A Comprehensive Guide to Reviving Annual Funds

The annual fund is the lifeblood of your organization. Dollars raised through this campaign allow your nonprofit to keep meeting its goals regardless of whether you won a new grant or secured a major gift. Consistent communication on behalf of the fund also keeps you connected with your donors and helps you grow roots in the community.

Unfortunately, reviving the annual fund often falls to the wayside. Between managing your core programs or writing grant applications, it can seem like there’s hardly time for anything else. All that can change with the right tools and techniques.

In this guide, we’ll get technical on how to easily identify prospects or upsell existing annual fund donors. You’ll also learn about direct mail best practices so you can increase your campaign’s return on investment. Once you start incorporating these strategies, you’ll be amazed at how regular annual fund appeals can bring you closer to your donors.

What Is an Annual Fund?

While its usage and definition may vary between institutions, an annual fund usually covers a nonprofit’s operating costs. Gifts to the fund come from individuals who receive direct mail from the organization during a campaign.

While it might be tempting to devote more time to applying for grants or nurturing planning giving prospects, don’t underestimate the power of individuals contributing to an annual fund. According to a report from Giving USA, in 2019 individual donors gave over $309 billion. This accounts for 69% of total giving and is the largest source of donations, beating out foundations, corporations, and planned giving.

Plus, an annual fund fueled by hundreds of small donors does much more than just keep the lights on. Consider these benefits:

  • Unlike grants, endowments, or capital campaigns, you can use the money raised for annual funds on anything your organization needs.
  • Annual funds keep donor participation consistent from year to year and help update patron data.
  • They establish financial patterns so staff can anticipate when and how much money might be available for miscellaneous projects.
  • Donors who contribute each year deepen their connection to the organization and might make good candidates for future major gifts.

Not only do annual funds allow organizations to continue pursuing their core mission, but they also provide donors with tax deductions and a sense of community. By regularly engaging patrons in this way, you strengthen the nonprofit’s long-term place in the community.

If your nonprofit is within a certain industry, you might find that your annual fund campaign will be more successful than expected. The same Giving USA report found that most charitable dollars went to organizations centered around religion (29%), education (14%), human services (12%), grantmaking (12%), and health (9%).

Before Launching an Annual Fund Campaign

Maybe your attention has been focused on getting grants and you’ve let the annual fund grow stale. Before you go all-in on a revival campaign, it’s important to identify which goals and metrics are most important for your organization. This will make it easier to monitor the fundraiser’s progress and make adjustments that increase the results of your campaign.

Common annual fund metrics include:

  • Total dollars – the total amount given to the fund
  • Total donors – how many individuals participated
  • Total gifts – this may differ from total donors, as sometimes people give more than once during a fiscal year
  • Average gift – measure this by dividing total dollars by total gifts
  • Participation rate – a percentage describing how many donors gave to the fund out of all the people who were solicited for a gift

There are many more potential metrics. However, too many metrics or too much time spent on reporting can result in “analysis paralysis”, hindering progress. 

To avoid this, check out the Data-Driven Annual Fund workbook. It can help you select the benchmarks that make the most sense for your nonprofit.

How to Identify Potential Annual Fund Donors

Not everyone who has donated to your organization is a good candidate for the annual fund. Here are a few techniques for analyzing your list of current and potential donors to identify the strongest prospects for your campaign.

  • Use Look-Alike Modeling

Take a look at who is already donating to your annual fund, focusing on those who represent your ideal donor. What characteristics do they share? Do they have similar incomes or careers? 

Use these data points to identify other prospects in your donor database you can reach out to during an annual fund campaign.

Of course, that might be too much data to deal with manually, even for a highly dedicated team. A tool like WealthEngine automates the process. 

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WealthEngine comes equipped with a look-alike modeling feature—called WE Prospect—that not only analyzes ideal donors, but also fills in the gaps if you have spotty data. WE Prospect then searches your database for prospects with similar characteristics and compiles a list for you.

  • Create a Donor Pyramid

A donor pyramid represents the total dollars needed to run your organization, not including grants. Donors are grouped into different tiers based on their level of engagement and/or gift size. 

Patrons with the lowest participation, such as those who give a small donation once, are grouped at the bottom. Those who contribute a planned gift from their estate are placed at the top.

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The annual fund is at the middle of the pyramid because it encourages smaller gifts donated yearly. These donors may have different levels of wealth, but they all have high engagement.

It’s possible to manually calculate how much you need to raise in each tier and how many prospects you’ll need to solicit to reach that goal. However, if you want to compare different fundraising scenarios with the click of a button, try out WealthEngine. 

WealthEngine includes a donor pyramid modeler that can determine how many prospects you need based on your fundraising goal. It then segments potential donors from your database into each tier. This information enables you to know who to reach out to for the annual fund and who is better suited for a different initiative.

This is important because you don’t want to send a generic message to people who aren’t a good fit for your annual fund. With a focused list of prospects, you can personalize your pitch and increase your return on investment (ROI).

  • Calculate Lead Scores

Perhaps you have a long list of prospects who would make ideal donors for your annual fund. A lead score can give you a better idea of who to contact first.

A lead score is a number between zero and 100 that describes how likely a person is to give. You can use it to rank prospects against each other so you know with one glance who you should reach out to first and who might not be a good fit for the annual fund.

