RNL Insights: Senior Executive Analysis The High Stakes Development Dilemma in Higher Education

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1 RNL Insights: Senior Executive Analysis The High Stakes Development Dilemma in Higher Education Emerging Fundraising Trends and Strategies Every Leader Should Know In the increasingly challenging environment facing colleges and universities, it is strikingly clear that development the strategic process of identifying, cultivating, and stewarding donors must play an ever-bigger role in supporting institutions fiscal needs and missions. While total fundraising dollars are hitting record levels at many institutions, the underpinnings of these results merit real scrutiny. Forward-looking leaders are rightly concerned about the sustainability of results as their institutions increasingly rely on major gifts at the very same time that the pipeline for future major gifts alumni participation exhibits a striking 20-year decline. The resulting dilemma staying a seemingly buoyant near-term course vs. pursuing new strategies for lasting health is an issue that we believe every higher education leadership team and board of trustees should consider this year. This RNL Insights: Senior Executive Analysis examines this emerging dilemma, the key trends transforming higher education fundraising, and effective strategic responses that leaders are taking to address donor engagement and sustainable development outcomes.

2 Leaders at most colleges and universities face the same formidable question: Where will the revenue come from? The last decade has seen a storm of economic crashes, funding shortages, flattening enrollment, and budget shortfalls bedeviling financial forecasts at many of even the best institutions. In this challenging fiscal environment, development has been a bright light. Charitable giving to higher education has rebounded, totaling a record $40 billion in 2015 (Council for Aid to Education, 2016). It is clear that development must and will be called on to play an even bigger role in higher education. At the same time, the underpinnings of higher education fundraising have forward-looking leaders concerned about the sustainability of results. Most institutions have become more reliant on major gifts carrying an increasing share of the fundraising load while also experiencing net declines in overall donor participation. To the good, there were eight gifts in excess of $100 million nationwide last year, for a total of $1.44 billion, and institutions across the board are increasingly reliant on mid- and large-scale gifts (Council for Aid to Education, 2016). To the bad, the pipeline builder for virtually all such major gifts participation has declined for more than 20 years. The issue is widespread and alarming, as two-thirds of institutions have suffered declines in alumni donor counts since This trend has severe implications for major giving, as our research has shown that the vast majority of major donors started making gifts at least 10 years before crossing the $25,000 level: Number of years donors give before making a gift of $25,000+ 8% 9% 10% 18% 19% 35% First gift 1-5 yrs 6-10 yrs yrs yrs 20 + yrs Source: Ruffalo Noel Levitz data More than 68% of higher education institutions experienced a decline in alumni donor count! Average decline totaled 27% Source: Ruffalo Noel Levitz review of Voluntary Support of Education records, institutions reporting donors in both 2007 and N=814. Given that engagement and participation are two key predictors of future giving, this contrast is a paramount problem for higher education fundraising. Based on our work with hundreds of higher education institutions on their development efforts, we believe that five powerful trends have emerged dramatically impacting most institutions ability to achieve development results critical to ongoing institutional health. These trends must be well understood by every senior leader overseeing or relying upon fundraising results at a higher education institution. Equally, it is imperative to understand and consider emerging winning strategies that some are employing to chart a healthy, sustainable course in this changing environment. The purpose of this RNL Senior Executive Analysis is to highlight these trends and strategies in the hope of contributing to productive dialogue at the higher education institutions that are so critical to individual and societal advancement Ruffalo Noel Levitz The High Stakes Development Dilemma in Higher Education 2

