It is a great pleasure to welcome Melissa Bank Stepno as this week’s guest writer on The Intelligent Edge. I’ve long admired Melissa’s gift in seeing the big picture in prospect development and her ability to eloquently communicate and train on its finer details. So when she and I were chatting between sessions at the recent NEDRA conference, I grabbed the opportunity to ask her to share her thoughts here on capacity ratings, which has been a hot topic lately on the prospect research discussion forum, prspct-l.
How much can they give? What should we ask for? How rich is she? What’s his net worth?
Such short questions. Such common questions. Such important questions.
Here are some simple answers: it depends and it’s complicated.
So, what’s a researcher to do?
I’d like to propose that we ban the words “net worth” from any organization-driven conversation about fundraising. Net worth is an impossibility for any fundraiser (in which category, I include researchers) to determine, unless the prospect provides you with the answer herself.
As researchers, we have the ability to collect and analyze the data that we can find in the public domain. Evidence suggests that for some prospects publicly-identifiable wealth only comprises a tiny fraction of net worth since so much of their wealth is private. For others, identifiable wealth well over-inflates net worth since it ignores the liabilities on a household’s balance sheet.
Philanthropic capacity is just one part of the ‘net worth’ equation
Further, “net worth” does not equal philanthropic capacity. Philanthropic capacity is only one portion of net worth. Some billionaires are incredibly philanthropic with their fortune and others are not. And, for any given prospect, whether a billionaire or an average Joe, your organization likely only receives a portion of their philanthropic wallet share since most households support multiple non-profits.
It is common knowledge that most successful researchers employ some type of mathematical formula, or calculation, to initially determine a prospect’s capacity. To quote my colleague, David Lamb: “Hear me on this: every formula for estimating gift capacity yields a wrong answer.” He continues: “the point of rating is not to precisely pin down a prospect’s capacity, but to prioritize that person appropriately for personalized contact and relationship building. A formula can give you a starting point for that prioritization.”
Don’t get me wrong, I’m not anti-math. In fact formulas and calculations can be incredibly helpful in assessing large prospect pools very quickly. But, they can only derive from quantitative data. As such, they can only tell part of the story because numbers only tell part of the story. And, the numbers we have access to are only part of the partial story they can tell.
Real estate reality
One example is real estate. Real estate is the easiest asset for researchers to identify so it often plays a heavy role in capacity ratings. However, a $1 million home means very different things to the owner living in Manhattan, NYC vs. the owner living in Manhattan, KS, where the average house on the market is currently listed at approximately $4.6 million vs. $250,000, respectively. And, a $1 million home means very different things to the billionaire that paid cash for it yesterday vs. the owner who bought the home before the real estate bubble burst and is carrying a $1.5 million mortgage.
Tricky. So again, I ask, what’s a researcher to do?
Our goal, as researchers, is to focus on the quantitative and qualitative data we have access to, understand that it is just a small part of the entire picture, and analyze it to the point where we can make an educated and informed estimate of what a prospect’s capacity might be.
That’s right, I said might be, not exactly what it is. Our goal is not to provide a final determination of what our organization should ask for or what someone will give.
Think of what happens if you have ever taken a digital image, like a cell phone picture, and tried to blow it up, Up, UP to see one particular detail better. The closer you get (i.e.: the bigger you magnify), the fuzzier that detail becomes, and the harder it is for you to actually see the full picture. Funny how that works.The same is true of the masterpieces created by some of my favorite Pointillist artists, like Monet and Seurat. The closer you get, the fuzzier the details become, and the harder it is for you to actually see the image in their paintings. Move back, and the masterpiece comes into view. Funny how that works, again.
So, how can we take the fuzzy image of a blown up cell phone photo, or try to stand next to a Monet, or use just one formula, and know that what we are seeing is truly in focus?
As researchers, we need to empower ourselves to determine how near – or far – we think the formulas we are using may be from a prospect’s circumstances so that we can focus our capacity ratings accurately. We need to understand the strengths and limitations of our calculations and articulate them to our non-research colleagues. We need to be able to deviate from strict mathematics and consider the non-quantitative data we are analyzing. And, we should feel comfortable providing a capacity rating on a prospect and qualifying it with the disclaimer: “it depends” or “it’s complicated.”
For more information:
If you are attending, this year’s MARC Conference, Debra Darling from Washington and Lee University is presenting the “Art of Estimating Giving Capacity” on June 1st. (And while you’re there, don’t miss HBG’s Elizabeth Roma speaking about private equity, hedge funds and family offices!)
Read more from David Lamb’s article here: http://npengage.com/nonprofit-fundraising/quest-for-the-perfect-prospect-rating-formula/.
Helen Brown addressed this topic just about one year ago: https://www.helenbrowngroup.com/capacity-ratings-how-to-get-informed-for-better-results/
Elizabeth Crabtree and Joyce Newton’s insightful APRA presentation “Approaches for Evaluating Wealth and Rating for Gift Capacity” can be found here: http://www.aprahome.org/p/cm/ld/fid=78 (available for purchase).
Melissa Bank Stepno is the Consulting Manager for Target Analytics, a division of Blackbaud, Inc., where she is responsible for managing a team of consultants and consulting services related to implementation of data analytics projects. Working as a consultant since 2005, her areas of interest include the impact high net worth philanthropy on major giving programs and on helping organizations develop effective research and prospect management operations. Melissa has also served as an instructor for the Rice University Center for Philanthropy and Nonprofit Leadership and has worked for both Boston University and Boston Ballet. You can contact her at Melissa.Stepno@blackbaud.com.