Your Brain on Philanthropy: Denomination Effect

Fundraisers tend to categorize donors in three ways, either as annual donors, major gift donors, or legacy donors. Annual donors are those who give smaller amounts more frequently — monthly, annually, or when a giving campaign comes calling (think United Way or the Girl Scouts). These gifts usually go to the general fund or support the operations of the organization. Major gift donors are those who give gifts of $10,000 or more (or whatever lower limit an organization chooses). These gifts are usually for something specific, like a program or project within the organization. On the higher end, these gifts can endow positions, fully fund programs, and can come with a naming opportunity attached. (The Jana Light Tower of Philosophical Wonderings seems pretty great — let me just work on accumulating the $25m needed.) Finally, there are legacy donors who leave a portion or all of their estate to a nonprofit.

I want to talk a little bit about annual donors, particularly as they are prone to giving more than they realize due to the Denomination Effect. The denomination effect is simple — we tend to spend more money when we spend multiple times in smaller amounts (“denominations”) than when we do when we give fewer, larger gifts.

I think there are two ways to use the denomination effect to our benefit. First, people who give year over year as annual donors often don’t realize how much they have actually given in total over the years of their charitable relationship with your org. When first meeting a long-time annual giving donor, it can be very powerful to to share with them the full history and amount of their giving, to show what small gifts can add up to over time and to share with them how much of an impact they’ve had on the organization. I have had so many annual donors express surprise and delight at how much they have given over the years. What a gift to show them that.

Secondly, most annual donors give small amounts to many organizations, not just your own. While we never want to encourage someone to stop donating to an organization that means a lot to them and to their values, that first meeting where they realize how much they’ve given to your organization can get them thinking about how much they give in total in one year. Having that amount in mind can give them a glimpse into the kind of impact they could have on one organization if they decided they wanted to give a single big gift rather than spread out their giving.

We can use the fact that people often give more than they realize to open their eyes to gifts they might have thought was out of reach for them, and to thank them in a very real and powerful way for the gifts they have given. We may end up giving them a new way of seeing themselves in relation to our organizations — not just as a “yearly member” or “year-end donor,” but as a loyal donor whose gifts over the years, while small, have added up to having a significant impact on the health, productivity, and impact of the organization.

Also, while we need to be careful not to induce “solicitation fatigue” (no one enjoys being asked for money constantly), perhaps we don’t need to be too concerned about having multiple annual calling or mailing campaigns. Perhaps that’s how we help people make the kind of total giving possible to them, to have the impact they want to have on an organization.

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