Fundraising is an organizational function and high-demand occupation unique to nonprofits, or nongovernmental organizations (NGOs). Although the term fundraising sometimes is used to describe the act of raising capital for for-profit businesses, and fundraising is conducted to finance electoral campaigns for government positions, the function is identified most commonly with raising gifts for charitable nonprofit organizations. Thus, this article concentrates on what most accurately can be called “philanthropic fundraising.”
Simplistically defined, fundraising is the process through which charitable nonprofits generate income in the form of gifts from individuals, foundations, and corporations. Recent developments in research and theory building provide a richer perspective. Scholars and practitioners now subscribe to the principle that fundraising is more about relationships than it is about money. Definitions, such as Kelly’s (1998), have gained increased acceptance: fundraising is the management of relationships between a charitable organization and its donor publics. The new perspective holds that fundraising concentrates on the juncture where the interests of donors and the organization meet. Rather than simply generating indiscriminate income, fundraising is a staff function that counsels senior management on how to most effectively manage environmental interdependencies with donors. The purpose of fundraising, then, is not to raise money, but to help charitable nonprofits manage their relationships with donor publics who share mutual interests and goals.
History, Institutions, And Fundraising Scales
Fundraising as an organized and organizational function marks its beginning at the start of the 1900s in the US (Cutlip 1990). It evolved through distinct eras of professionalism, with responsibility for the function moving from volunteers and general managers to external consultants to specialized staff practitioners. The first commercial fundraising firms emerged at the close of World War I, and the first internal staff fundraisers were hired at the end of World War II. Today, there are an estimated 100,000 full-time fundraisers in the US and about 80 percent of them are employed as staff practitioners. Although fundraising has spread to almost all countries, it is more advanced and pervasive in the US, where a favorable tax system supports an extensive nonprofit sector and fosters philanthropy through exemptions and deductions.
Nonprofit organizations primarily are defined as being entities that are neither businesses nor government agencies. Often referred to by various names, including third sector organizations, nonprofits cover a diverse collection of organizations, ranging from local daycare centers to major research universities to international disaster relief charities. Their missions represent all aspects of society, including the arts, education, the environment, health, human services, and religion. Nonprofits share only a few common characteristics: (1) they are private, which distinguishes them from government, (2) they do not distribute profits to those who control the organization, which distinguishes them from business, and (3) they are voluntary and self-governing.
There are approximately 1.6 million nonprofit organizations in the US, of which more than 1 million, or 67 percent, are designated “charitable nonprofits.” Nonprofits are exempt from federal income taxes, as well as such other taxes as property taxes, and are classified into 27 categories under Section 501(c) of the Internal Revenue Code. Nonprofits that have been granted charitable status are usually classified under the 501(c) (3) subsection. The primary difference between them and other nonprofits, such as chambers of commerce, is that gifts to charitable nonprofits are deductible from donors’ taxable income, whereas gifts to non-charitable nonprofits are not. As stated earlier, fundraising is a function of those nonprofits classified as charitable. It is important to note that charitable organization is a legal term and does not mean that all organizations classified as such deal with charity, or alleviating suffering of the needy. Indeed, charity constitutes a small portion of the work of US charitable organizations; most deal with philanthropy, or promoting human progress. The largest charitable organizations in terms of finance are those with missions in education and health, and hospitals and universities employ the largest number of fundraisers.
Giving in the US totals billions of dollars each year ($260 billion in 2005) and represents almost 2 percent of the country’s GDP. Individuals traditionally give more than 80 percent of all gift dollars, and foundations and corporations provide the rest. To sustain and increase this high level of giving, US fundraising is organized into four programs: annual giving, major gifts, planned giving, and capital campaigns. The first two are primary programs; the second two actually are strategies to raise major gifts. Focusing on the two primary programs, annual giving raises lower-level gifts, whereas the major-gifts program raises large gifts. Dollar amounts defining the two gift types differ among organizations; however, a common dividing point is $10,000, although annual gifts typically are less than $100 and major gifts often exceed $1 million. For most charitable organizations, annual giving produces the greatest number of gifts, but the major-gifts program accounts for the vast majority of gift dollars. The “principle of proportionate giving,” based on the unequal distribution of wealth, dictates that approximately 80 percent of all dollars raised will come from 20 percent of all gifts. The principle has been upheld for almost a century and fundraisers design their work around it.
Research On Fundraising
Research and theory on fundraising is very new. Serious scholarship on the subject dates back only to 1991, when several ground-breaking books were published (for example, Burlingame & Hulse 1991). Unlike other aspects of philanthropy and nonprofit management, fundraising had not been claimed by any academic discipline. Knowledge of the function came from practitioners and consisted primarily of “how-to” advice based on anecdotal evidence. Advances in public relations theory starting in the 1980s, particularly excellence theory and a paradigm shift to organization–public relationships, provided a framework for building theory on fundraising. Several public relations scholars have contributed to advancing knowledge on fundraising, but Kathleen Kelly (1991; 1998) is most closely associated with the endeavor.
