It’s hard to read or watch the news these days without hearing about the challenges of income inequality. While the financial meltdown and the “Occupy Wall Street” movement have clearly shone a light on the issue of rising inequality, in the last few years it has also been readily apparent that this trend is significantly changing the donor landscape in Canada.

The last two decades have been a period where the average donation to charities has grown rapidly while the percentage of donors has continued to decrease year after year.

In fact, the donation rate has been declining steadily for more than 20 years even while the number of new charities continues to increase. In other words, more charities are competing for fewer donors.

In 1990, the percentage of donors claiming donations on their tax returns was 29.5% and by 2011 it dropped to 23%. While not everyone claims a tax-receipt for their donations, most large donations are claimed on tax returns, making this a worrying trend indeed.

Over half of donations come from donors with $80K+ income

The percentage of donations coming from those with more than $80,000 per year in personal income has risen from just over a quarter (28%) to more than half of the value of (55%) donations from 1997 to 2011 (See Figure 1).

In fact, this small group of donors with more than $80,000 in income comprises only 11% of tax-filers.

Implications for fundraisers

Clearly, the importance of the wealthy, and the ultra wealthy, is only growing.

But telling your team that your new strategy is to get more donations from really rich people is about as insightful as telling a hockey player that the key to scoring more goals is to shoot the puck better.

So what can a fundraiser do about it?

Fortunately, wealthy donors do differ from other donors in meaningful and actionable ways.

First, it’s important to note that it has become relatively easy to integrate external income predictions about donors based on their postal codes. This sort of process allows you to at least predict a donor’s income, as well as a number of other key demographic variables based on where they live. While there are a number of consulting companies that specialize in this sort of work, using free Statistics Canada data can give you lots of useful information to get started with your own high-income analytics and donor segmentation.   

This article is taken from the March, 2013 issue of Gift Planning in Canada.
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High-income donors give differently

Second, high-income donors do give differently than other donors, and this information can be used to design effective strategies for approaching and targeting this group. To look at some of the ways high-income donors differ from other donors, I conducted a variety of custom analyses using the 2010 Canada Survey of Giving, Volunteering and Participating, the largest survey of Canadian donation habits available.  The analysis focused on comparing those with household incomes of more than $100,000 per year (“high income donors”) to those with less.

High income donors were twice as likely to donate at work as other donors, were more likely to donate in memoriam, on their own, and through attending events. High income donors were in fact less likely to donate at church, and had no difference in their likelihood of donating in response to a request through the mail.

High-income donors tend to be volunteers

Further, despite being the most likely group to work more than 50 hours a week, those with $100,000 or more in household income were 14% more likely to volunteer than other income groups (57% vs. 43%). Those that did volunteer gave almost twice as much on average, donating an average of $807 compared to $436 for non-volunteers.

Any organization that does not have excellent volunteer opportunities for high-income donors is missing key opportunities, both to gain valuable skills as well as to increase the likelihood of connecting to networks of key donors and engaging these donors in your organization.

High-income, high giving capacity

Only 58% of the highest income donors said the reason they did not give more was that they could not afford it, compared to 80% of middle income donors. For the four in ten (42%) that said they could afford to give more, they already gave an average of 60% more than other wealthy donors. Clearly, there is a segment of donors that if engaged properly, fully have the capability to give more.

Conclusion

Make no mistake about it: income inequality has some severe repercussions for society.  But as fundraisers and marketers, we have to understand the implications of income inequality on how we do our work if we’re going to continue to fundraise effectively.

Steven Ayer is the Founder and President of Common Good Strategies, a market research and strategic consulting group that specializes in research for the non-profit sector. He has authored more than a dozen reports on individual, corporate, and foundation donors, the latest of which concern high-income donors and online giving. Contact him by email.