Annual Gift Definition: What Is an Annual Gift?

Annual Gift Definition: What Is an Annual Gift?

January 6, 2020
Nandini Singh

What is an annual gift, and how do these types of gifts support your nonprofit? In this article, we’ll discuss the key components of annual gifts. In this article, we’ll discuss the key components of annual gifts; the importance of these contributions; how best to set gift levels; and finally, the types of annual giving programs that can fuel your fund. Let’s begin with a definition of an annual gift.

What Is an Annual Gift?

So, what is an annual gift? An annual gift can be a contribution made to a nonprofit organization or higher education institution, provided on any given annual basis (daily, weekly, monthly, etc.) with unrestricted purposes. In short, these gifts are contributions raised on an ongoing basis for a variety of uses.

Your organization’s purpose and overall goal are at the center of annual giving. So, all the funds you raise help you continue to serve your mission. As a result, most organizations primarily use annual gifts to cover their operational expenses. By raising money for the operational needs of your organization, you are able to keep your nonprofit up and running.  This allows you to continue making a difference in the ways you’ve set out to. Annual giving, in that sense, is the backbone of any healthy fundraising program.

Importance of Annual Gifts

Besides covering the operational expenses of an organization, annual gifts serve multiple purposes:

1. They Garner Unrestricted Funding for Your Organization.

Unlike a planned gift or donations made for a capital campaign, annual gifts raise awareness for your cause. These donations fund your regular and ongoing expenses, so they support your broader goals and serve to remind your donors of the values of your cause. Annual funds are a good way of reinforcing your goals and identifying ways to amplify and expand them.

Although annual gifts can be used to offset an operational deficit, they can be used for anything. Since annual gifts are an organization’s source of unrestricted contributed income, they should be the central component of an organization’s fundraising efforts. Annual gifts can also be used to supplement other campaigns or events. If anything, annual gifts strengthen your chances to reach your overall organizational goals.

2.  It Helps Broaden Your Donor Base.

The majority of individual donors who donate to an organization for the first time usually do so through its annual campaign. So, for many organizations and higher education institutions, the collection of annual gifts is an opportunity to broaden their donor base and increase retention.

It’s simpler and advantageous for nonprofits to focus on cultivating relationships with donors who have already given. If you’ve already received a donation from a donor, it takes fewer resources to persuade them to give again. So, as you make direct asks, you can emphasize recurring giving to your donors.

One way to do this is by forming a membership program. Membership programs reward donors who join by providing them with special perks in exchange for contributions or “membership fees”. These perks can range from exclusive fundraising event invites or merchandise from your cause. This method of cultivation incentivizes donors to give and gives your organization control over the gifts you receive.

3. It Can Serve As Your Pipeline for Major Gifts and Planned Giving Gifts.

Annual gifts can also serve as your pipeline for major gifts and planned gifts. The question is: how do you determine which donors (who have previously given) have the inclination or ability to give more?

By conducting a wealth screening, you can determine which donors have the greatest propensity and capacity to give. This is a good indication of which donors you should cultivate and nurture further. You can also use a wealth screening to see what or how much your donors have given in the past. These insights into your donors’ giving history can help you determine how inclined they are to give to your other programs. You can create conversations with interested donors about additional ways they can create lasting change.

This is an opportunity to direct donors to your major gift programs or (depending on their age and giving history) your planned giving program. So, if a donor already gives to your cause, and can give more, it’s important to continue developing your relationship with them.

Setting Annual Gift Levels

Although annual gifts don’t fund targeted projects, it’s necessary to remember to plan out your gifts and how best to acquire them. So, be sure to set gift amounts that are reflective of your donors’ giving habits. In order to do that, it’s important to consider the following factors:

1. Your Campaign

What goal have you set for your campaign? How much do you need to raise to meet the needs of your organization this year? By assessing a specific amount to raise, you can feasibly create a solid foundation for your most basic needs.

2. Giving History

How much has your donor given in the past? Do they donate sporadically? Or do they give in regular intervals? By understanding your donor’s habits, you can get a true sense of their propensity for general philanthropic giving. It also allows you to estimate how much they could give in the future based on their current giving habits.

3. Average Annual Gift Size

Similar to evaluating your donors’ giving history, you can set gift amounts based on their giving habits. This can help you secure gifts more easily, since the amounts you set are within the range in which your donors give.  For example, the low to mid-level gifts collected should make up about 15-25% of your campaign goal. Over time, you can begin increasing this set amount, and ease donors into giving a bit more.

Types of Annual Fund Programs

So, when it comes to supporting and fueling your fund, there are a number of different fundraising programs you can implement to raise annual gifts:

Year-End Fundraising

Year-end fundraising is the process of engaging and following up with prospective and existing donors towards your end-of-year giving season. Donations collected in this type of program support specific projects and your annual fund. So, when deciding upon your year-end goal, it’s important to pick a broad theme that fits with your organization’s mission at large. The goal should serve as a reminder to your audience of what your purpose and values are as an organization and why your cause is worthy of your donor’s support. Show your donors how their contributions create the foundation off of which your organization can thrive.

Sustainer Programs

For those donors who’ve committed their support to your organization at any frequency and through any method (also known as sustainer donors), it’s important to increase their retention. This is becoming easier through the emergence of automatic giving. Donors can now make regular, automated contributions to organizations. Not only is this option convenient for donors, but they also provide nonprofits with a more predictable revenue stream.  These small, recurring gifts fall well within the structure of an annual fund. Donations received within this automated structure are made for general use, so they’re relatively unrestricted.

Viral Fundraising Initiatives

As we become increasingly connected across social platforms, we are constantly sharing content with each other. Now, nonprofits are leveraging these channels to create initiatives where the public has a chance to donate to their cause at large. This is usually done by engaging your donors in an activity or conversation where they can show and share their support via social media. For example, the ALS ice bucket challenge (a viral fundraising initiative intended to raise money for research into amyotrophic lateral sclerosis) was a viral video sensation in 2014. Every video posted of people participating in the challenge raised an incredible amount of awareness for ALS. Supporters ended up raising $115M for the ALS Association.

In that sense, social media-based fundraising initiatives grab the attention of individuals and help nonprofits collect a high volume of one-off gifts in a short amount of time, due to the viral nature of the fundraiser.

A Look At Millennial Wealth

Discover the best prospects you can target for your annual giving campaign. Download WealthEngine and Coldwell Banker’s A Look at Wealth 2019 to get inside the minds of millennial millionaires.

Other Articles in Our Annual Giving Series

This is the first article in our Annual Giving series. You can read more about the structure of annual giving campaigns in our second article on the 8 Phases of a Successful Annual Giving Campaign and strategies you can implement during your campaign in our third article on the Top 5 Annual Giving Campaign Ideas.

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