Calculating an individual’s giving capacity

hide_money_070920_msIn the past few weeks, there’s been an interesting debate sparked off on the Prospect Research UK forum, regarding calculating an individual’s capacity to give. Also known as the holy grail, present your major gift fundraisers’ with a specific number and you can be sure to be on their Christmas card list (for this year at least). But while having an appreciation of a person’s capacity to give can be very helpful, is it really possible to gain an accurate figure or is just another stab in the dark?

As prospect research evolves and gains momentum, in the UK at least, questions regarding wealth and giving capacity are becoming more and more popular. It is perhaps no surprise that these questions have been scrutinised for a while now by our compatriots across the pond, but the fact that no one formula or method is being used by researchers makes me wonder if there ever will be.

Don’t get me wrong, it’s good that prospect research is moving forwards, delving into different sciences, as it is a discipline that requires a good knowledge of many things outside the third sector. But I fear that the sector doesn’t even produce enough quality data and statistical analyses on the basics (of charity income, expenditure, causal giving etc.) to warrant in-depth investment into statistical research into major donors. Is it even possible!?

There are many prospect researchers out there who use formula in an attempt to estimate capacity to give. Some suggestions put forward include 5% of annual income or 1% of assets, others 1-2% of income or 2-5% of assets and even 1-5% of income or 0.5-5% of assets. The problem is these figures have a large numbers of dependent factors, including how close the donor is to your organisation, how interested they are in your work, who is making the ask and how, how liquid is their wealth as well as taking into account their donation history.
Giving Capacity Formulae.jpeg
Then you have the small problem of working out what their annual income is or indeed what their asset value might be. Estimating wealth has been a guestimate at the best of times given the limitations of publicly available information. Therefore basing a very rough formula on an even looser calculation will have even the kid in remedial maths scratching his head with his pencil. Oh, and don’t forget to divide the giving capacity by three (the average number of charities a person supports) as one of my RiF colleagues pointed out.

As I mentioned earlier, various formulas from America and Canada for estimating a person’s capacity to give, are being used. There’s a nice little article explaining all the different methods, which is definitely worth a read. Some methods used include:

Estimated net worth = total real estate holdings x 3, where estimated giving capacity = 3% of estimated net worth (only usable where real estate totals less than $400,000)
or
Giving capacity = (2 to 4) x ‘average donation’ x 5 years (The figures 2 to 4 represent the prospect’s level of interest, with 2 representing low interest and 4 representing high interest)
or
Giving capacity = 5% of liquid assets for those whose primary residence constitutes a great portion of overall net worth.

I know what you’re thinking…..when is he going to tell us which one is the best to use right? Well call me Mr. Grumpy, but I haven’t got a clue (FACT: there are now 25 Mr Men). I would recommend you try them out for yourself (the formulas, not the Mr Men) and try to compare the results with what you know about previous donors (to use as a comparison).

I personally think that all this is a step in the right direction, but we need to do much more collaborative research on historical giving trends before we can begin to promote one formula over another. So little research has been conducted on major donors, wealthy philanthropists, big gifters…whatever you want to call them, that until we get a greater insight into how much they give, how often and why, will won’t be able to produce a robust method for estimating giving capacity (and wealth).

One final point to note, which I always tell people, is as a prospect researcher, you need to manage the expectations of your fundraising colleagues when it comes to giving figures for wealth and giving capacity. At best these are guestimates and should only be used in conjunction with a whole host of other information (see those previously mentioned above). Figures for giving capacity are only ever loose and should be continually reviewed at every stage of the donor journey. The better you get to know a potential donor, the more robust your intelligence becomes.

Categories: High Net Worth Individuals

Resource Type: Blog

Posted by Beccy Murrell

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