3 Five trends that every president and development leader must address 1 The demise of one-size-fits-all fundraising programs Donor needs and preferences have splintered in recent years, producing diminishing returns from many traditionally tried and true fundraising campaign strategies. Perhaps this should be no surprise in a world of infinitely increased choices in virtually every sphere of life from micro-segmented media channels to super-targeted consumer products. Whatever the reason, the reality is that the decline in donor response has been felt most notably by those still pursuing broad one-size-fits-all campaigns that target the average donor. This traditional approach is increasingly failing to deliver on four dimensions critical to every campaign: The right message To the right audience Via the right channel At the right time The evolution of multichannel outreach reflects this trend. As consumers have incorporated more devices and media forms into their daily lives, marketers in virtually all sectors including higher education have expanded their outreach channels as well, with nearly all now using at least three channels (see chart at right). New channels such as digital and social media have joined the mix of traditional channels such as phone, mail, and , which are also being modernized in parallel. Number of marketing channels used by commercial organizations 5 7% 4 29% 6+ 14% 2 12% 3 38% These dynamics are having a profound impact on colleges and universities seeking stronger engagement with the increasingly diverse, multigenerational donor base spanning Baby Boomers, Generation X, Millennials, and young graduates. These audiences are less likely to respond to averaged communications that fail their heightened expectations for personalization. Said differently, donor behavior has evolved faster than most institutions engagement strategies. And this is a problem. Source: 2014 DMA Statistical Factbook 2016 Ruffalo Noel Levitz The High Stakes Development Dilemma in Higher Education 3

4 2An explosion in solicitations crowding out appeals of ads, solicitations, and marketing messages across all channels an omnipresent cloud of At the very time when fundraisers need to engage prospective donors better, the competition for mindshare and consideration is more intense than ever. Donors now encounter hundreds digital noise often overwhelming the impact of even great fundraising outreach. The philanthropic world also has increased competition, with the number of nonprofits rising by 24 percent between 2000 and 2010 (Blackwood, Roeger, & Pettijohn, 2012). Making the challenge of being heard even harder, we see a shift toward solicitation storytelling that attempts to show impact and/or create emotional resonance with readers striving for the viral impact of readers sharing communications with friends and contacts. This is a new model for producing productive engagement in an increasingly cluttered world of communication. In sum, the channel mix and engagement strategies that once provided reliable results no longer break through at traditional rates. And donors are more sparingly selecting key messages, refusing to be force-fed. 3 The shift of philanthropic power to younger donors Between the years 2031 and 2045, 10 percent of the total wealth in the United States will change hands every five years (Accenture, 2015). As much as $30-40 trillion worth of assets will be handed down from the Baby Boomer and older alumni generations to Generation X and Millennials over the next couple of decades. When expanded to the next years, that number could approach nearly $60 trillion (Havens & Schervish, 2014). This will shift an enormous amount of wealth to younger donors who bring with them a quite different set of expectations, affiliations, and attitudes toward giving. Yet many institutions still focus on and engage best with older generations, perhaps reflecting the belief that older donors are more ready to make commitments. This is dangerous, because when these generous donors depart, institutions will have missed an opportunity to develop relationships and secure pipelines with the next generation of donors who will be wealthier than ever. Donors are quickly getting younger, but most fundraising strategies are not as fully and quickly thinking young. 10,000 Baby Boomers hit retirement age each day. By 2030, 18% of the nation will be 65 or older. Source: Pew Research Center, Ruffalo Noel Levitz The High Stakes Development Dilemma in Higher Education 4

5 4The rapid growth of mobility and donor data Two rapidly growing communications technologies mobile and digital communications are transforming the role, potential, and challenges of data management. The impact is profound both for gathering data about donors and for communicating with them. Donors obviously are now more online and connected than ever, leaving digital footprints that reveal where they are, what they are doing, and what they care about. This makes them easier to reach, but also requires knowing more about them to engage them effectively. Percentage of Americans who own smartphones 35% 64% The result is tremendous change for most colleges and universities. Few are yet realizing the hoped-for promise of massive unified software systems even modern cloud-based ones to create a simpler world for data management. The reality is that the sources of data, internal and external, are increasingly varied and complex to manage. As a result, institutions struggling to extract actionable data from their systems are finding donor engagement increasingly difficult. Those with modern data management and analytics will be more nimble and effective at engaging donors via mobile and digital communications. Institutions that are data poor have little chance to become fundraising rich Source: (Smith, 2015) 5 The rise of personalized and peer-to-peer giving Though directed giving donor-specified use of a contribution is a long-standing component of fundraising strategy, institutions typically have been willing and able to offer it on a limited basis only. Most commonly, it has been limited to the manageable earmarking of funds for departments or major programs and the naming and endowment of professorships or facilities. Institutions, by necessity, typically channel most donors (and especially smaller donations) toward unrestricted funds. We see a clear trend toward rethinking the traditional paradigm. Growing numbers of passionate potential donors seek to give to specific causes and gain transparency on the impact of their gifts. The emergence of technology-based crowdfunding platforms and varied payment mechanisms have provided greater and more accessible micro-giving opportunities than ever before. Additionally, the advent of peer-to-peer solicitation via social media provides a new avenue for personal connection in giving. These personalized digital solutions feel familiar and comfortable to a generation that has grown up online and on smartphones. Many institutions are already adapting their solicitation strategies to enable efficient, personalized, and peer-to peer options, providing more donors the ability to give in ways that meet their preferences and passions. Such capabilities are becoming a new competitive factor in philanthropy Ruffalo Noel Levitz The High Stakes Development Dilemma in Higher Education 5

