Traditionally, Americans have supported charities not only for tax breaks and a vague sense of “giving back,” but also for a variety of other financial, emotional and social reasons. Understanding what motivates donors and how their motivations vary across demographic groups can help your not-for-profit more effectively reach and engage potential supporters.

Money Matters
Asset protection and capital preservation traditionally have motivated many wealthy individuals to make charitable donations. And certain strategies — such as gifting appreciated stock or real estate to get “more bang for the buck” — may be particularly appealing to donors who make charitable giving a piece of their larger financial plans.

But high-income donors sometimes have less-obvious financial motivations, such as a wish to limit the amount their children inherit to prevent a “burden of wealth.” Warren Buffett, for example, plans to leave the vast majority of his wealth to charity rather than to his children. As he told Fortune, wealthy parents should leave their children “enough money so that they would feel they could do anything, but not so much that they could do nothing.” To appeal to these kinds of donors, you may want to offer to work with the entire family so that they can begin a multi-generational tradition of giving.

Social Considerations
Research by the Center on Philanthropy at Indiana University has found that younger donors — those between 20 and 45 — as well as wealthier and better-educated individuals are more likely to want to “make a difference” with their gifts. Those with lower incomes and a high school degree or less often donate to meet basic needs in their communities or to “help the poor help themselves.”

Donors of all stripes are motivated by the perceived social effects of giving. Research published in American Economic Review reported that donors typically gave more when their gifts were announced publicly.

Similarly, numerous studies have found that people are more likely to give — and to give in greater amounts — if asked personally, particularly if they know the person making the appeal. These donors may want to make an altruistic impression, and some may seek the prestige of being connected with a well-established and admired not-for-profit “brand.” Such individuals are more likely to buy pricey tickets to annual galas or join a not-for-profit’s board to meet and socialize with others in their socioeconomic group or business community.

Get — and Keep — Their Attention
There are probably as many motivations as there are donors, and most people have more than one reason to support a particular charity. To get — and keep — donors’ attention, perform some basic market research to learn who they are.

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back once again with Annjeanette Yglesias, one of our tax managers and a member of our not-for-profit team. Annjeanette, welcome back to the Playbook.

Annjeanette: Thanks, Jen. It’s nice to be here.

Jen: So, we’ve talked before about the Donor Bill of Rights and how it really wasn’t a legal thing for nonprofits to follow, but I know there’s organizations out there that are considered “watchdogs.” Can you tell us a little bit about some charity watchdogs?

Annjeanette: Charity watchdog organizations are out there, and they’re basically on the Internet and such. And they’re out there to provide donors information. A lot of nonprofit organizations have tax filings and financial information that’s already made available to the public, and these watchdog organizations basically make that information available in one spot for donors to look at.

Jen: So, kind of like a search engine for charities?

Annjeanette: Basically yes.

Jen: What are the main charity watchdogs that people typically go to?

Annjeanette: There’s three that come to mind. So, first of all, there is Charity Navigator, and Charity Navigator is pretty popular. They basically collect tax returns, copy of tax returns and financial information, as well as annual reports that nonprofit organizations might have on their websites. And what they do is they take that information, analyze it and provide a star rating. So, they have a star rating system, and they have a formula that goes behind their star rating system.

And then there’s Charity Watch; Charity Watch is very similar. They get financial information, tax return information that’s already out there to the public collected, and they have their own method of rating organizations and they provide a letter rating A through F.

And then there’s GuideStar; GuideStar doesn’t necessarily analyze a nonprofit organization’s performance. What they do is they’re just a repository for information: the tax returns, financial reports, annual reports, things like that. But what they do have is a seal of transparency rating that they provide each organization based on how much information the organization itself voluntarily provides to customers.

Jen: So, you’ll want to kind of maybe look at all three but then also do your own due diligence as just part of when you’re making a decision whether or not to contribute to a not-for-profit.

Annjeanette: That’s correct. The important thing for nonprofit organizations to know is that these watchdog organizations are out there, and so, it’s important for the nonprofits to understand what they’re looking at, what the grading methodology is and what the donors are seeing from that aspect of it. That way when they field questions from potential donors, potential supporters they’re aware of what’s out there, and they can respond appropriately.