Kelly and others conceptualized fundraising as a sub-function, or specialization, of public relations, which was defined as the management of relationships between an organization and the publics on whom it depends for success and survival. Donors were identified as a strategic enabling public of charitable organizations, similar to investors of publicly owned corporations. To be effective, fundraisers should rely on two-way communication and strive for mutually beneficial outcomes, or symmetrical effects. Theory holds that fundraising generates gift income by ensuring that the organization develops and maintains relationships with donors, who give freely due to relationships built on commitment, trust, satisfaction, and control mutuality. Fundraising should be integrated with other sub-functions of public relations so the organization can effectively manage its interdependencies with all strategic publics, including consumers of its program services.
A few scholars, as well as many practitioners, approach fundraising from a marketing perspective. However, they do not conceptualize fundraising as part of the marketing function of nonprofits, but as a function separate from others. The leading proponent of the marketing approach is Adrian Sargeant (2004), a British professor of nonprofit marketing who in 2007 came to the US to assume the first endowed chair in fundraising, which was established the same year at the Center on Philanthropy at Indiana University. Sargeant has written several books and conducted research on various facets of fundraising, including public trust and confidence in charities, donor commitment, and branding. His greatest contribution thus far has been in the area of retention of annual-giving donors. He provides empirical evidence that building loyalty in people who already are giving saves organizations money and time. Regardless, the marketing perspective provides a limited view of fundraising. For example, Sargeant’s work concentrates on annual-giving donors and pays little attention to major-gift donors, who provide the majority of dollars raised in the US. The flaw is understandable given marketing’s traditional focus on mass consumers of products and services. Furthermore, in countries such as the UK, major-gift fundraising is only now emerging.
In the last 20 years, the practice of fundraising has grown dramatically around the globe. For example, the Association of Fundraising Professionals, headquartered in the US, has 16 chapters and almost 3,000 members in Canada. It has strategic alliances with the Institute of Fundraising in the UK and the Fund Raising Institute of Australia. Fundraising also has spread to developing countries in response to the rapid growth of NGOs.
The increase in nonprofit organizations was documented by a team of researchers from Johns Hopkins University’s Center for Civil Society Studies, led by Lester Salamon (Salamon et al. 2004). The comparative nonprofit sector project, launched in 1991, is an ongoing effort to analyze the scope, structure, financing, and role of the nonprofit sector around the world. Findings from the first stages of the project showed that nonprofit organizations are present in virtually every part of the world and the nonprofit sector is a major economic force. Based on a cross-section of 16 advanced industrial countries, 14 developing countries, and 5 transitional countries in central and eastern Europe, the researchers found that giving as a share of GDP ranged from a high of 1.85 percent for the US to a mid-level of 0.41 percent for Slovakia to a low of 0.04 percent for Mexico (unavailability of data on giving to religious organizations reduced the latter’s percentage). If expenditures of all nonprofits in the 35 countries were calculated as a separate nation, the nonprofit sector would be the seventh largest economy in the world, ahead of Italy, Brazil, Russia, Spain, and Canada and just behind France and the UK. The researchers concluded that a massive upsurge of organized, private voluntary activity was underway.
The growth of nonprofit organizations has resulted in a demand for fundraising practitioners that has outstripped the supply. It also underscores the need for more knowledge regarding the fundraising function. Theories developed in the US must be tested and adjusted to accommodate different cultures and their legal, social, and political environments.
- Burlingame, D. F., & Hulse, L. J. (eds.) (1991). Taking fund raising seriously: Advancing the profession and practice of raising money. San Francisco: Jossey-Bass.
- Cutlip, S. M. (1990). Fund raising in the United States: Its role in America’s philanthropy. Somerset, NJ: Transaction. (Original work published 1965).
- Harris, T. (1999). International fund raising for not-for-profits: A country-by-country profile. Somerset, NJ: John Wiley.
- Kelly, K. S. (1991). Fund raising and public relations: A critical analysis. Mahwah, NJ: Lawrence Erlbaum.
- Kelly, K. S. (1998). Effective fund-raising management. Mahwah, NJ: Lawrence Erlbaum.
- Salamon, L. M., Sokolowski, S. W., & Associates (eds.) (2004). Global civil society: Dimensions of the nonprofit sector, vol. 2. Bloomfield, CT: Kumarian.
- Sargeant, A., & Jay, E. (2004). Building donor loyalty: The fundraiser’s guide to increasing lifetime value. San Francisco: Jossey-Bass.
- Worth, M. J. (ed.) (2002). New strategies for educational fund raising. Westport, CT: American Council on Education and Praeger.