Where s the (Canadian) Bacon?

Where s the (Canadian) Bacon? Estimating Giving Capacity of Individuals Session Date: October 16, 2014 Session Time: 10:30am Presenters: Alexandra Basen Celeste Bannon Waterman

Session Agenda Giving Statistics U.S. and Canada Relative to Income/Wealth Estimating Giving Capacity For Individual Prospects For Groups of Individuals Success (and limitations) of our approach

ESTIMATING CAPACITY BACKGROUND AND THEORY

Estimating Giving Capacity There are many resources and experts in the field with formulas or rules of thumb for estimating charitable capacity based on known information, including (but not limited to!): Cecilia Hogan s excellent: Prospect Research: A Primer for Growing Nonprofits (2 nd ed., 2008) Elizabeth Crabtree s numerous presentations and fabulous spreadsheet template Joshua Birkholz s Fundraising Analytics: Using Data to Guide Strategy (2008) However, all are based on U.S. data, giving patterns, and the practitioners primarily U.S.-based experience.

Show Me the Math! Common formulas are summarized below, drawn primarily from Cecilia Hogan s 2008 reference. Note that the output is Total Philanthropic Capacity (TPC), an estimate of the amount an individual can give to all charities over 5 years. You know The Estimate / Rule of Thumb is.. Sample Calculation Net Worth Total Philanthropic Capacity is 5% of an individual s Net Worth. Net worth of $10 million X 5% = $500,000 TPC Annual Income Annual Income (salary + bonus) represents 10% of Net Worth. Annual Income of $300,000 / 10% X 5% = $150,000 TPC Primary Real Estate Holdings (i.e. value of home) Real estate holdings represent 20% to 25% of an individual s Net Worth Real Estate of $3.5 million / 20% X 5% = $875,000 $3.5 million / 25% X 5% = $700,000 TPC range is $700,000 - $875,000 Stock Holdings Stock holdings represent 30% to 35% of an individual s Net Worth Stock holdings of $3 million / 30% x 5% = $500,000 $3 million / 35% X 5% = $430,000 TPC range is $430,000 to $500,000

How Does this Translate for Canadians? Canadian data on giving vs. wealth, and data on individuals, less readily available than U.S.; leads to doubt about use of the previous estimates in this country. This past summer, KCI hosted a practicum student from the U of Toronto ischool Masters of Information program. Elizabeth Murray of Sunnybrook Foundation was our student (an excellent one!) Objective of the practicum was to provide independent research and review of capacity estimation in Canada vs. U.S. Tested known Canadian major donors Also reviewed results of bulk capacity estimation on an individual level

Giving by Income U.S. According to the IRS, in 2011 26.0% of Americans claimed donations. For donors, the amount given relative to their income varies. Source: IRS 2011 Statistics of Income; graph prepared by National Center for Charitable Statistics. AGI stands for Aggregate Gross Income.

Comparing Giving in U.S. vs. Canada Comparing giving across countries is challenging for a number of reasons: The most robust data tends to come from deductions claimed tax returns by individuals but this is also the most narrow definition of charitable giving. Tax policies also differ by country in general, American tax policy is much more liberal than Canadian. Survey data is very helpful to fill in the gaps and compare countries, but prone to over-estimation

What the Taxman Sees: 26.0% of Americans claimed donations; they gave 1.33% of aggregate income 22.9% of Canadians claimed donations; and gave 0.64% of aggregate income Source: Fraser Institute 2013 Generosity Index Report

But Survey Says: According to the Charity Aid Foundation s 2013 World Giving Index, Canadians are among the most philanthropic in the world. The survey asked citizens if they had given money to charity in the past month 68% of Canadians responded positively, as opposed to 62% of Americans, not enough to make it to the Top 10 listing.

And Another Survey Says Statistics Canada s 2010 Canadian Survey of Giving, Volunteering & Participating also tells a more positive story. When asked about giving: 84.1% of Canadians reported donating money and/or goods to charity in the last year Monetary donations alone were estimated to total $10.6 billion

What about Generational Impact? Source: hjc & Blackbaud s 2013 report, The Next Generation of Canadian Giving

And Regional Differences? $600 Giving in Canada, by Province / Territory 30% $500 $400 $300 $200 22% 21% 24% 22% 20% 21% 24% 25% 24% 23% 21% 20% 15% 25% 20% 15% 10% $100 9% 5% $0 0% Median Donation % Taxfilers Claiming Donations Source: Statistics Canada

Comparison of Information Freely available US vs. Canada Canada NHS / Census data on household income at neighbourhood level Limited Income Information Private Company Ownership Private Foundation Assets Public Company/Insider Stockholdings Annual Giving & Published Philanthropy Limited Real Estate Valuation US Economic Census Data on Household Income Limited Income Information Private Company Ownership Private Foundation Assets Public Company/Insider Stockholdings Annual Giving & Published Philanthropy Real Estate Valuation Luxury Items Capacity estimation data

ESTIMATING CAPACITY FOR LARGE GROUPS WITH ANALYTICS

Estimating Capacity - Groups Bulk capacity estimation is usually done on an annual basis i.e. how much a donor could give in a 12-month period, because most donors make are solicited for annual gifts. Enables comparison of all donors against the same yardstick and sorting of higher vs. lower capacity donors. To determine major giving capacity you can do some math usually by multiplying by 5 or 10. But some prefer the 5-year capacity approach, so check the fine print.

