Investing in the Top of the Pyramid Lawrence C. Henze, J.D.

Principal Consultant, Target Analytics

Agenda

• Define Top of the Pyramid Giving

• What We Know

• Research and Studies

• How We Identify Top of the Pyramid Prospects

• Questions and Discussion

Principal Giving

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Different Terms, Same Concept

• Principal

• Lead

• Transformational

• Inspirational

• Ultimate

• Major?

• Planned?

Traditional vs. Reality?

Principal Giving – Beyond Wealth

Your Database

Wealth Analysis Analysis of hard assets for

complete assessment of

donors and prospects

Propriety Models for

Inclination and Capacity Developed by examining

over 150 organizations and

100M gift transactions

Giving History Analysis

Examination of the trends and

patterns of giving in your

house file

Principal

Giving Pool

$250K

prospect

Naming

opportunity $1M+

prospect

Principal Giving Profile

360

Donor

View

•Giving history is trending

positively

•Confirmed patterns of

philanthropic donations

•Well educated and

affluent

•Live in areas with

higher quality of life

index

•Benchmarked against

peers giving principal

and lead gifts

•Higher incomes and

known public assets

•Purchase expensive

homes and vehicles

•Do not rely on credit

to make purchases

•High real estate

valuation

Inclination

Wealth

Indicators

Capacity

Asset

Valuation

31

2,684

3,334

8,393

Sample PGS Results

$50,000

$100,000

$250,000

$500,00+

P

P

P

P

P

P

P

P

P

P

P

P

P

P

P P

P

The Other Type of Principal Gift

Millionaires contributinging through planned gifts

Most (97 percent) are homeowners.

Live in homes currently valued at an average of $320,000.

About half have occupied the same home for more than twenty years. Most enjoy significant increases in the value of their homes.

Have more than six and one-half times the level of wealth of our non-millionaire neighbors, but, non-millionaires outnumber these households more than three to one.

Stanley, Thomas J. and William D. Danko, The Millionaire Next Door, MJF Books, New York, 1996, p. 9-10.

Planned Giving Profile

360

Donor

View

•Giving history is trending

positively/consistently, or

long-term giving history

•Volunteerism

•Engagement

•Generational

correlations to planned

giving

•Conservative use of credit

•Preservation of assets

•Political contributions

•Giving to other

nonprofits

Loyalty to

You

Fiscally

Conservative

Age/Cohort

Engagement

with Others

Planned Giving Likelihood (PGL)

• Individuals most likely to make a planned gift belong to specific demographic and lifestyle segments that range from retirees who are empty-nesters, living quiet, comfortable lives, to very prosperous and powerful middle-aged and older executives who enjoy more affluent lifestyles with prestigious careers and educations.

• They have been philanthropic with your organization and others, particularly to health-related causes, and make political donations as well.

• However, they are likely to use credit in a conservative manner whether their outward lifestyle consists of luxury items or not and they are further identified by the small number of people living in their households.

Bequest Profile

• In addition to being a recent and frequent donor to your organization, your best prospects for a bequest will also be more likely to support religious non-profits.

• Among other demographics, they typically have few people living in their homes and are both retirees, living quiet, comfortable lives, to very prosperous and powerful middle-aged and older executives who enjoy more affluent lifestyles with prestigious careers and educations.

• Lastly, your best prospects maintain strong credit and tend to purchase a large amount of consumer products via postal mail/catalog sales.

Annuity Profile

• Individuals likely to contract for a charitable gift annuity with your organization

tend to be recent past donors living in smaller households.

• They are at certain life stages that range from retirees who are empty-nesters,

living quiet, comfortable lives, to very prosperous and powerful middle-aged

and older executives who enjoy more affluent lifestyles with prestigious

careers and educations. They own their homes outright or have very small

mortgage balances remaining, have established credit histories and keep

lower credit balances.

• Though somewhat diverse, they share an interest in business and financial

magazines, but at the same time are community-minded and philanthropic in

nature, making both political contributions and giving to humanitarian

organizations.

Charitable Remainder Trust Profile

• Individuals likely to donate through a life income trust invest in their community

through gifts to political organizations and to a variety of charitable organizations

including yours.

• They share specific demographic and lifestyle segments that point to either well-

established neighborhoods whether in urban and suburban cities or in smaller town

and country areas. Regardless of their location, they tend to choose areas that

have high employment in science-related professions.

