Principal Gifts Fundraising: A Fundraiser’s Guide

Principal gifts are commonly donations of one million dollars or more. Donors often give them in the form of assets rather than cash donations. How can you find these donors, and who can afford such a gift? This article delves deeper into principal gifts and how nonprofits strategize and develop relationships with these donors.

8 minutes read
Principal Gifts Fundraising: A Fundraiser’s Guide

Some of the more prestigious universities seem like they’re constantly developing a new building named after a donor. So, how do they find these donors, and how can anyone afford such a gift? This article delves deeper into principal gifts and how nonprofits strategize and develop relationships with these donors.

  1. What is a Principal Gift?
  2. Donor Stewardship for Principal Gifts
  3. Principal Gifts vs. Major Gifts
  4. 9 Steps for Successful Principal Gifts Fundraising

What is a Principal Gift?

Principal gifts are commonly donations of one million dollars or more. Donors often give them in the form of assets rather than cash donations. Regardless of the actual amount, principal gifts affect nonprofits in substantial ways.

Most people assume they don’t have one million dollars to give. Still, if you include cash from the individual and business, their stock shares, property, and interest rate swaps, the donor may be shocked by how much they have to support their favorite causes.

Organizations that receive these gifts will be forever changed by the money and the prestige and freedom such gifts bring. More donors will gravitate towards them once a nonprofit gets a principal gift, and significant gifts become easier to cultivate.

Donor Stewardship for Principal Gifts

Receiving a donation worth one million dollars or more isn’t a child’s play. You should be able to create and maintain donor relationships. You should as well have a staff dedicated to this job. Because once you’ve received a principal gift, stewarding these donors is a process that takes time to plan and continuous effort for years to come.

Let us take a look at the various stages of donor stewardship for principal gifts.

1. Accepting and managing the gifts

Create gift acceptance guidelines that will help your team review and decide whether to accept the gift being offered. First and foremost, you should analyze the value of the gift in furthering your mission. It may so happen that the gift is significant, however, your nonprofit won’t be able to put it to use.

Next, if you decide to accept the gift, create a procedure to ensure that the gift is being utilized according to the donor’s wish.

2. Acknowledging principal gifts and recognizing donors

You’ve received such a huge gift. Your donor must feel valued. To start with, acknowledge their gift in more than one way. Only a donation receipt may not be sufficient; have one of your board members make a call to the donor and send a personalized letter acknowledging and thanking them.

You must also look for opportunities to reward these donors. Offer special benefits, add honor rolls to your annual reports, add a donor wall to your donation page, and hold a donor recognition event once a year.

3. Reporting the impact of the gift

The donors have given you these principal gifts because they believe in your cause and want to help further the mission. You must keep updating them on the actual impact. These updates must be more personalized.

You may also invite them to interact with the beneficiaries and understand how they’ve helped you make a difference. Also, take feedback from them and try to incorporate their suggestions or special wishes.

Principal Gifts vs. Major Gifts

You may assume principal and major gifts are simply two words describing the same thing. Major gifts are a huge win for a nonprofit, but principal gifts are more like Ahab catching the whale in Moby-Dick.

Major gifts take six months to two years to cultivate and receive. Principal gifts can take decades. Beyond the time it takes, developing principal gifts can be consuming. If you’re not careful, you may focus so intently on the principal gift you forget about your other donors and daily activities.

Many large organizations have one or two positions focusing on major gifts. Nonprofits are better off creating a single post whose sole job is to target and develop principal gifts.

It takes so much time and effort to find and receive these gifts because of the complexity involved. Principal gifts can include the entire financial spectrum. While major donations could be entirely cash or property, principal gifts can be a combination of those and more. One of the primary roles of a fundraiser in developing principal gift relationships is to inform the individual or corporation about all the giving options.

In both cases, especially for principal gifts, the staff involved must be knowledgeable about finance and business. Nonprofits can also hire consultants to support these efforts.

9 Steps Fundraisers Should Take for Successful Principal Gifts Fundraising

Principal gift development involves several steps. Some of these can be accomplished by staff. Others may take outside consultants or businesses.

1. Wealth research

Principal gift fundraising involves in-depth donor research. Organizations must search for donors with significant wealth and develop a moves management plan to develop these relationships.

Fundraisers may tend to stop looking at potential donors when they see their past giving tendencies. This is a mistake because donors are not always aware of their potential to give. Now is the time to focus on a potential donor’s ability to give. Nonprofits can use companies like Wealth Engine, Wealth-X, and Donor Search to find this information. Remember to look for all wealth metrics, including individuals and their businesses.

Look at current and potential donors, and research those who’ve shown an interest in your mission first. These are the ones who will be most open to forming a relationship.

2. Learning about potential donors

The second step is to learn most about the individual donor. Find out more about their family, education, and religious affiliation. Learn what makes them tick, their personal interests, hobbies, and passions. If they’ve already donated to your nonprofit or another with a similar cause, why did they choose it in the first place?

