Any time the stock market gets rattled, the phrase “Market Volatility” gets bandied around in radio shows, news articles, podcasts, and (yes, this is one of them) blog posts. The phrase sounds intimidating enough on its own, not to mention when it’s paired with other market fears. While the term refers primarily to fluctuating price valuation on the stock market, volatility has a very real downstream effect for nonprofits.
What exactly is market volatility?
In a nutshell, market volatility refers to the amount of uncertainty there is around stock prices. A single stock can be “volatile” when you can’t predict with a reasonable level of certainty what its price will be in the near future. When many stocks are volatile at the same time, the market is considered volatile. This kind of uncertainty can make it difficult to invest with confidence. And when investors aren’t sure how to invest, they often slow down their investing, or redirect it to safer options.
Investopedia gives a very detailed explanation of market volatility, in case you’d like to dig a little deeper.
So, how does market volatility affect nonprofits?
Nonprofits aren’t immune to the behavior of the stock market. Affluent donors with robust investment portfolios often tie their giving to the performance of the stock market. They give more when the numbers are up, and less when the numbers are down. As The Chronicle of Philanthropy notes, “Charities that depend on those sources of funds could be in for shakier times if the market drop is sustained. And if the overall economy sours, the impact will be more widespread as demand for nonprofit services rises and donors at all levels feel more pinched.”
On top of this conventional wisdom around market volatility, 2018’s U.S. Federal tax overhaul added more concern for nonprofits by increasing the standard deduction. This makes it more difficult for donors to realize a tax benefit from charitable giving, especially for donors giving at a modest level.
All told, the situation could seem a bit dire for nonprofits at the moment. And yet, there’s good news! Even amidst volatility, nonprofits can grow their donation base by strategically managing each donor relationship.
Three ways nonprofits can grow giving in a volatile market
As you consider how to reach out to your donor database, keep in mind the following three ways volatile markets affect your donors:
1. Corporate Donations
Businesses give when times are good for two reasons. They want to make a difference, and/or they are looking for tax relief. Consider some of the top corporate brands—Facebook, Disney, GM. They have taken enormous losses during periods of volatility. Essentially, this means that corporate brands will have less spending capital for charitable giving. Of course, this could be a problem when you ask them to sponsor your next event or for that next donation.
Shore up your relationships now by reaching out to connect. Or more importantly, make these kinds of touches routine during good times and always be improving your relationships. That way, your nonprofit brand will stay top of mind. In other words, you won’t be late to the conversation when funds are tight.
2. Major Donors
As noted above, your affluent, major donors are more likely to feel the pinch when the economy takes a dip. That’s because they are more heavily invested in the market than your typical donor is. While you’re probably already engaging with these donors on a regular basis, in times of uncertainty, you may need to take a slightly different approach. Instability in the markets can cause insecurity, which can affect the frequency or amount of donations they are willing to provide. Now is the time to reiterate your mission to them and emphasize how their donations are making an impact. As with corporate donors, remember to show constant appreciation and invest in relationship-building with major donors. This will help ensure you are the organization they will support, regardless of the financial outlook.
3. Monthly and Annual Donors
Most likely the bulk of your donor base is not comprised of millionaires or even individuals with much expendable income. Keep in mind: 62% of Americans have less than $1,000 in their savings account, and 21% have no savings account at all. Instead, these are people who were moved to put their hard earned cash toward a cause they believe in.
While they may not have the expendable income that your affluent donors have, they are also less likely to be significantly impacted by temporary instability in the market. This means that there’s room to actually nudge this group to increase their donation levels. This can offset some of the losses you may be experiencing with other donor demographics. Keep in mind, they will be more likely to increase their giving level when you rekindle that emotional connection that first led them to sign up as a donor in the first place.
The key to managing donor relationships: data
If your organization depends on philanthropy from others, market volatility can make it difficult to anticipate donation revenue for the year ahead. How can you mitigate the effects of uncertain financial times? Should you change your strategy, or just hold on for the journey and hope for the best?
One of the strongest strategies for retaining donors (as well as for keeping their donation levels up) is to maintain and strengthen the relationships you’ve established with your donors. The key to maximizing your relationships is to customize your communications to engage each donor in a way that they will respond. To do this well, you’ll need to take a data driven approach to fundraising. The more you know about your donors (like how frequently they give, how much they tend to give, what motivates their giving, etc.), the more you can reach out to them in a personalized way.
For nonprofits concerned about how volatility in the market will affect their donors, the fundamental (and most important) takeaway isn’t about the market. It is about how you are maintaining donor relationships. No one wants to hear from a charity during lean times when that same organization neglected them during times of plenty. Maintaining healthy relationships with all of your donors takes effort, organization, and time. But when donor relationships are healthy, you’re much better positioned to weather the challenging ups and downs in the financial markets.