Capital Campaigns and the Impact of Donor Fatigue

Capital campaigns generate a lot of excitement and buzz for nonprofit organizations. Leveraging and harnessing this energy feeds hope for a brighter future. However, nonprofits must maintain a focus on protecting long-term financial health. At the conclusion of the capital campaign, the organization must be in a stronger position. One critical consideration is gauging the negative impact on current and future cash in-flows resulting from donor fatigue.

It is best to anticipate some level of disruption to regular funding patterns resulting from donor fatigue, since donor capacity and willingness to increase giving is uncertain and may cause some donors to divert a portion of their regular donations to support the capital campaign. Over time this hurdle can be conquered, but if too large of a front-end budget deficit accumulates, the climb out could take longer than expected and disrupt operational capacity.

Organizations tend to over-concentrate planning on generating funds for the capital campaign. It is important to concentrate equally on mitigating the potential negative impact the capital campaign might have on regular funding streams and adjust annual operating budgets accordingly. Separating the regular annual operating budget from the capital campaign budget will help you observe the capital campaign’s bottom-line effect on normal operations.

A capital campaign’s impact on cash in-flows can span several years. For this reason, budget and cash flow forecasts must be extended one to two years beyond the conclusion of the capital campaign to see the total impact on financial health and recovery. Forecasts should be separated into two phases: capital campaign year and post-capital campaign recovery period. Anticipate at least a two-year post-capital campaign recovery period.

To assess a capital campaign’s impact on cash in-flows, prepare a three-year forecast for regular annual giving during the capital campaign year and the two-year post-capital campaign recovery period. Apply a bell-curve approach, projecting a front-end dip in performance with a gradual return to normal annual giving patterns during the recovery period.

Next, apply the results to a three-year annual budget forecast. Observe the impact on projected budget deficits and the progress back towards budget surpluses. If estimating donor fatigue is difficult, consider using three forecast scenarios: best case, worst case, and likely case for budget assumptions.

Working closely with the development department, marketing staff, and/or fundraising professionals can enhance this process by helping you to realistically gauge donor capacity and willingness to continue giving while supporting the capital campaign.

Remember to always keep donor focus on long-term goals and objectives. Get out early with messaging and stay in close contact with donors. Excellent results are possible when nonprofit organizations can count on a long-term commitment from their donors.

Planning Tip – Donor giving patterns for capital campaigns are different from annual giving. The main difference comes from donors choosing to use multi-year pledges. Nonprofit organizations that are not accustomed to multi-year pledges could find themselves in a difficult cash flow position. Pay attention to the difference between accrual-based budgets and cash flow projections. Special planning strategies may need to be considered to help line up the use of capital campaign funds with anticipated collection patterns for multi-year pledges. Planning strategies can include delaying the start of a special project, scaling the size of a program, or seeking outside cash flow support from banks in the form of a line of credit or multi-year loan.

There are many other planning considerations related to capital campaigns, including staff capacity, Board commitment and support, impact on the balance sheet and operating reserves, and ability to react to changing schedules and economic conditions to name a few examples. Multi-year planning beyond the capital campaign period will keep the focus on the future and help avoid problems before they occur.