Shrinkage:
What You Should Know About It…
And, More Importantly, How to Prevent It

Seinfeld fans will immediately think of George Costanza and his swim in the Atlantic, but agreement on “campaign” shrinkage is an important part of setting a goal with the campaign team. Shrinkage is the fundraising term for “uncollectible debts” from those who have made pledges to your campaign effort. The combination of rapidly changing economic conditions, pledges stretching over five years, the natural unpredictability of mortality, and reluctance of charities to enforce pledges as legal commitments, make shrinkage difficult to predict and sometimes controversial.

How does shrinkage occur? A donor becomes disgruntled with building design or a policy decision. The donor dies, declares bankruptcy, or the pledging corporation simply becomes insolvent. How many of you reading this had pledges on the books from Enron, HealthSouth, or other behemoths – or from their officers – when the walls came tumbling down?

What are your options? You may wish to consider budgeting for shrinkage. In essence, in doing this you will be what predicting percentage of your pledging donors will not honor their pledge commitments to the campaign. This should be addressed with great care, with a preference placed in proper stewardship over the pledge period to help avoid shrinkage.

Besides budgeting for shrinkage, always have discussions with the families of deceased donors. Obvious sensitivities are required, but in most cases and barring extenuating circumstances, pledges will be honored. Don’t hesitate to speak with attorneys handling liquidations or bankruptcies. Their responses and occasional redirection can be surprising. If you suffer significant losses, be prepared to ask your largest donors for help. They can be quite responsive to circumstances beyond your control.

Focus on stewardship.
In most cases shrinkage, especially with larger gifts, can occur because of a donor’s feeling of detachment from your project or your organization. Shrinkage in this case will likely be felt in latter pledge years when the only thing donors have seen or heard from the institution are “collection” notices on pledges and additional solicitations for, often less personal, annual appeals.

How do you avoid this?
Until a capital project is completed regular updates should be shared with all donors, including circumstances creating any major delays or challenges along the way.
Rather than “billing” or “invoicing,” send “Reminder Notices” for pledge payments so that donors don’t feel they are being billed or dunned. Use these opportunities to make the donors feel involved with inside information and to provide additional project updates.

Bring in campaign donors as part of your larger family. Include them on all your mailing and PR lists. Host “hard hat” tours periodically so that donors can see the progress of the project. Include them in other organizational events like annual meetings, celebrations, ribbon cuttings, open houses, appreciation events and other special events.

Continue stewardship after a capital project is completed. Provide at least an annual update on the impact the completed project has had and continue to include the donor as part of your larger family. With a good stewardship plan, these individuals will become lifetime major gift donors. The more personal this process, the stronger the affiliation will grow. Consider individual or small group luncheons or coffees to present human interest stories or behind-the-scenes tours and activities. Be creative and inventive. Any communication or personal involvement that makes the donor feel special will increase their affinity for your organization.

So how do I budget? Start by speaking with other organizations in your community or institutions of similar type to see what their experience has been. Fundraising consultants will suggest that shrinkage runs 1.5% to 3%, depending on your goal. The size of your goal will play a factor, as will your approach to overall project budgeting. If the budget is very tight, then be conservative and budget on the high side. If the budget is conservative and reflects more than ample contingency, transition subsidy, etc., then budget on the low side. Whatever your approach, careful stewardship will go a long way toward preventing unhappy surprises as you move through the campaign pledge period.

To learn about building capacity in your development operation and in preparing for a campaign, plan to attend one of our Spring 2004 capital campaign seminars, with upcoming dates in Syracuse, NY; Providence, RI; Minneapolis and San Diego. More information is available on the web at www.jeffreybyrneandassociates.com.