impacting specific lives in tangible ways. They can see their gift in the students who receive it.
Donors could give a gift and request something be named after them. That could be a building, a program, an event, a scholarship, a piece of land, and many other things.
The goal here is legacy, having a good family name, and permanence.
Here, the possibilities are endless. This can refer to how a gift is to be invested, when it pays out, how much, to whom, and with what conditions.
For example, suppose a donor gives money to purchase a park. Their instructions might also require a bench or plaque telling their family’s story to be placed in the park. There might be money set aside to pay for maintenance, with a requirement that they must hire a teenage foster kid to perform the maintenance.
The point here is that the instructions somehow express the donor’s values, story, family, or likeness.
With these examples in mind, let’s look at why restricted giving offers your organization a way to increase major gifts and revenue.
The biggest gifts happen with greater frequency when your major gift officers learn how to help donors embed their act of giving into their life story. Story is far more powerful than logic, analysis, and rationalism. You can’t persuade the biggest gifts. You must inspire them. And that happens through story.
Look at the examples above.
Do you see how meaningful those types of gifts would be for a donor? Imagine a donor who had a passion for violin, but for health reasons, wasn’t able to play beyond their 20s. Now in their 80s and wealthy, they want to help hundreds of kids learn to play the violin. So, they make a big gift to an organization that teaches the violin, and then require their gift to pay for lessons for ten kids per year, indefinitely.
Do you see how much more satisfying that gift will be, as opposed to giving the same amount of money to the organization to use however it sees fit?
Restricted giving adds a ton of value to the giving opportunity, because it makes their giving story – and thus their hero story – that much more compelling and gratifying.
Immortality may not be possible in reality, but it is possible symbolically through gifts that leave a permanent mark on the world, and that identify the donor as part of that mark.
Naming a scholarship after the donor is an easy example of how this can work. Even after the donor is gone, their name and their impact continues to do good in the world.
Making a restricted gift helps the donor imagine a clear mental picture for what their gift will accomplish. Rather than go to the general fund, it’s much more meaningful to know that my gift will help launch a program that will build twenty houses every year in a particular nation.
A restricted gift allows the donor to tell other people what their gift will make possible. That feels good, and it’s valuable to them.
When you offer a donor the option of making a restricted gift, or even better a menu of options, you are communicating that you trust them and want to partner with them in ways that are meaningful to them.
You are making it clear that they aren’t just a stack of money, which is how wealthy people often feel perceived by nonprofits. Just give us your money and let us spend it how we know best. That’s the actual approach taken by some organizations. It doesn’t work out very well, for anyone. The organization makes less money, and the donors feel soured and unappreciated.
When a donor trusts you, they give repeatedly, and they give bigger gifts.
Restricted gifts are very much like lead generation in the business world. Why? Because if a donor makes a restricted gift for their first gift, they will usually make any future gifts unrestricted. The restricted gift establishes trust, gives them a sense of meaning and fulfillment, and bonds them to your organization.
From that point on, they just give freely. So you do a restricted gift when a donor prefers it, because you know this likely means many more future donations that will be unrestricted. The amazing thing is, this doesn’t even require the first gift to be restricted.
Evidence for this can be found in a study from the Journal of Behavioral and Experimental Economics. This study gave donors the option of making a restricted or an unrestricted gift in one campaign. Then, they compared that with another campaign that only offered unrestricted giving options.
Not only did the first campaign make more money, but 98% of the gifts given were given without restriction.
Did you catch that?
Simply giving the option of a restriction – even though hardly any of the donors used it – led to greater total giving.
Organizations offering restricted gifts understand that major gifts is a long-term, multi-step process. Some major donors give a smaller gift to sort of ‘test out’ an organization. Based on how they get treated in their giving experience, they may or may not follow up with much larger gifts. Why? Because they’re looking for organizations they can be excited about giving to. They want to give, but not just to anyone.
Restricted giving gets them in the door.
This last one depends on the specifics of the giving instructions, but it’s very common for a restriction to apply only to the first use of a gift, not the entire amount. This would happen in situations where the amount needed to fund something may not be fully known.
For example, suppose a donor gives $100,000 and wants it to go toward a scholarship to their alma mater. The winning student may not require all that money. Maybe they only need $60,000 of it. In that case, the remaining $40,000 could then go into your general fund.
An enhanced donor experience, permanence, clarified impact, trust, and raising more money – these are all good outcomes for both your organization and the donor, and they all happen by offering and working with donors on restricted giving.
But how should you respond when a prospect rejects your request for a major gift, even a restricted gift? See a 3-step response and learn how to restart the conversation.
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