Freefall: Inside Higher Ed’s Imminent Fundraising Meltdown

A new survey of 110 university fundraising professionals conducted by research firm EAB suggests that the sector’s worst COVID-19-related fears are beginning to materialize.

“Higher education fundraising is poised for a dramatic drop that will rival or exceed decreases seen during the Great Depression,” reads EAB’s press release. More than 40% of institutions are projecting declines of at least 10% for fiscal year 2020. More than one in five expect fundraising revenue to drop by a minimum of 20%. Projections for fiscal year 2021 are even more pessimistic, with nearly 45% of institutions anticipating double-digit declines.

“We’re nearly three months into the COVID-19 crisis, and university fundraising leaders are only just beginning to see the impact that the economic slowdown is having on their ability to secure donations,” said EAB Senior Director Jeff Martin.

Despite a rebounding equities market, some mega-donors—the lifeblood of the higher ed fundraising machine—may balk at making a big gift. “Large gifts are inherently volatile,” Martin said. “A single donor changing his or her mind about a big gift is enough to deal a crippling blow to overall fundraising production, especially as schools have come to rely on the top of the pyramid more.”

But the economic slowdown is only part of this grim equation. The global pandemic has brought in-person events and visits to a halt. And while advancement leaders expect visits to tick back up slightly in 2021, it will be too late to impact FY 2021 revenue. Respondents also told EAB they foresee a steep decline in proposals in 2021. If this expectation comes to pass, it will have significant “downstream effects,” Martin told me, as qualification visits are a leading indicator of revenue performance in future fiscal years.

Here are some key (and ominous) takeaways from EAB’s survey.

Live and Die by the Large Gift

One faint silver lining gleaned from EAB’s research is that, were it not for the heroic efforts of large donors, university fundraisers would be staring into an even deeper abyss. Respondents told Martin that some of their biggest donors have kept giving, and “those immediate double-digit declines would have been significantly worse” were it not for this support. In fact, Martin told me that some advancement officers are going back to make a second ask this fiscal year.

The bad news, of course, is that there are limits to mega-donors’ largesse. “What concerns me is that we can only ask our biggest donors to give at an elevated level for so long,” he said. To Martin’s point, EAB found that in the aftermath of the Great Recession, universities saw a 33.1% drop in the three largest gifts between fiscal year 2008 and 2009.

Will the crisis force advancement leaders to reconsider their risky reliance on large gifts? It’s unlikely. After all, despite the recent economic churn, the rich are still doing pretty well. Nor are economists predicting any deviation in what Martin calls the pre-crisis “social/economic shifts that have made big gifts flourish and undercut gifts from middle-pyramid donors.” Left with few viable alternatives, higher ed advancement leaders will continue to instruct principal gift officers to follow the money, and in many cases, raise major gift thresholds for their frontline fundraisers.

Advancement leaders also find that large gifts have a higher return on investment. As Martin noted, “While a $1 million gift is hard to close, it takes less resources than closing 10 $100,000 gifts.”

“Middle of the Pyramid” Giving Will Continue to Shrink

This law of diminishing returns becomes even more precipitous as the gift amount shrinks. “In recent years, a lot of advancement leaders looked to the bottom of the pyramid and recognized that it’s something of a deliberate loss leader,” Martin said. Nor has Martin been particularly impressed by attempts to engage bottom-of-the-pyramid alumni. “A lot of these strategies increasingly feel transactional,” he said. “It’s more marketing; they don’t create a connection to the institution.”

But what about surging alumni support for student emergency funds in the immediate aftermath of COVID-19? Surely, fundraisers could find some solace in seeing these previously disengaged donors leaping into the fold. While Martin agreed that the coronavirus “provided an opening for fundraisers to win mindshare and convert unengaged prospects into active donors,” the extent to which fundraisers can keep these donors in the fold remains an open question, given ongoing economic uncertainty and the litany of urgent causes vying for their attention.

While his prediction is contingent on broader social and economic trends, Martin believes the current crisis will only strengthen fundraisers’ pre-crisis reliance on mega-donors. “Coming out of this, some of the skepticism that advancement officers had in recent years about small donor fundraising efforts might increase… The top of the pyramid is where advancement leaders will set their sights.”

To Build or Not to Build?

Many mega-donor gifts have a capital component, and a big question over the past few months has been the extent to which COVID-19 will compel donors to reconsider plush residential halls and glittering facilities—particularly if schools retain a significant online footprint after the crisis subsides.

The answer to this question depends on what lessons advancement teams glean from their institutions’ swift and occasionally fraught embrace of remote learning.

On one hand, many administrators happily discovered that it’s possible to operate remotely with only minor disruptions. If “higher ed does undergo a massive transformation in which most of a student’s education is online and remote, then the case for investing tens of millions of dollars in campus improvements largely disappears,” Martin said.

On the other hand, even the most satisfied administrators acknowledge that remote learning “is not the same experience as an in-person model”—a model, it should be noted, that donors have enthusiastically bankrolled despite its high costs. “If we come out of this crisis and are able to go back to campus,” Martin said, and schools continue to charge full price, administrators and the development officers that follow their lead may conclude “that the only way to sustain a high price tag is by making the campus environment a once-in-a-lifetime experience.”

Until things go back to “normal”—an increasingly relative word if there ever was one—universities will have to navigate a hazy middle ground for the foreseeable future. Assuming schools re-open in the fall, social distancing requirements will force them to embrace a “mixed mode” model that is partially virtual.

Recommendations to Soften the Blow

In late April, EAB’s Whitney Wilson provided some recommendations to advancement leaders on ways to minimize the impact of the oncoming storm. First, they must improve internal and operational efficiencies. Questions include: “What events have you continued to hold out of tradition but have little impact on improving engagement, donor acquisitions, or retention? Where have you been spending a substantial amount of effort without any return?” And “Are there parts of your shop that are structured in such a way that causes bottlenecks or roadblocks to innovation?”

Second, leaders should “focus on staying connected to key constituents.” While fundraisers can’t sit across a table from donors, Martin was nonetheless encouraged by the “extensive innovation in the digital space” that’s allowed some advancement teams to generate impressive results. “I spoke with an advancement officer who said that in any given year, his team only got a few thousand of our alumni to engage with their programming,” Martin said. However, “across the past three months, as his team has gone digital, that number has doubled, because they made engagement accessible and easy.”

In one sense, COVID-19 may be doing advancement leaders a favor by forcing them to do what they should have been doing before the pandemic hit, as in-person events were already delivering declining returns. “I think the big question for advancement leaders is how much of the current digital playbook they’ll keep when things return to normal,” Martin said.

In a similar vein, EAB’s third recommendation was to “prioritize transformative projects with a near-term ROI.” Wilson noted that many alumni relations offices are hosting virtual book clubs, Netflix party viewing events, and virtual coloring page contests. Earlier this year, EAB published an infographic looking at the key components of a high ROI advancement shop. Check it out here.

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