Estimating Capacity - Groups There are two main approaches used by analysts and vendors: 1. A formula-based method that incorporates estimates of capacity from neighbourhood income levels, coupled with giving history. For U.S. donors and firms, other data may be included (gifts to other organizations, home value, etc.). 2. A predictive modeling approach, where the dependent variable modeled is single gift size or yearly contribution levels. This can include whatever data is available and significant, such as giving history, age, etc.

Estimating Capacity for Canadian Donor Groups KCI s Approach KCI s preferred approach is formula-based, estimates annual giving capacity, and recognizes that donors support multiple organizations. Primary factors we use are: Recent yearly contributions: Analysis of recent giving trajectory/velocity, usually over last 5 years. Largest contribution: The largest gift made to the organization by the constituent, and how recently. Gifts older than 5 years are eroded based on age. Income data based on home address: Neighbourhood income estimate based on StatsCan census data is added to each donor s record for their postal code / Dissemination Area. Potential giving capacity is estimated as a percentage of income. We use a sliding scale ranging from 0.15% at lower levels to 1% at higher. For example: Donor A $30,000 est. income $30,000 * 0.15% = $45 annual gift Donor B $500,000 est. income $500,000 * 1% = $5,000 annual gift

Estimating Capacity for Groups DIY You can create your own bulk capacity estimation formula, a straightforward DIY approach is: 1. Pull a report: Get a list of your donors, include ID, total giving per year for the last 5 years for each donor, largest gift and the date of the largest gift. 2. Recent yearly contributions: Determine the average, and most recent yearly giving totals. Calculate the giving trajectory an easy way is to use Excel s SLOPE function. If the slope is positive, multiply it by the most recent yearly giving and add the most recent yearly giving to predict the next year of giving. If it s negative, use the average yearly giving value. 3. Largest contribution: Decide how (or if) you want to erode older large gifts. A suggested approach is to subtract 10% for every year over 5 years old. For example, a gift of $10,000 made 8 years ago would become $10,000 (3 x 0.1 x $10,000) = $7,000 4. Income data based on home address: If you have access to neighbourhood income estimates for each donor based on their address, decide what multiplier you want to use (eg. 1%) and multiply that by the estimated income value. 5. Overall Estimate: Decide how conservative or aggressive you want to be: 1. More Aggressive: Calculate the maximum of the three values from Steps 2, 3 and 4. 2. Less Aggressive: Calculate the average of the values from Steps 2, 3 and 4.

ASSESSING CAPACITY ESTIMATION RESULTS OKAY, HOW S THAT WORKING OUT FOR YOU?

Testing Capacity Estimates - Individuals 12 Canadian philanthropists were selected for review, based on the following criteria: Individuals were prominent with at least some information available, ideally in the KCI database with giving histories Donated at least one major gift in 2013 Capacity estimates using most recent (2013 / 2014) data and existing formulas were done, and then compared against actual 2013 giving. We also tested an age modification factor used by KCI Sr. Consultant Tracey Church: Age Range Capacity % Age 21-39 1% Age 40-49 2% Age 50-59 3% Age 60-69 4% Age 70+ 5%

Capacity Test #1 Sample Individual 1, EVP and Group Head, Wealth Management at a Major Canadian Bank. Age not available. Available Data Value Estimated Net Worth Capacity Estimate - Range 2013 Income $750,000 $7,500,000 (10x Income) $250,000 to $500,000 Stock Holdings (as of June 2014) 16,181 units at $97.68 each, total value of $1,580,560 $4,516,000 to $5,269,000 (30% to 35% of net worth in Stocks) $100,000 $249,999 (low) $250,000 - $500,00 (high) Individual s 2013 Major Giving: $500,000 to University of Toronto

Capacity Test #2 Sample Individual 2, CEO of Canadian Manufacturing Company. Age = 57 Available Data Value Estimated Net Worth Capacity Estimate 2013 Income $334,903 base salary; $9,734,850 bonus Stock Holdings (as of December 2013) 768,599 units at $82.00 each, total value of $63,025,118 $100 Million (10x Income) $5,000,000 (at 5%) $3,000,000 (age-adjusted) $180M to $210M (30% to 35% of net worth in Stocks) $9M to $10.5M (at 5%) $5.4M to $6.3M (ageadjusted) Individual s 2013 Major Giving: $1,000,000 to the local community hospital