6 Six emerging strategies for addressing these trends and sustaining healthy development 1Provision to increase donor participation In response to the critical impact of strong donor participation, many leading institutions are adopting more forward-thinking and aggressive approaches to growing the donor base. Achieving that outcome requires important adjustments to supporting development processes and capabilities. Institutions that pursue participation more successfully: Implement more advanced segmentation to optimize donor targeting. On a basic level, the personalized outreach that characterizes micro-segmentation happens naturally whenever a caller or gift officer refers to the donor s history and previous support during a conversation. However, leading institutions have recognized that such personalization must occur more fully at scale across all interactions and channels. Donors can sense false personalization just as they sense generic one-size-fits-all outreach. The best fundraisers are investing in communications that use enriched data to leverage each donor s specific triggers for giving. Embrace lifetime value metrics and analytics. As participation strategies differ from purely current donation strategies in the form and timeframe for value, leaders rebalancing their objectives toward participation must implement an evolved set of management metrics to enable sound investment and program decision making. Specifically, the best practice is to establish rigorous lifetime value metrics incorporating participation value (i.e., the predicted value of the donor relationship based on modeling of outreach results and costs over time). Expand donor focus and planning beyond alumni. According to the Council for Aid to Education (2016), colleges and universities received $8 billion in 2015 from donors who were not alumni. This represents 20 percent of all giving to higher education and shows the importance of growing and nurturing donors outside of the alumni base. Adapt development to address nontraditional alumni profiles. For the many institutions whose online and adult learner strategies are leading to a growing base of nontraditional potential donors, adapting campaign playbooks and measurements to reflect this new and growing cohort is a critical step. Explicitly promote and recognize consistent recurring giving. While most institutions already target recent and periodic donors, recognizing and upgrading recurring donors is a successful strategy for growing participation and a major donor pipeline. The most successful development teams in the current market demonstrate strong programmatic plans and mechanisms for reliable stewardship Ruffalo Noel Levitz The High Stakes Development Dilemma in Higher Education 6

7 2Organize around the donor, rather than internal silos The institutions most effectively navigating the challenging trends outlined in this analysis recognize that most donors view the relationship with them holistically, not as a series of separate interactions or departmental relationships. Moreover, these institutions appear bolder than most in ensuring that their assets are leveraged fully. With these factors in mind, colleges and universities are reexamining traditional barriers that fragment their efforts organizational silos or operating assumptions that have little to do with the reasons donors give. Specifically, we see an emergence of more leveraged structures, governance, and campaign approaches that make donor outreach more seamless and efficient. Institutions pursing this approach: Harmonize outreach across phone, mail, , social media, and online giving channels to find the most effective mix for engaging donors. Leading institutions now analyze and synchronize donor outreach, response, and return monthly or even weekly. This allows channels to build upon and complement one another, leading to greater ROI by synergizing resources instead of locking them in silos. Strengthen shared service models across academic departments/colleges. The concept of leveraging and even unifying efforts to maximize impact and efficiency is not new. However we see a notable increase in the number of colleges and universities revisiting the application of this principle to their own development operations. Challenged to build and maintain a set of costly and complex development capabilities, many are working toward stronger leveraged models across academic colleges/departments. Pursue new models for coordination across non-academic departments. Interestingly, some institutions are applying similar critical thinking regarding leverage to the strategic relationship among various functions within development and across alumni relations, athletics, and even career services. One very visible example is the increasing number of big tent programs such as giving days focused on galvanizing donors in ways that mirror multi-year capital campaigns (i.e., a unifying reason to coordinate and a compelling reason to give now ). A quite different example is the linking of development, alumni relations, and sometimes career services leadership and programs to deepen alumni connections. In these cases, leaders are challenging their teams (and some sacred cows ) to shift the ways these departments work in concert to create and maximize key moments of alumni engagement that can translate into powerful donor support. Hear the webinar attended by hundreds of fundraising professionals: The Threat of Declining Alumni Giving Rates to Higher Education Fundraising at RuffaloNL.com/Decline 2016 Ruffalo Noel Levitz The High Stakes Development Dilemma in Higher Education 7