Jen: Well, that’s good to know. Perfect, we’ll get you back to talk a little bit more.

Annjeanette: Sounds good.

Jen: To learn more about how PKF Texas can help your not-for-profit organization, visit PKFTexas.com/notforprofit. This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.

In the not-so-distant past, charity watchdog groups such as GuideStar, Charity Navigator and the Better Business Bureau’s Wise Giving Alliance were notorious for giving overhead ratios significant weightings in their rankings of not-for-profits. While such a practice can help potential donors weed out spendthrift organizations, it also tends to unfairly penalize not-for-profits making reasonable expenditures for current needs and strategic investments for the future.

In recent years, not-for-profits have been urged to put more focus on transparency, governance, leadership and results. For many not-for-profits, funders and watchdog groups, “impact” is now the primary measure of an organization’s effectiveness. If it hasn’t already, your not-for-profit needs to ensure that it has made the necessary cultural changes and communicated the importance of impact to its supporters.

Possible Challenges
“Impact” generally is defined as the long-term or indirect effects of measurable outcomes (such as the number or percentage of individuals served). It typically refers to broader societal change and can be much less predictable than outcomes.

Hopefully, most of your donors may now use such impact-based yardsticks as “What difference does this organization make in our community?” But. while such a shift of perspective is good news, it may mean that your not-for-profit needs to make some cultural changes — including at the board level. For example, you might have to convince your board that spending more on such items as executive salaries and marketing programs will produce better outcomes and broader reach over time.

Communicating with Stakeholders
Although there’s no proven relationship between overhead and a not-for-profit’s effectiveness, some donors, funders and members of the public continue to use not-for-profit expense ratios to compare organizations. Communicating the value of impact can be challenging.

One practical solution is to revise such publications as your annual report. Compliance with Generally Accepted Accounting Principles requires not-for-profits to report costs in one of three functional categories — program services, general and administrative, and fundraising. But there’s no reason why you can’t provide supplemental financial statements or break out administrative items to tell how they were used to enhance programs and ultimately affect lives.

Advice for Change
If you’re unsure about how much your not-for-profit should spend on overhead and how it can best deploy resources for meaningful impact, contact your accountants. Times are changing — for the better — and your organization needs to change with them.

What do charitable donors want? The classic answer is: Go ask each one individually. However, research provides some insight into donor motivation that can help your not-for-profit grow its financial support.

Taxing matters

The biennial U.S. Trust® Study of High Net Worth Philanthropy, conducted in partnership with the Indiana University Lilly Family School of Philanthropy, regularly finds that wealthy donors are primarily motivated by philanthropy. Only 18% of respondents in the 2016 survey cited the tax benefits.

On its own, your organization has little control over tax rates or deductions. But by teaming up with other nonprofits, you can exercise influence over tax policy. For example, groups such as the Charitable Giving Coalition are credited with helping to defeat congressional challenges to the charitable deduction. Some nonprofits also partner up to influence state legislation on charitable giving incentive caps. Just keep in mind that, to preserve your nonprofit’s tax-exempt status, political lobbying should be kept to a minimum.

Matching opportunity

Other research found that donors are just as motivated by matching gifts as they are by tax benefits. A joint Australian and American study gave supporters a choice between a tax rebate and a matching donation to charity. Donors were evenly split between the two — but those opting for the match gave more generously than those who took the rebate.

If your nonprofit hasn’t already tried offering matching gifts, it’s worth testing. You’ll need to identify donors willing to use their large gift to incentivize others — reliable supporters such as board members or trustees. Consider using their gifts during short-lived fundraisers, where a “ticking clock” lends the offer greater urgency

Other strategies can enable donors to stretch their giving dollars. For example, encourage your supporters to give appreciated stock or real estate. As long as the donors meet applicable rules, they can avoid the capital gains tax liability they’d incur if they sold the assets.

Don’t make assumptions

Donors are motivated by many social, emotional and financial factors. Do not assume you know how your target audience will respond to certain types of fundraising appeals. Perform some basic research, asking major donors and their advisors about their philanthropic priorities. Contact us for more revenue-boosting ideas.