Keeping up with the dreaded economic news? Nonprofit executive directors are evaluating organizational stamina:  Are we in a recession? Will my donor base remain strong? Will it be like COVID? Anything close to the Great Recession? How do I keep the contributions coming in? How do I take care of my team? Or will it blow over before we even know it’s happened?

Questions can keep us up all hours of the night, but “keeping up” means being ready. In my long gray-headed life, I have weathered 10 recessions. Though none of them were fun (well, the first one, I was an infant, so it may have been fun), recessions are an inevitable fact of economic life. They don’t get easier. But they do become more manageable to those who are experienced in navigating their organization through the turbulence.

What are we hearing now —

  • 8.6% inflation, the highest Fed rate hike in decades, and a 1Q22 GDP dip of 1.4% — definitely a tough situation.
  • Fed Chair Jerome Powell on prospects of a soft landing: “There’s a path for us to get there. It’s just not getting easier. It’s getting tougher” as reported by AP June 16.
  • White House economic advisor Brian Deese, asked about recession: “There are always risks” as reported by Fortune May 22.
  • Bruce Kasman, chief economist for JP Morgan Chase & Co.: “I’ve been more pessimistic about the opportunity of stabilizing inflation at an acceptable level without a recession” as reported by Bloomberg June 12.

Essentially, a majority of economic leaders (and those who are not political appointees) thinks we are either IN a recession now or WILL BE in a few months/quarters. Nonprofit leaders know from experience that whether it is a formal recession or simply an economic downturn, their costs are going up, their contributions will likely take a hit, their razor-thin margins will get thinner, and their staff will be worried.

When you’re ready —

I include this out clause for any of you who may NOT be ready. It means that our industry, the nonprofit sector, has a habit of reactionary leadership in turbulent economic times. We’re great at serving those in need, making a difference in our sphere, and inspiring our teams and boards. But our front headwinds tend not to be economic but rather programmatic and institutional. We tend to notice later that revenues are down.

Recessions affect organizations in many and varied ways. Those relying on government grants may not see a negative impact for a year or two. Those with major individual gifts may see immediate declines since gifts are often tied to a donor’s stock portfolio. Those of you in community services may wonder if you will ever see a decline in demand, while those in the arts have learned to watch the economy closely. (Our team at Capacity Partners represents all these sectors, and we see the varied impacts. Plus, we do leadership coaching!)

The point here: Be Ready. There really is no out clause for a drop in contributions.

Four Strategies You Should Work Right Now

  1.  Communicate more. All of your stakeholders should know that you are paying attention to the economic uncertainty affecting your service sector and your contributions. Your beneficiaries need to know that you are there for them. Your community should be aware of your forefront position in serving them. Your donors need to know that you appreciate them. And need them. Your board needs to know that you are proactively looking – and counting on their help – toward new and pledged resources.
  2. Revise your cost structure. Yes, you can! Everyone thinks their budgets are made of concrete, that their expenses are set, that there is no wiggle. You can be creative. So says Praveen Kishorepuria, Managing Director, Zero-Based Transformation, Accenture North America:  “Zero-based cost transformation offers multiple options for increased flexibility….many tactical, repeatable activities can be virtualized or outsourced.”  The strategy is to find partners, outsource when possible, use board member companies to provide bridge services, delay hiring….anything to reduce the expense line can dramatically (even if temporarily) improve the bottom line. And if you are worried that you are susceptible to a downturn, you should consider a dramatic 20/20 strategy, explained below.

According to Network for Good, “Ten Strategies for Recession Fundraising,” strategy #6 is “Identify Plans B, C and D: Consider subletting a section of your current office to another nonprofit. Do you have equipment that could be sold? Develop a cause-marketing partnership with a company.”

  1. Get closer to your donors. This is the most important strategy for protecting contributions. Donor retention during a downturn is the surest measure of whether you will survive a recession intact. If you are already close to your Top 10%, then get close to your Top 25%. Imagine being on the bubble of a donor’s portfolio. If you are not among their top philanthropic priorities, you will likely be dropped from their giving program if their income is negatively impacted. Clarifying: when the donor’s ability to contribute is constricted, you will be cut. Unless you are among their top beneficiaries.

I developed a hypothetical chart that shows how vulnerable a nonprofit is during an economic downturn. First, the economic boom period shows that a typical major donor whose giving is based on investments may both increase her number of beneficiary organizations AND retain the ones she is currently supporting. It’s an economic boom: she is doing well, and she rewards those organizations comfortably because she aligns with their mission and respects their uses of funds.

