The Conundrum: Annual Fund or Endowment? Which is More Important?

It’s not a trick question.

RSC regularly receives calls from prospective performing arts clients who are interested in pursuing an endowment campaign. With the long-term cash flow needs, who can blame them? However, too often the desire for an endowment campaign is based on other revenue areas failing – or at least not keeping pace with the institution’s needs – and are not exactly the ideal environment to launch a successful major gift effort.  So, in most cases, our answer is the same -- don’t launch an endowment campaign if ticket sales and annual giving are trending in the wrong direction. Why do we so often make this suggestion?  It’s simple...

Endowment campaigns don’t define an organization – rather, they are a reflection of that organization.

The number of subscribers / members and annual donors are two key indicators to judge the health of an arts organization.  If they are both trending upward, the stage is being set for major gift advancement.

But what if the patronage is in decline – isn’t that when an arts organization needs a major gifts campaign the most? Of course, but there’s little leverage to cast vision, or inspire and draw major donors near.  Once your campaign becomes primarily ‘needs’ based, inspired leverage is lost.

So, broadening the base, while not necessarily more important, certainly takes first priority.  But growing the base isn’t easy and you have a limited pool from which to draw.

Arts institutions don’t have the same luxury as, say, higher education in terms of number of available prospects. Depending on size, a college can access thousands of ready-made prospects, adding to the base year after year.  Eventually, this group expands to perhaps hundreds of thousands of alumni from across the country (or world) with affinity for that institution. Conversely, most arts organizations have a very narrow demographic that represents a miniscule segment of the metro area. Due to their scarcity, these donors are expected to give to annual, membership and endowment campaigns, make planned gifts, attend special events, purchase tickets, and so forth. 

Endowment campaigns start off with the largest donors who give substantial gifts, which dictate the overall amount you can expect to raise. The remainder of the campaign is made up of many smaller gifts but keep in mind with large or small donors, these are the same people who also support your Annual Fund.

If you are asking for a hefty gift in the endowment campaign but that person’s Annul Fund gift is also essential, you need a thoughtful, approach to the ask. Again, because of volume, colleges and universities can run endowment and annual campaigns exclusive of each other without needing the same level of coordination. So the object for an arts organization is to broaden and stabilize the Annual Campaign as much as possible and then carefully integrate and balance a major gifts campaign.

So really, broadening your annual donor base and increasing gift frequency becomes the bedrock for all giving initiatives.

Look at it this way -- setting up the proper Annual Fund is like the daily physical training necessary to participate in a full marathon. This daily work has incremental benefits that are essential to complete the marathon. The endowment campaign is the big race and the Annual Fund is the conditioning that is necessary to run that race.

The first step to winning the race is to assess your current Annual Fund. Are the trends up or are they down? If down, it’s imperative to generate a three-year plan to reverse that trend. After you have three years of successful growth in the broad base, board, sponsorships and other corporate giving, you are well poised for endowment activity.

The second step is to commit to building lasting, quality relationships. There is no shortcut for the investment of time and energy needed to tell your story repeatedly, and to, over time, bring others into it.

If you would like to engage RSC to learn how to evaluate and set up a successful Annual Fund to meet your fundraising goals, call us today at 317.300.4443 or visit our website.

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