When the pressure is on to hit annual fundraising goals and the calendar year is winding down, nonprofits should leave no stone unturned to maximize giving.
It goes without saying that all of the traditional year-end campaign advice stands, and there are plenty of tips about what to do all the way up until the end of December. But for now, we want to shine a light on an often-underappreciated vehicle for fundraising: Donor-Advised Funds, or DAFs.
What Are Donor-Advised Funds?
It’s easiest to think about DAFs as a piggy bank for donors. Charitable organizations, such as foundations, establish a separate fund for donor contributions. An individual can deposit assets, such as cash, stocks, or real estate. He or she gets an immediate tax deduction and then will enjoy recommending where the funds should be dispersed over time. The sponsoring organization (the foundation) manages the funds and facilitates requests for disbursement.
According to the National Philanthropic Trust, DAF grants have increased every year since 2009 and have more than doubled in the past five years. This fundraising vehicle is able to weather economic storms: stock market losses might decrease the value of the assets in DAFs, but the number of DAF accounts and the grants from those accounts have continued to rise steadily.
The takeaway? Don’t ignore DAFs. When your donors are feeling the effects of inflation and declining disposable income, DAFs are still holding steady and can be lifesavers for your nonprofit.
Donor Benefits of DAFs
To understand the whole picture and be able to educate others, it is helpful to understand why DAFs are appealing to donors. When donors contribute to a DAF, they:
- Can easily contribute a broad range of assets
- Will reap the tax benefits of a charitable donation when they transfer assets
- Are investing their assets, which can rise in value, tax free
- Can contribute assets that have appreciated, avoiding long-term capital gains taxes
- Can support charities over time
- Eliminate the headache of selling assets and filing documents
Clearly, this is an attractive option, particularly to major gift donors who have significant funds to disperse across several nonprofit organizations. These are benefits you can use when communicating with prospects and educating them about their options.
DAF Strategies for Nonprofits
How can nonprofits tap into this world of DAFs? There are some strategies that can help!
- Build relationships with sponsoring organizations. If you can partner with them, you’ll build awareness of your mission and more easily connect with donors.
- Talk about DAFs with your donors. Whether you want to include a DAF-giving option on fundraising communications or include an option on your website to give from a DAF, make sure donors know it’s an option. And if you get a quizzical look, ensure you understand DAFs well enough to educate your donors.
- Target potential DAF donors with compelling case studies focusing on your nonprofit’s impact.
- Be flexible in the kind of funds you accept. Can you accept multi-year grants or in-kind gifts?
- Help your donors establish recurring automated grants from the sponsoring organization. This will help with forecasting and provide a solid fundraising foundation for your nonprofit. If you’re a CharityEngine client, the newest upgrades to our Opportunities Dashboard will help you track major donors, federal grants, and corporate giving, or create any specific workflow.
- Check to see if the sponsoring organization offers an online portal to embed onto your website. This reduces donor friction as donors can initiate grant recommendations directly from your website.
- Research whether you have any local community foundations that help donors identify nonprofits for grants. These are important resources for local nonprofits and can potentially connect your organization with donors.
Winning the Hearts of DAF Donors
Is it harder to win the hearts of DAF donors than regular donors? No, it’s not harder, but it is a bit of a different approach.
For starters, DAF donors tend to fall in the major gift category. Communications with them should focus strongly on impact and impact at all levels. You might want to talk about the volume of food your foodbank collects, and the number of people you feed, and the people in your community who volunteer or you employ, and the ways your office reduces its carbon footprint. Then you can go even more micro and share a case study. Lead with data and show clearly how your work directly addresses issues DAF donors care passionately about.
Education is important. Whether you’re hoping to engage an existing DAF donor or share the opportunity with existing donors, know your stuff. Be able to articulate the tax benefits as well as the ways in which their grant can help your organization accomplish its mission.
Finally, highlight your flexibility. Does what you do address several interests of the donors? Or can you communicate their ability, through a DAF, to easily support various causes within a certain timeframe?
Consider ways you can appeal to these donors. Can you partner with a sponsoring organization and produce a webinar explaining DAFs to donors and how those funds can impact your mission? Are there ways you can increase transparency or offer accessibility when donors have questions?
Year-End DAF Donor Push
Granted, a lot of this information helps with a much longer play than can be implemented for year-end giving. However, a direct appeal from your nonprofit to DAF donors is something that could still increase your year-end numbers.
You can send an email talking about DAF and the potential impact on your nonprofit’s mission. You can put a banner on your website, launch an SMS campaign, or add an announcement in your donor portal. If you then get questions about what a DAF is, you can jump in and start a conversation.
Let me hit you with some numbers: There are more than two million DAF accounts, and the average size of an individual account is estimated to be almost $125,000. The average payout rate hovers between 20% and 30%. If you do the math, that’s a lot of money up for grabs. Make sure your nonprofit is raising its hand!
And, as always, if we can help with fundraising and donor management, we’d love to show you our unique platform and talk about how our solution can help you raise more money.