• They are nearing retirement or may already be retired and exhibit conservative

financial patterns such as holding well-established accounts with low balances and

have no or low mortgage balances. They most likely live alone or with only one other

person in the household.

Planned Giving – Overall Profile

• Individuals most likely to make a planned gift belong to specific demographic and lifestyle segments that range from retirees who are empty-nesters, living quiet, comfortable lives, to very prosperous and powerful middle-aged and older executives who enjoy more affluent lifestyles with prestigious careers and educations.

• They have been philanthropic with your organization and others, particularly to health-related causes, and make political donations as well.

• However, they are likely to use credit in a conservative manner whether their outward lifestyle consists of luxury items or not and they are further identified by the small number of people living in their households.

What We Know

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Biggest Motivations for Giving

Additional Note:

The most common

motivations for

stopping support are an

organization soliciting

the donor too

frequently or asking

for an inappropriate

amount.

Bank of America Merrill Lynch/ Center on Philanthropy at Indiana University Center for Philanthropy

http://www.philanthropy.iupui.edu/research-by-category/the-2012-study-of-high-net-worth-philanthropy ; accessed on 11/5/12

In the Words of Principal Gift Donors,

Philanthropy is Engagement

Matching

the right

person to

the right

projects

About

fundraising,

friend-raising

and

matchmaking

Internal Obstacle to Engagement

Annual

giving Donor

relations

CRM

Shadow

database

Membership

Special

events

Major

giving

Planned

giving

Prospect

Research

Prospects

Target Analytics’ Studies

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20 Organizations, $1.2 Billion in Total Gifts

Giving Trajectory Prior to Making $10k+ Gift

0% 20% 40% 60% 80% 100%

1 year before

2 years before

3 years before

4 years before

5 years before

Give nothing

> 0 to < $1,000

>= $1,000 to < $2,500

Transitional cultivation

% Giving a Major Gift ($10k+)

Gift Total in

Year 6

Donors (active

and lapsed)

1 year

after

2 years

after

3 years

after

4 years

after

5 years

after

3 year

cumulative

5 years

cumulative

No Giving 1,604,017 .02% .03% .04% .05% .06% .08% .15%

$1 to $99 254,414 .02% .03% .03% .03% .03% .06% .10%

$100 to

$499

110,420 .07% .09% .11% .12% .12% .23% .39%

$500 to

$999

17,819 .17% .22% .22% .26% .36% .51% .87%

$1,000 to

$2,499

27,658 .29% .35% .34% .42% .45% .72% 1.15%

$2,500 to

$4,999

4,016 1.17% 1.07% 1.12% 1.42% 1.37% 2.61% 3.96%

$5,000 to

$9,999

2,235 7.83% 6.80% 6.04% 6.58% 6.09% 13.78% 16.78%

What Do We Take From This Data?

• Study parameters need to be adjusted?

• Timeline:

• Too short?

• Overlaps recession?

• Best fundraising practices not implemented?

• Why do we struggle to convert mid-level donors to major gift donors?

The Search Begins

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Identification Best Practices

Descriptive Statistics and Past Behavior

Predictive Modeling

Wealth Screening

Research Field

Qualification

The Goal – More Top Prospects

Mid-Level

Transitional Giving

Major Primary

Transitional Transitional

N/A – has not made a gift in 3 years

At Risk Donor –giving is decreasing

Slow and Steady Donor –giving is staying the same

Rising Star – giving has gone up

Velocity Rating (Descriptive)

• Calculation: total giving in the most recent year divided by the average

giving in the last 3 years

Increase Rising Star 2,218

Same Slow and Steady 6,721

Decrease At Risk 2,147

No Rating NA 8,025

At What Level Does Giving Begin?

Gift Level in 12-Months # of Unique Donors at this

Level

% of Donors at this Level

$0 75,175 73.25

$1-$49 4,223 4.12

$50-$99 4,239 4.13

$100-$249 8,464 8.25

$250-$499 3,444 3.36

$500-$999 2,302 2.24

$1,000-$2,499 2,482 2.42

$2,500-$4,999 756 0.74

$5,000-$9,999 549 0.53

$10,000 + 988 0.96

Source of Original Gift

Direct Mail

Telemarketing

DSE

0 10 20 30 40 50 60

Direct Mail

Telemarketing

Special Events

Email/Online

Social Media

Recurrent Giving

% of Donors

What Path Do They Take to the Top?

