Are You Taking Advantage of Challenge Gifts in fundraising?

Are You Taking Advantage of Challenge Gifts in fundraising?

May 07, 2019 by Dan Schipp

Challenge gifts are a mainstay of most nonprofit fundraising programs for one very good reason . . . they are effective! For decades nonprofits in all sectors have utilized challenge gifts to incentivize giving to achieve a variety of goals.  Their effectiveness has not waned.  They work in any number of situations.  They work with all generations.  Leveraging giving has universal appeal!Challenge Gifts

Although fundraisers can provide numerous anecdotes of how challenge gifts have stimulated giving, formal research also has shown that challenge gifts attract donors and increase contributions.  One study conducted by Daniel Rondeau and John List in 2008, Matching and Challenge Gifts to Charity:  Evidence from Laboratory and Natural Field Experiments, revealed that challenge gifts attracted 23% more donors and increased total dollar contributions 18%. 

Another important fact we know from research is that the size of the match does not matter when it comes to challenge gifts. In 2006 Dean Karlan and John List published a study, Does Price Matter in Charitable Giving?  Evidence from a Large-Scale Natural Field Experiment,” that showed that larger match ratios (2:1 and 3:1) had no additional impact over a 1:1 challenge gift.

Is it time again for your organization to pursue a challenge gift strategy?  If so, the first step is to determine the purpose of the challenge.  For what end will you use the challenge gift?  The second step is to identify a potential challenge donor or donors. Who will you ask to consider offering the challenge?  Oftentimes, the best candidate is someone who is actively engaged with your organization and has a good understanding of development (board members, development committee chair, campaign chair, for example).  Corporations and foundations, at times, will also have an interest in making their gifts in the form of challenge grants.

The final step in putting together a challenge gift strategy is to work out the specific details of the challenge with the donor(s):  

  • match amount (keep it simple and don’t make it more generous than it needs to be (see previous paragraph about 1:1 being as effective as 2:1 and 3:1);
  • the “ceiling” amount of the total to be matched;
  • the timeframe for the match;
  • the constituencies that will be the focus of the challenge; and
  • expectations for recognizing the challenge donor(s) and promoting the challenge opportunity.

How might your organization use a challenge gift?  The following are some possibilities:

  • Are you within striking distance of your annual fund goal but fundraising seems to have stalled? Can you find a generous donor (or donors) who will match gifts 1:1 in the last stage of your annual fund drive to create new interest and momentum to carry the annual drive to goal?
  • Do you have a major donor who has shared with you her concern that your organization just isn’t attracting many donors under age fifty? Would she be willing to help you turn that concern into an opportunity by agreeing to match their gifts up to a set amount?
  • Is your capital campaign nearing its announced goal, but you see potential for raising another one or two million dollars beyond the goal? Is there an early campaign lead donor (or donors) who also sees the potential, wants to see you surpass the goal, understands the need to create some urgency, and is willing to offer a challenge gift?  (“If we get to the campaign goal of $20 million, I will match 1:1 any gifts over that amount up to $1 million.)
  • Is your organization having a tough time getting 100% board participation in giving because some board members believe their “small” gifts really won’t be missed? Would a board member be willing to make an extraordinarily generous gift to the organization when the board achieves 100% participation in giving?

These are just a few situations where challenge gifts can help advance fundraising goals.  What other examples can you offer?  How have you used challenge gifts?