8 3 Engage Generation X and Millennials on their terms Generation X and Millennials present a unique challenge and opportunity for donor engagement. These segments are philanthropic, but with two disparate donor behaviors. On the one hand, we see increased engagement in micro-giving to many causes (via crowdfunding and other mechanisms). On the other, we see a tendency to focus large donations to fewer recipients. These donor segments also demonstrate a strong focus on causes (rather than institutions), and a tendency to combine volunteerism with their primary charitable giving. Consider one recent representative report (Chronicle of Philanthropy, 2015) in which 47 percent of Millennial alumni reported making a donation to their alma mater, while 75 percent noted they would donate to other organizations before their alma mater. 85% of year olds own smartphones, and have integrated them into daily tasks such as banking (70%), consuming educational content (44%), and applying for jobs (34%). Source: (Smith, 2015) Recognizing the pivotal role these donors will play, colleges and universities now pursue a wide range of actions to engage them. We see the most promising approaches to be the following: Ensure the basics of online giving and mobile communication are in place. More than any other segment, younger donors expect to be able to engage and transact online and via smartphones. This requires institutions to provide those inbound transactional mechanisms and to update data to support mobile, social, and text outreach. Modernize and leverage traditional channels in concert with digital. While some have speculated that new channels can simply replace traditional ones, the opposite is true: key young segments more connected than ever are responding to some traditional channels such as phone with increased frequency (see chart below). And they expect outreach and engagement whether by , voice, or website to occur easily and seamlessly through their mobile devices. Contact rates show young alumni more reachable than ever Higher education phonathon contact rate 56.7% 50.5% 55.0% 51.3% 54.3% 53.8% 54.8% 53.6% 56.9% 54.5% 58.3% 55.0% YTD Overall Graduates Source: Ruffalo Noel Levitz research, based on millions of call records. Provide the mechanisms for personalized giving (i.e., crowdfunding). Leading institutions have begun to leverage scalable online platforms for crowdfunding in order to connect donors 32% with causes and show specific impact of gifts. They have channeled this along two fronts in particular: energizing students and faculty in funding projects, and promoting 28% micro-giving 28% linked to social networks with clear transparency of the results and impact. Connect donors volunteer spirit with institutional philanthropy. For many institutions, this takes the form of alumni-based community outreach programs, coordinated with alumni relations. In many others, it is the direct form of engaging alumni in fundraising recognizing more than 40 percent of Gen X and Millennials have fundraised directly on behalf of a charity or participated in an event to raise money (Blackbaud, 2013). 34% 2016 Ruffalo Noel Levitz The High Stakes Development Dilemma in Higher Education 8

