(See also: Planned Gifts vs. Annual Gifts)
If you are involved in the nonprofit world, you have probably heard a lot of the unique terminology that comes with the industry. While veteran executive directors and fundraisers are used to hearing the word “major gifts,” many people are confused when first introduced to the concept.
To further complicate the matter, there are different types of donations that an organization receives. Annual gifts, major gifts, and planned gifts are all important to the financial longevity of nonprofits. Each type comes from a different type of donor and plays a different role in the organization’s budget.
Some large, well-established organizations even have different teams that work on securing specific types of donations, as they understand the vital role of having well-rounded funding sources. So, what are the differences, and which should you focus on in your organization?
What Is an Annual Gift?
An annual gift is what fills a nonprofit’s annual fund. Annual gifts are generally smaller gifts, but nonprofits often receive more of them. This normally pays for the day-to-day operations and programming that the organization offers. Annual gifts nearly always fund the current status of the organization.
Annual gifts are the lifeblood of an organization. Depending on the size of the nonprofit, annual gifts may be anywhere from $100 and beyond. Prominent organizations may consider $25,000 an annual gift, whereas a smaller organization may classify this as a major gift.
Donors who give annual gifts often make the decision quickly. They may do this because they seek to increase their charitable contributions for the year and not necessarily because they have developed emotional stakes in the organization. Annual givers often donate for personal satisfaction, and these donations often come from their monthly income instead of savings.
Some organizations – alumni organizations, in particular – have a membership that involves an annual donation. This is an effective method of ensuring funds for current operations. Some of these memberships have different levels of benefits depending on the donation level.
Still, what differentiates an annual gift from a major gift is the frequency of giving. No matter the amount, if a donor provides the funds regularly, it is considered an annual gift. When donated, the organization can access the money immediately. Annual gifts are often paid for in cash.
Donors of annual gifts do not get to specify where their money goes. The organization will use it as necessary and where it sees the most benefit. Annual gifts are most often used to increase programming capabilities or expand their reach to different target communities.
What Is a Major Gift?
A major gift (and planned gifts) plays a specific role in the financial capabilities of an organization. Major gifts (read: Major Gifts, The Complete Guide) are large sums of money that are planned, most often with the help of a major gifts officer and a lawyer. They require planning and thoughtful interactions on the part of the major gift officers. The organization often solicits them, sometimes including members of the board of directors.
There are two types of major gifts: 1) one-time, large-sum donations that are allotted for a specific cause and 2) planned gifts, which come from a donor’s estate after the donor has died.
Major gifts often come from one donor who has been emotionally connected to the organization’s cause for several years. Often, the donor has been on the board of directors for the organization or has had significant involvement in some other way.
Depending on the donor, the amount of money may be less than some organization’s annual gifts. The difference is that major donors get a say in what they want their donation to do. It almost always funds a future project of the organization, whether it be new programming or a new building. It is used to benefit the long-term vision of the organization.
For this reason, major gifts are often delayed over several years, so the nonprofit cannot access funds immediately. This allows the organization to involve the donor in the planning or goal-setting process and to provide stewardship that continues to solidify the relationship for a potential planned gift. These donations also generally come out of savings or investments rather than monthly spending.
Planned gifts come from the estate of the donor. These gifts often require the consent of both spouses, are thoughtfully considered before commitment, and usually take a longer relationship-building period. The funds for this often come from stocks, real estate or retirement funds that the donor holds at the end of life. These types of major gifts require significant effort on the part of the major gifts officer.
The Importance of Donations
Although annual gifts and major gifts differ, they each play their own role in the financial well-being of an organization. Depending on the current financial status of the nonprofit, they may focus their fundraising efforts in whichever direction benefits their immediate goals.
For example, an up-and-coming nonprofit may not have the same monetary reserve as an established organization, so they are better off securing annual donations to ensure they can continue to run day-to-day operations and provide services for their target population. Once their financial situation has improved, they can look toward the future with major gifts.
Annual gifts are a great way to access donors who may not be as financially well-off. While major gifts narrow down the pool according to wealth, real estate holdings, and past giving experiences, there is a pool of untapped donors who do not have these assets but are still willing to donate what they can.
Annual gifts enable an organization to be inclusive to donors of all wealth levels. Donors who feel included are more likely to continue contributing at regular intervals, securing the immediate financial needs of the cause.
Fundraising: Loyalty vs. Monetary Ability
When determining who is a potential annual or major gift donor, you can examine why they want to donate. There are two motivating factors in charitable giving: loyalty (Are You Worth Being Adopted?) and wealth.
The donor data that you have collected from previous donations can help guide you to which donors are more likely to give annually and which donors you can work toward soliciting for major gifts. Annual givers are often loyal to the cause.
One important tip is to not ignore or pay less attention to annual givers. Although they may not currently have the wealth that allows them to approach major giving or planned giving, you never know when a donor’s financial circumstances may change. Remember to thank and express gratitude toward your annual donors and allow them to feel that their donation was appreciated. They will remember this down the road when they are looking to make more substantial donations.
Skilled major gifts officers knows that there are benefits to each type of donation and, they work in the most effective way possible to secure various donations.
Conclusion
While annual gifts and major gifts play different roles, they are equally as important. Some organizations focus on one particular type of donation, depending on their current financial status; but once they are established, securing a variety of donation types will help keep their funds healthy.
Utilizing both types of gifts allows them to both shift focus to the current operations and set goals for the future. It also helps cultivate relationships for future major gifts (and planned gifts) from current annual donors.
And this, as Debra Ashton says, is all about endowment.