This is donor loyalty in an economic upturn. The left axis shows that retention increases over time. By Year 3, after three years of giving by this donor, the recipient has an 80% probability of continued contribution. The donor has also increased her donor portfolio.

From two in Year 1 to nine in Year 4.  You are “Org #4,” added in Year 1. During an economic boom, your projected retention is good.

In a recession, the donor’s portfolio is weakened. Discretionary philanthropy means the donor is hoping to make an impact with fewer resources. She chooses to cut the number of beneficiaries to the few that are the most important to her.

 

This chart (hypothetical) shows what happens during a recession. The number of recipient organizations is trimmed significantly.

Donors want to maintain giving levels but are often forced to cut back during a period of economic uncertainty. If you are “Org #4” added in Year 1, by Year 2 you don’t make the cut.

 

 

 

 

 

Staying close to your top donors, listening to their interests, providing worthwhile recognition, and affirming impact all will result in secure donor retention. Many nonprofits are funded at 80% by their top 20% of donors. Try to ensure that you are among their top beneficiary organizations.

  1. Develop with your senior team a dramatic 20/20 program. It’s simple; it brings your leadership together; it works. And it is nearly impossible to do. All you have to do is reduce your expenses by 20% and increase your revenues by 20%. Done! Except that it is excruciatingly difficult.

In a normal economy, it is not unusual to experience a decline in revenue. We manage through those experiences by cutting our costs in the 3rd and 4th quarters and squeezing our board for end-of-year giving. In a recession, you could lose a large percentage of your revenue, 10% or more, maybe 20%. You should always have a plan for cutting 20% of your expenses. Unfortunately for most, it means cutting our most important resource, our people. If you start now, and for most of you entering a new fiscal year, now is the RIGHT time to start, you can figure out how to disperse duties, what operational shortcuts you can enact, what professional services you can delay…all before the contents of your anxiety hit the fan.

But that is only the start. What if you lose revenues by 20% but you ALSO have a plan for raising an additional 20% by the end of FY23. This is difficult but not impossible.

The questions that will lead to increased revenue are:

  • What grants have I not applied for that will allow for administrative infrastructure?
  • What companies are my major individual donors aligned with and with whom I could get a meeting?
  • Which of those companies offer a matching gift program?
  • What companies could provide a corporate sponsorship that I haven’t contacted, and what benefits would attract them that we could produce?
  • Who among my board is well-connected and could broker three prospect meetings in the next three months?
  • What additional service sectors could I explore that might attract a significant new source of revenue?
  • What members of my senior team could I enlist to help raise additional money?
  • Can my finance and marketing teams come together to devise a trackable and concise plan that we can all rally around?
  • How should I plan for a recognition event at the end of the 3rd quarter to thank those who are helping out and to inspire those to give by the end of the year?

These and other questions will lead you to an ambitious and challenging plan to get you to 120% of your budgeted revenue. Whether you lose significant current donors becomes hedged by the new revenue development you have just created.

A 20/20 plan is very difficult. But it is achievable, and if you start now, at the beginning of a fiscal year, it is not out of the question that you can emerge through a recession in a new position of strength.

Recessions Aren’t All Bad

Imagine post-recession that your organization has emerged stronger. You may have fewer staff, but they are effective and productive. Your leadership team has experienced the come-from-behind success story that they embody to your stakeholders. You have weathered the turbulent conditions and come through them more focused and more capable than before.

You may have attracted new long-term investors in the organization. “Recessions aren’t disastrous for nonprofits. During typical recessions since the 1950s, giving has actually gone up on average, albeit by a modest 0.3 percent a year,” says Patrick Rooney, an economist at Indiana University’s Lilly Family School of Philanthropy.” (from Ben Gose, The Chronicle of Philanthropy, January 7, 2020)

A Few Final Thoughts

A diverse, cross-funded organization is the safest during periods of economic uncertainty. Nonprofits that are heavily reliant on government funding, or those with a mostly corporate donor base, are the most vulnerable. Create a comprehensive development plan that is represented by stable and varied sources.

Speed is king. The sooner you implement solid, consensus-developed and well communicated strategies, the more likely you are to weather the recession when (okay, “if”) it comes.

Finally, remember that people – your people – are the most important asset you have. Recessions come and go (and come back), but how you handle those around you will reflect your values and integrity for years into the future. Treating your team with respect will last a lifetime.

Resources from The Chronicle of Philanthropy

Eight Steps for Managing Through Tough Times,” Bridgespan

Tips to Navigate Financial Crisis,” Nonprofit Finance Fund

Hard Times, Hard Decisions: 7 Things Small and Midsize Charities Should Do When a Recession Looms,” Chronicle of Philanthropy

philanthropy.com/learn