New Donor Demographics Are Emerging...Now What? ...AI?
The rise of millennials as the dominant population in the workforce, means we know that the demographics of donors are changing, and tomorrow's donors will think and act differently than their predecessors. This demographic shift has already seen many nonprofits change some of their fundraising methods and messages. Millennials are not giving at the same rate as their predecessors, as demonstrated by the figure above in AFP's "2018 Next Generation of Giving Report".
This change in donor behaviour presents problems that are not yet apparent to the vast majority of nonprofits. We do not yet realize the extent of the impact that this demographic shift will have because most of the sector has not yet seen their revenue decrease. A looming revenue decrease is invisible because the majority of major gifts and legacy gifts are still being given now, by baby boomers.
The core supportive base for most philanthropic institutions is quite literally dying, and the incoming generation of donors are not giving in the same way. Past generations of boomers and matures were more about the collective wellbeing of society and cared less about individual accountability and personal responsibility, thus the nonprofits that they built were in response to collective problems and collective approaches. Inherent in collective interest is the ability to scale, and scale becomes more important when you are looking at multiple people or collective influence. Past generations of donors built nonprofits in their own image, to be organizations that took care of collective groups of people, and are therefore able to impact the most lives.
During the boomer and mature generations, the world was a much larger place, and then the internet happened. All of the sudden the world got smaller. The amount of choice that a millennial faces exploded and all of the sudden they can choose a cause that they specifically cared about. This has led to websites like Gofundme, where anybody can spin up charity for an individualistic cause. An example to demonstrate what I am talking about is that during the boomer and mature generations, the collective people cared about homelessness, we opened shelters with hundreds of beds. Now, any homeless person can set up a Gofundme page and donors end up paying for one persons rent. The amount of homeless individuals who are enterprising enough to set up a successful Gofundme page is limited.
Even if the number of people, the amount of money, and the wealth distribution doesn't change, the way in which different generations see the world has changed, and so the winners and losers in terms of giving will change regardless. Boomer and mature generations created a charitable landscape concerned with the collective that often did not emphasize organizational accountability. The version of accountability which they did have relied on creating a framework that was so broad that it allowed for the different needs within a collective group.
For example, it is a common metric to measure cost per dollar raised, that metric implies that the less money you spend to raise a dollar, the better. However, this ignores many relevant circumstances to individual charities and this broad framework denies charities the basic human necessity to take a risk and innovate...which heaven forbid may move humanity forward.
Millennials rejected the broad frameworks of accountability noting that it was ineffectual in actually bringing change. Fundraising methods such as Gofundme are extreme examples of non scalable impact, and high tangible accountability. When you look at the average donation per year and the contribution to total giving for millennials, these numbers are following an upward trend and the converse is true for boomers and matures. Looking at these giving patterns given their age and generational transition status, we can infer that millennials are probably going to be equally or more generous than their predecessors. So it is not that they are less generous, but that their approach to giving will be different. They are going to demand a different type of accountability.
The way in which people give changes how money is distributed and if the sector fails to recognize and adapt to that, then the charities that are successful today will not be the charities that are successful tomorrow. This could have catastrophic consequences not only for the people who run nonprofit institutions, but also for the people whom society has never heard from, the most desperate and vulnerable causes may go unnoticed temporarily.
We know that roughly 80% of giving comes from 20% of donors, with some studies suggesting that major gifts make up closer to 90% of total giving. The 20% of donors who account for 80% of a nonprofit's revenue, often start giving as one of the 80% of people who make up just a small portion of revenue.
Once previous generations die, we will have a new donor generation of millennials, but unfortunately there simply aren't as many millennials to sustain the major gift pipeline at 80% of an institutions giving. New generations of donors won't grow up and think and behave like their parents, instead they will carry forward the values they express now to shape giving behaviour. The Boomer and Mature generations wanted to know what they could do collectively, whereas millennials want to know, "what did I do?".
The expansion on the number of choices that millennials have to give their money, means that the fundamental objective has also changed between the generations. Where the previous generation was determining the merits of a cause, millennial giving is partly determined by who can get, and more importantly keep their attention.
Some reasons why giving behaviour will change...
