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The Value of Prospect Development

Fri, December 30, 2016 12:09 PM | Laura Parshall

We in the prospect development field know well that our work adds value to our organizations, but sometimes, it's hard to make upper-level administrators--or even fundraisers--see how important prospect development is. In this article, Ian T. Wells of Ian T. Wells and Associates makes the case for even smaller nonprofits investing in prospect development. You can thank him after you show this article to the executives of your organization, and use it to show your value.


The Value of Prospect Development

By Ian T. Wells


The prospect development industry is not without its fair share of frustrations. There are researchers who have to deal with last-minute requests for detailed reports on priority prospects.  Others must contend with portfolio managers hesitant to enter contact reports or properly track their cultivation efforts.  Some data analysts are expected to build reliable predictive models while working with incomplete data.  A list of industry grievances may be long, but perhaps the most infuriating aspect of the business is the general lack of regard for prospect development itself.


An unfortunate number of non-profit organizations fail to invest an adequate amount of resources into prospect research and management.  No fundraising effort can succeed without donors, so it should be common sense that identifying, evaluating, and managing future donors lays the foundation for a successful development shop.  Yet many non-profits skimp on prospect development, while others mistakenly believe they can reach their full potential without investing in it at all.  


A Luxury Option or a Necessary Expense?


One of the more common excuses made by some organizations is “we don’t have money to spend on research.”  Small non-profit organizations often struggle to stretch every dollar as far as possible, and fear to allocate their limited funds into prospect development.  There may be a perception that research is a luxury option reserved solely for large organizations undertaking billion-dollar campaigns, and that smaller shops will just have to rely on hard work and good luck.  It is easy to sympathize with such a belief.  It is also an error.


For all their differences, for-profit corporations and non-profit organizations are still bound by the same economic forces: they both need to spend money to make money.  In the for-profit sector, it would be anathema to not invest in the basic fundamentals of one’s own business.  What would happen to the value of ExxonMobil’s stock if its CEO decided that the company “did not have the money” to drill for oil?


It may seem like hyperbole to suggest that prospect development is as important to a small non-profit as drilling for oil is to a global petrochemical conglomerate.  The two activities, however, achieve the same end: obtaining the resources that are necessary for each organization to thrive.  If an oil company decided not to invest in oil exploration, it would reduce its expenses, but at the cost of doing much greater damage to its revenue.  The same premise holds true for non-profits that decide not to invest in prospect development.  

Managing Costs vs. Managing ROI


Even some mid-size and large development offices fail to properly fund their prospect development efforts.  While such shops may have considerable capital to allocate to their various departments, their prospect development staff may still be underfunded relative to each organization’s needs.  Instead of maintaining the ideal ratio of one researcher for every five frontline fundraisers, such organizations may see one researcher struggling to juggle the prospect needs of ten or more gift officers.  Not surprisingly, the quality of a prospect development program suffers wherever researchers are understaffed relative to the organization’s needs.


The solution to this problem for such shops is self-evident: spend more money to either hire or contract out work to more prospect researchers.  But a common concern among such organizations is that the cost of fundraising should never exceed $0.20 per dollar raised.  Many established shops fear that violating the twenty-cents-on-the-dollar rule may hurt their ratings on websites such as Charity Navigator, which may in turn hurt donor retention and outreach.  This concern is understandable, but it is self-defeating in the area of prospect development.


If one examines the return on investment for each department in a development office, it is easier to understand how vital each department is to the success of the organization.  And if prospect development is properly credited with identifying and managing high-net-worth prospects that would otherwise not be in the pipeline, the ROI for such efforts should be considerable.  What is more important to an organization’s success: spending $50,000 to host an event that raises $1 million, or spending $5,000 to identify 50 new prospects whom each have at least $1 million in capacity?


Fundraising expenses do not have to devolve, however, into a zero-sum game that pits researchers against their colleagues.  Ideally, executive leadership may see the value of increasing spending in an area that can exponentially improve revenue.  If a non-profit raised $10 million each year on a $1.9 million budget, it might be wary of additional costs that could push the organization past the twenty-cents-on-the-dollar threshold.  But if that non-profit invested an extra $100,000 into building a comprehensive prospect development program that improved the bottom line by $1 million, it would not only increase revenue, but also reduce the organization’s costs-to-funds-raised ratio.


Researchers as Advocates


For better or for worse, the fundraising industry is one that is dominated by Type-A personalities.  This is not a bad thing in and of itself; successful fundraising all but requires gift officers to be ambitious, outgoing, and blessed with the gift of gab.  Executive leaders at non-profits are almost exclusively selected from the ranks of these gift officers, as their success in closing gifts may often be seen as proof of their fundraising mastery.


Generally speaking, a fair number of prospect researchers do not fit the Type-A archetype.  This, too, is not a bad thing in and of itself; successful prospect development all but requires researchers to be data-driven, focused, and more inclined to spend time looking at a computer screen than chatting by the water cooler.  In an industry where “face time” is treated as a prerequisite to success, however, the stereotype of the introverted researcher may cause prospect development professionals to be treated as support staff, rather than as strategic partners.


It is important for gift officers and executive leadership to understand how effective prospect development can help them reach their financial goals.  It is therefore incumbent on researchers to educate others on best practices when necessary, and to be highly-visible advocates for identifying, evaluating, and efficiently managing quality prospects.  By speaking up on behalf of our industry, we can empower ourselves to be rightfully seen as prospect strategists and logisticians who are key components of a successful fundraising cause. 


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