I think Katya Andresen really nicely summarizes the two broad reasons that people give: 1) for personal return on investment (recognition, feels good, status, increase in network) and 2) social return in investment (make a difference, create impact, solve a problem, etc).

I just blogged what my three takeaways are from this discussion but essentially here they are:

First, anyone who raises money in the nonprofit sector should dig into the discussion. It provides fascinating insight into the various motivations for giving to nonprofits. A reading of the discussion gets a nonprofit fundraiser out of the mentality of raising money around their organization’s needs and into the more lucrative mindset of what is compelling to potential donors.

Second, I think that there is an increasing focus by philanthropists on the second motivation (social ROI), as opposed to a past focus on individual ROI. Because of the past philanthropic focus on individual gain, the resulting nonprofit fundraising activities have centered on activities that provided donors an individual ROI, for example capital campaigns that promise a new building with a donor’s name emblazoned on it, or events that provide networking and exclusive activities, or “thank you” gifts. As social ROI becomes more of an interest to philanthropists, smart nonprofits will focus on creating their logic models and demonstrating impact. And when they do this, I would argue that they will actually be more successful at raising money (see Kay Sprinkel Grace’s Beyond Fundraising).

Finally, we will never get to a place where all individual giving is social ROI focused. As the authors of the new book point out, philanthropy is very much an individual sport that is focused on the individual’s values and what they want to accomplish (whether that be personal or societal gain, or a combination of both. Which then begs the question, will we ever get to a place where social problems are solved through capital raised from individual philanthropists? Charitable contributions to the nonprofit sector make up 12% of the sector’s money. Roughly 80% of that comes from individuals. Government money has been declining and so nonprofits have increasingly focused on dollars from individuals to make up the difference. If individual philanthropy will always have an individual return motivation, is that ultimately a problem for a sector that is trying to provide social goods?

I don’t know, but the discussion and questions raised are great ones!

It seems to me that the 25-year-old who funds something that she has a personal connection to is likely funding something that one of her more involved friends is running. Can’t that person do some analytical leg work before going out and drafting a ton of friends and family to support a cause?

Katya’s right, that most donors won’t do a ton of research before every donation. Just like most people buy cars, pick hotels and manage their investments with little research. However, in each of those categories there is a massive number of people who do want to make sure they are making the best decision and who have a wide array of tools available to them to help them decide.

But one of the more fundamental changes that’s happening in the social sector is the increase in social businesses and PRIs. Unless the nonprofit sector (and the funders who fund them) gets over the deep structural issues of refusing to pay for and overlooking talent, more and more people will create businesses to address social issues instead to be free of indefensible constraints on nonprofit activity. So then regardless of what your profile is as a donor, you may choose to have your cake and eat it too when it comes to allocating your financial assets and generating social return.

As I noted in your other post, I think people seek two things in giving – personal and social ROI, and the two are somewhat entertwined. I can’t tell from today’s book excerpt where the writers of this new book are going, but it seems they are urging us to focus on the #2 – the social ROI – in a more dispassionate and analytical way. I think most donors want to know their gifts have impact but unless they are a high net worth individual or an outlier like giving circle member, the amount of effort the average donor will expend on determining their impact and using it to shape their giving patterns is going to be minimal. Heck, we don’t even spend that kind of time on management of our 401k. So the key is going to be easy, apples-to-apples measurement of nonprofit effectiveness. Like 3 stars. And that is really hard to accomplish.

If we’re being urged to think in business terms, we have a supply problem (no great, consistent, comparable data from nonprofits, though GreatNonprofits, Charity Navigator and others are trying to get us there) and we have a demand problem (not that many donors are going to spend a lot of time and energy analyzing their impact – they want simple answers). That’s going to make this kind of change very slow.

But that kind of change has to happen to some degree. Donors want a feeling they ARE having SOME KIND of impact, and they want SOME feeling of involvement in the cause they are supporting. We have to do better as nonprofits to meet those needs. Of that much, I’m sure. Because if we feel our money is wasted, we lose on both forms of ROI – personal AND social.