The more you learn about a donor, the better chance you have of finding a link between them and your nonprofit’s mission. The reason will give you a way to connect with the individual and strike a conversation.

3. Preparing for principal gifts

Before developing a principal gift, you must prepare for any risk or negative publicity. As you learn more about the donor, get a better understanding of their business reputation and personal life.

  • How did they gain their wealth?
  • What are they known for?
  • Are there any rumors about the donor?

If you find something, that does not automatically mean that you have to lose them as a potential donor. Focus only on issues that may become a problem with your organization’s mission. If you still have concerns, discuss them with your board.

Even if you haven’t encountered an issue yet, your board must still create a formalized process to receive any significant gifts. You don’t want to be caught without a plan and forced to address negative publicity or even legal problems without a plan in place.

4. Relationship mapping

Now that you have a strong understanding of an individual’s ability to give and why they may give to your nonprofit, it’s time to connect personally. The best way to do this is through people who already have a personal relationship with the donor.

Your donors are your greatest advocates and you can use their experiences as testimonials. As a fundraiser, you must use relationship mapping to find personal connections with potential principal donors. Ask around and look through your donor database to better understand how donors interact with each other.

5. Donor engagement

After you find a first contact for the donor, it is time to build a donor engagement cycle and plan for your relationship with the donor. Donors with personal connections have a better chance of giving, and once they donate, they are more likely to give again.

As a fundraiser, it is your responsibility to take their initial interest in the organization and create a moves management plan that ends with a strong relationship. Small steps are crucial to this plan and may include a handwritten note, phone call, invitation to an event, and a visit or two.

Take each opportunity to develop your relationship and find more ways to interest the donor in your organization. After their first gift, regardless of the amount, continue to engage the donor and strengthen the relationship.

6. Educating donors on legacy gifts

Since principal gifts can be for one million dollars, many donors assume they don’t have that type of money. Your job as a fundraiser is to help donors understand that cash donations are not their only option.

Planned giving is a buzzword in the nonprofit world, but most donors are not aware of all the options to leave a legacy. Many organizations have created legacy programs and take the time to educate donors on their true wealth and how they can support the organization after their deaths. This time is well spent because one legacy gift can bring in more revenue than years of event planning.

If they don’t have a firm grasp on planned giving options, invite them to a presentation along with other potential donors. You can also schedule a one-on-one meeting with a professional consultant. The better informed a donor is about their wealth, the more likely they will give a principal gift to your organization.

7. Proposal writing

After years of giving and relationship building, it may be time to ask for a principal gift. Before you do anything else, you must be able to explain why the donor should give a principal gift. The more you know about this individual, the better off you are.

You should have a good idea of which programs interest the donor and may have had conversations regarding their views of improving your nonprofit’s programs, location, or other impacts they’d like to make.

Now is the time to create a proposal to discuss these impacts. Include as many details as possible along with their connections to your organization’s mission. Be sure to explain exactly how their gift will impact real people. Use numbers and testimonials to describe these impacts.

Also, include a financial breakdown of exactly how the gift will be used. Since this is a significant amount, you can share exactly how their combined gifts of cash, stocks, property, and more can be used.

Finally, principal donors want to leave a legacy. Principal gifts are life-changing and must not be treated as any other donation. A common form of acknowledgment for principal gifts is adding their name to a building. This long-term acknowledgment will connect the donor’s name to the nonprofit’s mission as long as the building exists.

8. Making the ask

principal gifts development

The actual ask is left best to the person who has formed the deepest relationship. This may be the Principal Gift Development Officer, the Executive Director, or Board Chairperson. There is no hard and fast rule on who must do the ask. When you’re ready to make the ask, meet face-to-face with the donor in a comfortable location for both parties. You want to provide them with a detailed proposal and be prepared for any questions the donor may ask.

9. Thanking donors

After you receive a principal gift, acknowledging the donation is extremely important. In addition to any agreed-upon recognition, you must do your due diligence and send a typed tax letter, personal card, and potentially a call from the board. Thanking donors is the best way to continue these vital relationships. Principal gifts will change your nonprofit in many ways, and they will most likely have a significant impact on beneficiaries. Another way to acknowledge a principal gift is to include a thank you from those individuals.

You can do this with personal messages and notes from beneficiaries. Have them send cards or texts or even create an art piece. You can also invite the donor to a face-to-face meeting with those whose lives benefit from the gift. Knowing their gift makes a noticeable difference is all the acknowledgment some donors may need.

Final Thoughts

Many nonprofits dream about receiving a principal gift one day, but these gifts come from decades of hard work and relationship building. If your organization is willing to put in the time to plan, find, and build these relationships, you have a chance at getting a life-changing donation as well.

If nonprofits have staff members with financial and business backgrounds, you are ahead of the game because principal gifts are complex. Nonprofits without those resources can find help through consultants and other online wealth research tools.

Get more tips and resources on fundraising and donor management on the Donorbox Nonprofit Blog.

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Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits. As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development.

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