The Medium Sized Donor Conundruum: Democratization versus Cost
In yesterday’s blog post, I was musing about what the net fundraising revenue would be given the new above the line charitable deduction. Most believe that this new deduction will increase giving, especially among small and medium size donors. As Darryl Jones discussed previously and I linked yesterday, one benefit of this may be the democratization of philanthropy, which could start balancing the influence of Big Philanthropy. (See e.g., this advisory newsletter: the deduction “has the potential to democratize charitable giving by extending tax benefits to millions of Americans that do not itemize their deductions.”)
Medium size donors are defined in this article by Neon One as between $500-$5,000 per year. Others define mid-level donors as between $1,000 and $10,000 per year. In either event – many mid-level donors appear to land right in the range of those people taking the new above-the-line charitable deduction. Neon One notes that donors of this size, however, are notoriously difficult to reach:
Unlike small-dollar grassroots donors who might respond to a viral campaign or emotional social media post, mid-level supporters are going to need a stronger sense of connection and trust in your organization before they give that kind of gift. And this takes time! People will often make smaller gifts during the beginning of their relationship with a nonprofit—it’s only after extensive interactions over time that they increase how much they donate.
See The Generosity Report by Neon One, available here. I found one advisory firm that recommended that charities should “consider launching targeted campaigns that emphasize impact, transparency, and ease of giving. Donor education efforts and investment in digital engagement tools may also help convert new supports into recurring contributors.” I suspect that many nonprofits will re-focus (or maybe focus for the first time) on this donor segment, investing time and resources into chasing these newly tax-incentivized (theoretically…) donors
An increase in mid-level donor engagement appears to be facing some headwinds. The Fundraising Effectiveness Project (a collaborative project of The AFP Foundation for Philanthropy and Giving Tuesday) recently released its Q1 2025 fundraising report. The good news is that the Q1 2025 report shows an increase in total dollars raised as compared to Q1 2024; the bad news is that the number of donors and retention rates declined over that time. Further, “the smallest donor group ($1 -$100), who made up 57.05 of all donors in Q1 2025, experience an 11.1% year-over-year drop, continuing a trend of decreased engagement from small donors early in the year.” According to the report, there was a 3.2% decrease in midsize donors from 2024, defined as $501-$5,000 per year. You can download the FEP Q1 2025 report here.
I have always been skeptical that tax incentives are all that incentivizing, especially at lower giving levels. Will the new above-the-line deduction actually generate new giving, as opposed to reflecting old giving that just wasn’t captured by the itemized deduction? Or will this new deduction actually democratize giving by developing new mid level donors? I worry that charities may now start to re-tool their fundraising programs and re-allocate resources toward this class of new mid-range donors … who really aren’t new at all. Or maybe the predictions are right and the Q1 2025 report is evidence that the ABL deduction is exactly what we need to re-engage small and midsized donors that seem to be disengaging from philanthropy?
I would love to hear from anyone who works with nonprofit fundraising that is looking at this of changing focus on fundraising initiatives in response to OBBBA.
Skeptically, eww