The dynamics of wealth are changing. Wealth is becoming more concentrated. The average American household donates around $2000 a year (Giving USA) but we are now seeing the wealth distribution change. The amount of money in people's pockets is not as consistent as it had been. The disparity between the super rich and the upper middle class is widening, and while this may not have an immediate impact on dollar level, what it almost certainly will impact is donor retention. This is because as people fall out of being upper middle class, the amount of work that is required to make the same amount of money goes up.
There is less friction to give and the barrier that used to exist in terms of how we physically did donations has changed. If you wanted to donate 10 times in the 90's you had to fill 10 pledge cards. Now if you want to donate you can go to the front page of Gofundme or Facebook and find 10 causes to easily and quickly donate, without getting off the couch or moving your tv dinner.
We have more choices of places to give. Donor cohorts will get much smaller because not everybody can give to everything. Not only do millennials have more choices but they also have the ability to create a choice that doesn't exist, almost effortlessly.
Millennials may have a distaste for charities because they cannot understand the tangible impact they are having, which is characteristic of how the conventional charity operates...they are lacking the ability to demonstrate impact in a meaningful way.
What we can do about it?
Artificial Intelligence solves this problem because it can allow for the best of both worlds. We understand that no one person solving another persons problem will ever scale to solve the world's collective problems. But we also understand that no collective can ever meet the needs of the actual people who are most in need, again because of the broad frameworks of accountability. The problem is that we cannot scale people and humans cannot provide the level of detailed impact reporting that millennials demand. Artificial Intelligence however, can provide the perfect balance, it can provide a personalized experience for an individual, AND it can do it a million times over...humans cannot.
Technology now allows for a deeper level of personalization and it is a level that millennials have come to expect. Millennials have this level of personalization in their consumer interactions, in their online socialization, and even in their educational experiences. In some cases, it is no longer even possible to fail grade 3 without your parents permission, instead the institutions simply redefine and personalize what it means to be in grade 3 for each student. In some cases this is extremely substantial learning assistance and in other cases it is the destruction of standard, this is what millennials have grown up with and understand to be the world. They connect with causes differently than our predecessors.
When a millennial sees a direct mail letter with "Dear Supporter" instead of their first name, the millennial does not think that the charity saved money by not personalizing it, nor do they think it is acceptable. What they do see is a sign that the nonprofit is either irrelevant, or out of touch with them. Being relevant and being in alignment with your donors, are two critical components to building donor relationships.
We know that the current technology that exists does not generate or capture the data needed for the future. In the last 15 years, the truism that actions speak louder than words has never been more accurate. The ability for people to choose what they are interested in and to have an experience personalized for them, can only be done based on what people do, not who they are according to what we have recorded on them up to this point in time.
The data that we have recorded historically has been determined by people and institutions, they have defined who people are based on their own criteria. The generational shift means that personalization is of increasing importance to people, and therefore they reject being painted with the broad brush that current nonprofit segmentation practices impose. Because of the level of personalization from every other way of life, from your digital magazine subscription to your smart vacuum, people feel entitled to their personalized preferences.
It was never imagined that a computer could learn to accurately predict what a human is interested in, but the reality is that a computer will do this faster, at scale and be more accurate than a human. To be clear, a computer cannot make the emotional connection that a human can, which is what makes the magic of actually getting gifts possible. That is why with the right technology, humans can focus their efforts on the relationship building. If the traditional fundraiser believes that fundraising is all about relationships, then one can only conclude that we will have to change our approach for the new generations of donors.
Bio: Kristopher has over 18 years of marketing experience in both Canada and the USA and 8 years experience in fundraising for Canadian charities. With an emphasis on multi-channel direct marketing, Kristopher has managed over $7 million dollars in annual donations integrating direct mail, digital including predictive modelling, face-to-face and telemarketing strategies to drive growth and lifelong donor journeys.
“The concept of digital fundraising today must include predictive modelling/machine learning. Including machine learning in the mix ensures that you’re driving down your cost of funds raised while ensuring that no donor feels overlooked because you’re providing meaningful, personalized stewardship touch points at the right time in their donor journey.”
-Kristopher Gallub, Fundmetric Fundraising Liaison