Years of giving to first gift of $1,000-$9,999

Direct Mail

Telemarketing

DSE

0

5

10

15

20

250 1 2 3 4 5 6 7 8 9

10

11+

Percent of Donors

Percent ofDonors

Demographic and Lifestyle Cluster Analysis

• Groupings of individuals by common characteristics such as

affluence, interests, behaviors and passions

• May be used to segment donors by gift type, appropriate

message, and potential contributors

• Cluster data products include:

• Mosaic

• Niche

• Prizm

• Personicx

Transitional Donors

Major Donors Annual Donors

Demographic Cluster Analysis (Descriptive)

• Prospecting - Who on your database share characteristics with these

donor groups?

• *Mosaic from Experian

• Upper middle class “Boomers” in suburban homes

• Mature couples and upscale retirees along with empty nesters

• Mature upscale couples and singles in suburban homes

• Prosperous couples living in suburban areas in their peak earning years

• Power Elite individuals with the highest incomes in the country

• Wealthy, influential, and successful couples and families living in prestigious suburbs

Giving History

Biographical Information

Demographics

Predictive Modeling

Capacity and Wealth

Lifestyle & Behavior

Organization Data

Principal Giving

Major Giving

Transitional/ Leadership

Giving

Annual Giving

Money on the Table

Public Higher

Education

Private Higher

Education Environmental

Community

Hospital

Human/Social

Services

Gift Level

in 12-Months Actual Potential Actual Potential Actual Potential Actual Potential Actual Potential

$10,000 + 0.02 0.17 0.07 0.43 0.15 .39 0.08 .78 0.04 0.35

$5,000-$9,999 0.03 0.25 0.04 0.47 0.1 0.55 0.27 .73 0.08 0.54

$2,500-$4,999 0.02 0.58 0.08 0.78 0.16 0.93 0.19 1.30 0.13 1.05

$1,000-$2,499 0.14 1.23 0.33 2.46 0.49 2.18 0.67 2.45 0.66 2.54

$500-$999 0.12 2.71 0.26 5.18 0.43 4.19 0.39 5.63 0.99 5.12

$250-$499 0.17 5.68 0.45 9.11 0.62 10.46 0.56 9.20 1.73 10.38

$100-$249 1.2 22.80 1.8 16.60 2.54 16.56 2.14 30.49 5.04 17.37

$50-$99 0.98 36.71 1.47 35.75 2.89 35.70 2.49 20.17 3.91 34.60

$1-$49 1.92 29.89 2.41 29.23 8.34 29.04 10.51 29.26 6.58 28.05

$0 95.41 -- 93.08 -- 84.27 -- 82.7 -- 80.85 --

The Researcher’s Challenge: Hidden Assets

<$10K $10K-$24K $25K-$100K $100K+

Assets >$1M 3.7% 17% 20% 22%

Assets >$5M .3% 3.2% 4% 6%

Asset Mean Estimated

Total Value $273K $2M $2M $7.3M

Income Estimator $157K $218K $195K $232K

Discretionary

Spending Estimator $58K $144K $140K $150K

Power of Combining Modeling and Wealth

0%

20%

40%

60%

80%

100%

HigherEducation

Advocacy Healthcare

Total Gifts IdentifiedOnly with Modeling

Total Gifts Identifiedwith Wealth andModeling

Total Gifts IdentifiedOnly with Wealth

Putting It All Together

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Grouping Predictive

Model #1

Predictive

Model #2 Estimated Capacity*

# of

People

1: Principal Giving PGS Tier 1 N/A $500K 11

2: Principal Giving PGS Tier 2 N/A $250K -$500K 81

3: Principal Giving PGS Tier 3 N/A $100K - $250K 208

4: Principal Giving PGS Tier 4 N/A $50K - $100K 546

5: Major Giving Top Prospects MGL 701-1000 TGR 9-10 $10K-$50K 743

6: Major Giving Second Tier MGL 701-1000 TGR 8 $5K-$10K 869

7: Major Giving Future MGL <701 TGR 8-10 $5K-$50K (statistically less

likely) 369

8: Bequest Top Prospects BL > 601 Included above Included above 579

9: Annuity Top Prospects

AL > 701

Included above

Included above 496

Without a doubt, there are top

of the pyramid prospects

hidden in your database? Why

not find them?

40 #bbcon

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Did this session give you the jolt you needed?

Thank You!

Lawrence Henze

(843) 991-9921

lawrence.henze@blackbaud.com

Link to Blackbaud’s Whitepapers:

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