9 4 Establish engagement expectations earlier in the alumni lifecycle Many institutions break the student-alumni lifecycle into stages that align internal functions from admissions to student services to advancement. As a result, development tends to focus heavily on solicitation after graduation. However, we see leading institutions mobilizing for engagement (and ultimately development) far earlier and in ways that abandon this siloed approach. The best consciously imprint early expectations for lifelong engagement at the very beginning of a student s experience with the institution. While the tactics naturally vary based on many institution-specific factors (e.g., size, selectivity, and brand strength), the leaders in this area are taking steps that include the following: Establish traditions, identity, and expectations from the moment of admission through orientation, on-campus experience, and graduation. Promote a giving culture and behavior during the student s college experience. Student philanthropy programs, including student ambassadors, fundraisers, and phonathon-callers, are part of this plan for the most successful institutions. Embrace integrated outreach, rather than a collection of disjointed steps, from admissions through the alumni journey. Campus leaders who are pursuing a more holistic approach with alumni begin by building a more comprehensive view of potential donors, starting with the profile and interests as students and tracking how those change over time. Then, in turn, leaders share that profile across departments so the institution can build consistent communications that change as the donor changes. Provide meaningful support to young alumni in the first few years after graduation to inspire immediate loyalty and cultivate young donors. For instance, some institutions are establishing closer, firmer links between development, alumni services, and career services to help young alumni transition to successful careers putting them in a better economic position and making them more inclined to become donors. Students are naturally philanthropic. They spend hours volunteering and supporting their passions. Working to channel their philanthropic spirit into a giving program will make the transition from affinity to donation, and then set the stage for recurring giving Ruffalo Noel Levitz The High Stakes Development Dilemma in Higher Education 9

10 5 Elevate data management to the heart of fundraising operations Institutions achieving the greatest fundraising success are those with the greatest flexibility in accessing, supplementing, and utilizing their databases in support of intelligent and increasingly targeted strategies. They do so by making a committed investment in unified data management and by rejecting the oversimplified view that any one large software platform investment will address their data needs. These institutions typically approach data and analytics capabilities as a critical center of excellence, and their related best practices include: Invest in data management and analysis. This goes beyond having a database or fairly simple data analysis. It means investing in centralized data resources that can be shared with key stakeholders, advanced analytics that can be used to forecast trends, and data professionals who are skilled and trained to turn raw data and analytics into insights that guide fundraising leaders. Break down internal barriers to data collection and sharing. Collect the best possible data when students are enrolled, when parents engage with the institution, and when donors make a gift. Eliminate shadow databases (see below). Build flexibility to capture and maintain new data (i.e., updates) from multiple forms of outreach, including mail, phone, , social media, and others. In other words, ensure a closed loop to capture incremental insight. Selectively use data-driven research to produce actionable insight into key donor behaviors, solicitation responses, segmentation, and personalization. Include soft research, which may involve asking donors direct questions such as if the messages they receive are clear and compelling, and if they are being stewarded appropriately for their financial support. Compare results to peers and historical results. Institutions should consider what is similar about these comparison groups, as well as any changes in actions that may have led to different results, and then craft strategies based on these conversations. Data Pro Dictionary: Shadow database a place on campus where important information is being collected and updated, but not making it to the main database to be used for the collective good. Think of academic departments that collect their own information, ticketing and subscription information in a fine arts program, or athletic booster information. Data enrichment the process of purchasing additional data or data-checking services from an outside source to ensure that the best possible data can be used to contact and confirm with donors. NCOA, searches, and phone/mobile append data all fall in this category Ruffalo Noel Levitz The High Stakes Development Dilemma in Higher Education 10

