But Most Nonprofits Still Don’t Get It
A title like that certainly entitles a fundraiser to ask, “Okay, what is it precisely I don’t understand?” So first, let’s look at what’s special about endowments.
You could say what sets endowments apart is that they’re leveraged. Look at annual giving: As the money comes in, you use it to pay off the various day-to-day expenses of your nonprofit—money in, money out. With endowments, however, you never spend the principal of the gift. Your charity uses the interest earned by the invested endowment funds to pay its bills and support its programs. So at the end of the day, you still have the original gifted funds. And they’re still working for you, earning more interest to pay next year’s bills.
For a deeper dive into why endowments are critical for nonprofit longevity, check out The Importance of Endowments to Nonprofit Longevity.
Small Is As Small Does
For example, let’s say you’re a small nonprofit community center, and the rent for your facility costs $25,000 a year. Instead of constantly running around trying to solicit multiple small gifts every year to cover that cost, you go for a larger, planned gift. An endowment gift of $500,000 earning 5% annually takes that cost off your books permanently. By their very nature, endowment gifts strengthen your nonprofit’s position in perpetuity.
Not sure how much you’d need to secure for an endowment to cover a specific expense? Use this Endowment Calculator to do the math instantly. You can also embed it for free on your organization’s website.
The fact is an endowment can be used very effectively to offset operating expenses. And it’s equally easy to market this kind of giving: just go down the list of expenses on your charity’s balance sheet. Rent, maintenance, utilities, office expenses, vehicles, programs—whatever—it all represents an opportunity for you to suggest that a donor endow a named fund to permanently eliminate it as an expense.
So What’s Holding Some Nonprofits Back?
There are three main reasons why many nonprofits hesitate to pursue endowment gifts:
1) Fear of Losing Annual Donations
Many nonprofits worry that if they go after these larger gifts, somehow their annual giving cash will disappear. So, okay, worst-case scenario: even if you don’t get that $1,000 annual gift from a donor who decides to make a $20,000 endowment gift, you’re still gaining the earnings that principal provides, plus the principal itself.
Plus, an endowment gift can permanently eliminate a cost from your balance sheet—something annual giving can’t do.
2) Lack of Understanding About Endowments
Some fundraisers think endowments are complicated. They’re not. A basic endowment works like this:
- The donor gives a large sum of money to your nonprofit.
- Your organization invests that money.
- The earnings from that investment fund operations forever.
It’s that simple. No mystery, no hidden clauses, no smoke and mirrors.
3) The “Big Charity” Mentality
Many small and mid-sized nonprofits assume that only big charities can secure endowment gifts. The reality? Many major donors prefer giving to smaller organizations where their gift will make a visible and immediate impact. A $1 million endowment at Harvard barely moves the needle. At a local nonprofit, it can be a game-changer.
For an eye-opening look at how many donors give instinctively, and how you can tap into that, read about Kitchen-Drawer Philanthropists.
Endowment Gifts Create Deeper Donor Engagement
Endowment giving enables a quantum leap of engagement with your supporters. Donors who make larger, transformative donations to your institution now feel that you are part of their family—and vice versa. They become more deeply invested in your mission, making them more likely to give in the future.
Also, those donors who make larger gifts have earned a higher level of stewardship from your charity—more cultivation, more information, more personal contact. This increased engagement actually makes them more likely to continue giving, even after their initial endowment gift. It’s a win-win situation.
The Truth About Investment and Growth
Many nonprofits also worry about how to manage an endowment fund. The truth? They don’t have to. Here are three easy ways to ensure the endowment thrives:
- Work with a Community Foundation – Many nonprofits partner with local community foundations to manage the investment.
- Use a Financial Advisor – An advisor can help set up a conservative, long-term growth strategy.
- Designate an Endowment Committee – A group of board members and financial professionals oversee investment and disbursement.
For small nonprofits, endowments can be a lifesaver. If you’re unsure how to get started, read A Small Nonprofit’s Best Friend to learn how even modest organizations can benefit.
How to Ask for an Endowment Gift
Here’s the best part: asking for an endowment gift is not much different than asking for a major gift. Here’s a simple approach:
- Identify your top prospects – Look for donors who have given consistently over time.
- Educate them on the benefits – Show them how an endowment gift can create lasting impact.
- Make it personal – Offer to name the fund in their honor.
- Provide a giving vehicle – Suggest a Charitable Remainder Trust or a Bequest.
This Is No Time to Let Opportunities Slip By
Donors are becoming increasingly sophisticated in investments and philanthropy because big charities are educating them about attractive ways to give. Smaller nonprofits must shed any inferiority complex that’s holding them back and step up with equally proactive and compelling endowment strategies.
Because if you don’t, you’re losing out on those larger, transformative donations—and the long-term stability they bring.