Capacity Test #3 Sample Individual 3, CEO of Major Canadian Financial Institution. Age = 66 Available Data Value Estimated Net Worth Capacity Estimate 2013 Income $1.5M base salary; $1.6M bonus Stock Holdings (as of June 2014) Total value of $139,660,000 Real Estate Estimated value of $4 Million $31 Million (10x Income) $1,5500,000 (at 5%) $1,240,000 (age-adjusted) $400M to $465M (30% to 35% of net worth in Stocks) $16M to $20M (20% to 25% of net worth in property) $20M to $23M (at 5%) $16M to $18.6M (ageadjusted) $800k to $1M (at 5%) $640k to $800k (ageadjusted) Individual s 2013 Major Giving: Joint $2,500,000 gift with his brother to their alma mater

Massey Hall & Roy Thomson Hall

Case Study Roy Thomson & Massey Hall As part of an overall campaign study, KCI conducted analytics to assess the giving likelihood and capacity of their donors, members, and ticket buyers Due to relatively low donor rates compared to the number of ticket buyers, the capacity analysis approach was modified: Membership payments included with donations for yearly contribution totals % Capacity calculation from estimated income given more weight in final calculation, since so many individuals were non-donors. Predictive models built to predict which individuals were most likely to Become members Make charitable donations (of any size)

Case Study Capacity Results

Capacity Level Case Study Segmentation Results (Donors) $10k+ $750+ Pipeline Building Prospects Build Strategy and Relationships 9,025 in Total Remainder Use Supporter score & Capacity Levels to segment and adjust ask levels Immediate Prospects Review and Qualify 2,598 in Total Good Supporters Work to Build Affinity & Loyalty 0 50 Donation Probability Score 8,773 in Total 10 0 Active Records only

Holiday Campaign 2012 -Grouped Solicitation

Results of Holiday Campaign by Group Number of Respondents by Group Group A Group B Group C Group D Group D2 15 (2%) 14 (0.2%) 4 (0.1%) 25 (0.3%) 8 (0.009%) Amount of Donations by Group Group A Group B Group C Group D Group D2 $5875 $2520 $600 $2086 $576

Updating the Capacity Rankings (minus KCI Proprietary Formula) Ranking Amount of Patrons Group A 850-2500 1823 Group B 500-849 40,610 Group C 0-499 170,977

Total and Average Donation-Just Capacity Rankings Total Contribution by Group Average Contribution by Group

What Worked, What Didn t The Good The neighborhoods may get wealthier but they stay the same Uncovered a lot of great pipeline prospects hiding in low membership levels Easy to create a profile of likely donors and members Drawbacks Independent Entertainment Professionals Changing programing John Smith vs. John Smith vs. John Smith Duplicate accounts Ever changing database Ticket data as an indication of wealth Helps to focus our fundraising efforts

CONCLUDING THOUGHTS AND RECOMMENDATIONS

Putting it all Together Overall, the standard rules of thumb presented earlier seem to work for Canadian donors (where information can be found!) However, we recommend modifying the 5% of Net Worth rule based on the prospect s age as presented earlier when doing individual estimations, and incorporating age adjustment for bulk capacity formulas. Age Range Capacity % Age 21-39 1% Age 40-49 2% Age 50-59 3% Age 60-69 4% Age 70+ 5%

Putting it all Together The bulk capacity estimation process for groups does a good job of sorting and prioritizing constituents based on capacity, but is best combined with likelihood scores or estimates Capacity does not necessarily equal philanthropy! Prospects with high capacity scores should be reviewed manually (as resources permit) A note of caution capacity estimates based on address seem to be more effective in urban than rural areas.

What If you Can t Find Anything? Try these suggestions: Salary estimates based on similar job titles Private company sales or worth Average income based on postal code Search U.S property listings for vacation homes Other wealth indicators: Personal stationery Check the cheque for where they bank Multiple addresses Think outside the box!

For More Information: Cecilia Hogan Prospect Research: A Primer for Growing Nonprofits (2 nd ed., 2008) Joshua Birkholz Fundraising Analytics: Using Data to Guide Strategy (2008) IRS 2011 Statistics of Income. Caring Canadians, Involved Canadians: Tables Report, 2010 Martin Turcotte Charitable Giving by Canadians Bank of America s 2013 U.S. Trust Insights On Wealth and Worth World Wealth Report. Mark Rovner, et al. The Next Generation of Canadian Giving: The Charitable Habits of Generations Y,X, Baby Boomers and Civics HJC. Statistics Canada, 2011 Census and National Household Survey Charities Aid Foundation. World Giving Index 2013

QUESTIONS & DISCUSSION