11 6 Evolve the fundraising supply chain for engagement capabilities In boardrooms and management meetings at many colleges and universities, senior leadership recognizes that implementing modern fundraising operations requires change. The challenge is that the critical trends in this analysis require specialized skills, additional capabilities, and evolving technologies that many institutions find difficult to develop and maintain. These challenges have higher education leaders reassessing development operations and examining which aspects are best handled internally, and which benefit from leveraging external partners. Such reviews typically include consideration of consulting support, off-the-shelf technologies, and selective outsourcing a long-established practice to save money, time, and resources in many areas of university operations (Woodhouse, 2015), and a core element of the modern development supply chain. When leading institutions assess their development and potential external partnerships, we see several best practices and common strategies: The partner is really integrated into the university fairly deeply they need to understand your institution s culture. A sign of success is that most of the university doesn t realize that a service is being provided by a partner. Arizona State University CFO Morgan Olsen on higher education outsourcing (Woodhouse, 2015). Select partners that are well-aligned with the institution s culture, brand, and mission. Evaluating the fit of a partnership is critical, because that partner must align seamlessly with the institutional mission and operate as an extension of the institution s brand. Supplement internal capabilities with external specializations and skills. Are there existing internal capabilities that could be elevated by leveraging outside resources or expertise? For instance, using a provider who can enrich an existing database can increase record accuracy and donor contact. Digital outreach is another example, where an institution can strengthen its efforts through advanced technologies and expertise in deploying them. Outsource fundraising operations that benefit most from scale. Phonathon and multichannel outbound communications are two services where the external partner already may have required scale, capabilities, and efficiencies. Outsourcing can also relieve the institution from functions such as staffing, training, payroll, and compliance. This is not unlike the rise in outsourcing endowment management, which 43 percent of institutions now entrust to outside partners (NACUBO, 2016). Leverage external support in analyzing and incorporating industry trends, benchmarks, and best practices. Partnerships should produce an intelligence exchange. What will an institution learn about its peers, competitors, industry practices, and especially its donor base? The partner should work with leaders and stakeholders to constantly expand their insight and expertise. Naturally, the optimal development supply chain design for any institution must be shaped by its specific goals, priorities, resources, and capabilities. However, it is clear that tapping into external partnerships is becoming a more material strategy to address the need for expanded advancement capabilities, and re-examining that supply chain for the current environment is a critical consideration for university leaders. Citations Accenture (2015). The greater wealth transfer: Capitalizing on the intergenerational shift in wealth. Blackbaud (2013). The next generation of american giving. Charleston, SC: Blackbaud. Blackwood, A., Roeger, K., & Pettijohn, S. (2012). The nonpfofit sector in brief: Public charities, giving, and volunteering, Washington, DC: The Urban Institute. Council for Aid to Education (2016). Colleges and universities raise record $40.30 billion in 2015 [Press release]. Council on Philanthropy (2015) millennial alumni study. Indianapolis: Achieve. Direct Marketing Association (2014). DMA statistical fact book New York: Direct Marketing Association. Havens, J. J., & Schervish, P. G. (2014). A golden age of philanthropy still beckons: National wealth transfer and potential for philanthropy. Boston: Boston College Center on Wealth and Philanthropy. NACUBO (2016) NACUBO-commonfund study of endowments results released. [Press release]. Pew Research Center (December 29, 2010). Baby boomers retire. Daily number. Smith, A. (2015). U.S. smartphone use in Washington, DC: Pew Reserch Center. Woodhouse, K. (2015, July 21). How to outsource. Inside Higher Ed (21 July) Ruffalo Noel Levitz The High Stakes Development Dilemma in Higher Education 11

12 About Ruffalo Noel Levitz Technology-enabled services, software, and analytics that foster productive, lifelong engagement Ruffalo Noel Levitz partners with more than 1,800 colleges and universities and hundreds of nonprofit clients worldwide each year. We empower our clients to aggressively rethink the status quo and reach their mission even as they face a complex and ever-shifting environment. Our work in higher education fundraising ranges from partnering with 81 out of the top 100 U.S. News & World Report institutions to working with hundreds of colleges and universities of every size and mission. With our guidance, our campus partners are staying aware of key trends and implementing the strategic responses outlined in this paper. We can discuss your challenges, responses, and opportunities as well. Our fundraising strategists have served on campuses and know firsthand how to assess and address the challenges you face. We can assist with: Assessing fundraising operations and strategies. Developing strategic fundraising plans to increase participation, returns, and efficiency. Creating multichannel programs and campaigns. Building a pipeline for major gifts. Engaging young donors and cultivating lifelong support. To learn more and have a conversation about these trends and strategies and how they apply to your institution contact Ruffalo Noel Levitz. Call ContactUs@RuffaloNL.com How to cite this report Ruffalo Noel Levitz (2016). The high stakes development dilemma in higher education. Cedar Rapids, Iowa: Ruffalo Noel Levitz. Retrieved from All material in this document is copyright by Ruffalo Noel Levitz. Permission is required to redistribute information from Ruffalo Noel Levitz, either in print or electronically. Please contact us at ContactUs@RuffaloNL.com about reusing material from this document. P Ruffalo Noel Levitz The High Stakes Development Dilemma in Higher Education 12