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Lead scores take into consideration:

  • Demographics like age, income, education level, etc.
  • Capacity to give
  • How interested they are in your organization, also known as affinity

WE Analyze helps automatically generate lead scores based on the criteria you set. It adjusts in real-time depending on how prospects interact with your website, email campaign, events, or other assets. The more prospects engage with your nonprofit, the higher their lead score will be, as this demonstrates greater affinity for your organization. 

How to Grow Your Annual Fund Through Direct Mail Campaigns

Direct mail campaigns conjure up images of postcards and appeals sent through the postal service.  However, these days it also includes email marketing. Any form of correspondence where the recipient can reply to your appeal directly with a donation falls into this category.

There are a few best practices that will increase your campaign’s ROI.

  • Limit Direct Mail Recipients

Sometimes nonprofits approach direct mail with a “spray and pray” mentality. The idea is that by sending everyone in your donor pool an appeal, you’ll increase the amount you’re able to raise. However, this isn’t efficient and often prohibitively expensive if your campaign includes a physical component, like a letter.

Consider the case of an international religious advocacy group that partnered with WealthEngine. They had an existing donor pool of 500,000 people, but rather than send direct mail to all of them, they decided to nurture patrons capable of giving upwards of $7,000. WealthEngine built a model that zeroed in on 19 major gift donors to cultivate, leading to over $530,000 in new funds.

  • Make Tailored Asks

One way to increase your annual fund giving is to tailor your appeal for existing donors. You never know who might be open to increasing their yearly gift when asked. 

The Humane Society of the United States took this approach, using WealthEngine to identify existing donors with a greater likelihood and capacity to give. Specifically, they looked for millionaires that had been donating $17 to $18 dollars to the annual fund.

The search paid off. The Humane Society increased mid-level donations by 20% and grew the number of prospects in the ’Planned Giving Program’ by 49%.

  • Tell a Story in Your Appeal

When writing an appeals letter, try to tell a story that also communicates your mission. Stories are a powerful way to grab your reader’s attention and hold it. Consider this direct mail example from Save the Chimps, a chimpanzee rescue organization.

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Notice that this letter doesn’t rely heavily on statistics. Statistics may seem compelling, but they can actually distract readers from the heart of your message. It’s best to use them sparingly or when they clearly bolster your appeal. 

In this case, Save the Chimps only breaks out facts and figures to show what different gift sizes can accomplish.

Don’t forget to add images to your letter or campaign materials. Select pictures that encourage the emotions you want donors to feel when giving to your organization, such as joy and connection.

  • Personalize Communication Strategy

Not everyone is well-suited to receive an email or a letter. It pays to take note of which communication channels your donors respond best to, then make future appeals accordingly.

If you’re a small nonprofit or have the staff capacity, this could be as simple as recording whether a gift came through the mail or your website. However, most organizations don’t have that kind of manpower and will likely need to automate the process with software. 

WealthEngine can analyze your donor database to determine what communication strategies you should use to engage with certain prospects. You can then create segmented lists, sending physical mail to some and digital communication to others.

  • Look for Ways to Cut Campaign Costs

It’s often said that direct mail can cost $0.30 to more than $10 per person. It all depends on how many pieces of mail or content you send, as campaigns include costs like:

  • Designer fees for logos and branding
  • Copywriting
  • Printing costs if sending postcards or letters
  • Postage
  • Email marketing platform subscriptions

You can keep some of these costs down by relying on an in-house marketer for the copywriting or branding. There are some fees that are tougher to avoid, like postage or an email marketing platform.

Another way to increase your ROI is to host events virtually instead of in-person. Even as COVID-19 vaccination rates climb, digital fundraisers, such as auctions held on Zoom, have few upfront costs but can yield a big pay-off.

  • Make Appeals Year-Round

While making a year-end ask is important for reviving your annual fund, it shouldn’t be the only step. Look for ways to campaign throughout the year to stay connected to your donors. 

Fortunately, you don’t need to come up with a holiday or reason to launch a mid-year appeal. There are several local and national initiatives your organization can piggyback on. 

In New Orleans, for example, GiveNOLA Day occurs each May and encourages locals to donate to hundreds of participating nonprofits. Check to see if a similar project occurs in your city.

Be sure to take advantage of Giving Tuesday, which occurs nationally every Tuesday after Thanksgiving. This event has been around for so long, donors will likely expect your organization to send them an appeal. This is also a great opportunity for an email or social media-driven campaign, which can help keep costs low. 

Looking for more ways to optimize your annual fund campaign? Download this list of strategies and tips.

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It covers techniques like how to use merge tags to personalize your emails or how to host a virtual event, so you can fundraise year-round with minimal lift.

Grow Your Annual Fund, Grow Your Organization

An annual fund is a critical initiative for your organization. It provides unrestricted dollars to help fill in the gaps between grants and capital campaigns. 

The annual fund also keeps donors engaged with your nonprofit. Without it, interest in your mission may wane and it will be harder to reinvigorate support later on.

The most important element of an annual fund campaign is having a clear picture of who it is you’re targeting. Sending direct mail to everyone in your donor database is expensive and promises a low engagement rate. Using a tool like WealthEngine makes it possible to identify prospects with the highest likelihood of contributing or increasing their annual fund gift, saving you time while increasing your ROI.

Want to learn more about how this works? Get in touch for a demo and see how WealthEngine can help grow your annual fund.

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