2024 Guide to Maximizing Nonprofit Impact with Principal Gifts

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Published:

September 5, 2023

Last Updated:

January 15, 2024

Every nonprofit requires funding to stay afloat, and principal gifts are a great way to secure long-term financial sustainability.

In this article, we will provide a comprehensive guide to principal gifts and how to secure them for your organization. We will define what they are, explain their importance, and outline how they’re different from major gifts. We’ll also explore steps needed to develop and manage a principal gifts program at your own nonprofit.

Let’s get started!

Overview of Principal Gifts

Overview

Simply put, principal gifts are donations made to a nonprofit organization that amount to a large value.

Because of this, these donations are not always given out in cash. Instead, they can be provided to the nonprofit as assets such as stock shares, real estate, and more.

While many organizations consider $1 million to be the threshold for principal gifts, the truth is that line is a little more flexible and can depend a lot on the size of the nonprofit. Some might consider $500,000 to be a principal gift, while smaller nonprofits might categorize a principal gift as anything above $25,000.

As you can imagine, securing such a highly-priced donation requires a lot of work.

Not only are they sometimes a result of a decade-long effort in cultivating a relationship, they require a lot of expertise in order to be properly processed. If no one in your nonprofit has such expertise, hiring a consultant is recommended.

To learn more about nonprofit consultant firms, check out this post on nonprofit consulting firms.

Principal Gifts vs. Major Gifts: Understanding the Difference

Versus

Even if you’ve never heard of principal gifts, you’ve probably come across the term major gifts.

Given how both major gifts and principal gifts are donations totalling large sums of money, it can be easy to confuse them. However, understanding their differences is crucial when creating the best strategies for each of these methods of fundraising.

So what is the difference between principal gifts and major gifts?

The simplest explanation is that principal gifts can be considered high-value major gifts. In other words, major gifts are big contributions and donations made to a nonprofit up to about $1 million, while principal gifts cover everything above that.

Another key difference between principal and major gifts is the amount of time required to receive them. Because they are smaller, major gifts often take a lot less time to secure than principal gifts. On the other hand, it’s not uncommon for principal gifts to take years or even decades to receive.

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The Importance of Principal Gifts

Donation

As you can imagine, such large donations can make a big difference in a nonprofit’s operations. We’ll discuss the importance of principal gifts and their impact on nonprofits below.

Role in Nonprofit Organizations

Soliciting principal gifts is considered part of a nonprofit's fundraising strategy. As such, while securing them is more complicated and requires more effort than other fundraising methods, the broad strokes are still very similar.

For example, like many other fundraising methods, principal gifts require acquiring the donor, cultivating a relationship with them, and stewarding their gift well. 

One of the main ways in which principal gifts can help nonprofit organizations is by providing them with funds to build capacity. By giving nonprofits a huge boost in extra revenue, principal gifts allow nonprofits to keep themselves afloat while also investing in opportunities to grow and transform their organization for the better.

As you probably know, efficiently allocating funds raised is one of the largest challenges for any nonprofit. It can be hard to balance how much of your budget should be spent on your projects and initiatives and how much of it should be spent on enhancing your capacity so that your organization can grow and take on new and larger challenges.

Furthermore, principal gifts are incredibly desirable because they can provide long-term financial sustainability. When budgeted correctly, they help can sustain a nonprofit for multiple years.

Examples of Impactful Principal Gifts

Let’s take a look at some examples of an impactful principal gifts.

Feeding America is a nonprofit focused on hunger relief in the United States. During the COVID-19 pandemic, Ryan Reynolds and his wife Blake Lively generously donated $500,000 to the organization.

Another example of a principal gift comes from the the World Wildlife Fund. This nonprofit dedicated to conservation efforts received a whopping $100 million donation from the Bezos Earth Fund to help them in the battle against climate change.

Finally, philanthropist Mackenzie Scott donated $436 million in 2022 to the Habitat for Humanity, an international nonprofit that seeks to improve living conditions all across the globe.

Even though landing such large donations may seem out of reach for your organization, we are here to show you that it’s not! In the next section, we are going to share how you can develop a successful principal gifts program at your own nonprofit.

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Key Steps to Developing a Successful Principal Gifts Program

Process

Below are the key steps involved in creating and managing an effective principal gifts program.

Initial Planning and Structuring of the Program

The first step in developing a successful principal gifts program is to establish what counts as a principal gift for your nonprofit.

Remember to discuss this matter with your fundraising staff and your Board of Directors.

During this process, consider consulting with lawyers or accountants in order to create a guideline that all potential donors would be able to follow in order to donate a principal gift to your nonprofit. Also make sure to ask them what types of gifts your nonprofit would be allowed to receive and which ones are off-limits. This is important information you’ll want to discuss with your donors when making your request.

Identification of Potential Donors

Now that you know what constitutes a principal gift for your nonprofit, it is time to identify potential donors.

Naturally, you should start off by looking at your most loyal supporters who have donated high amounts consistently and frequently.

It’s also important to research their reputation to ensure that your nonprofit won’t be attaching its name to someone who doesn’t align with its values.

Make a list of your top ten or twenty prospects that fit such requirements and spend some time assessing their ability to eventually donate a principal gift to your cause. This step, often referred to as wealth screening, should give you an idea of their capacity to give.

Relationship Building with Donors

After identifying potential donors, it is your job to build and cultivate relationships with them.

To do this, make sure to get to know your donors on a personal level. There are many details about your prospects that can help you build that relationship with them, including their:

  • Education
  • Religious Affiliation
  • Family or Family History
  • Passions
  • Profession

This step is all about learning why the donor cares about your cause and trying to get them more emotionally invested in your nonprofit.

While you should have an individualized strategy for every donor, some examples of ways to get them more invested in your nonprofit through engagement include:

  • Inviting them to events
  • Inviting them to volunteer
  • Asking them for feedback
  • Providing them with regular updates on campaigns

Take this time to also educate your prospects on what counts as a principal gift and how one could go about donating one. This could look like anything from providing information in your newsletters to creating a dedicated page on principal giving on your website.

Another great way to build relationships with your donors is to discuss with them your vision for your organization’s future.

Acknowledge whatever donations they have given to you so far and explain how their contribution has helped advance your nonprofit’s mission. Ask them for their opinion on ways to keep that mission moving forward.

Requesting and Receiving Gifts

While building and developing relationships with your donors will definitely be the longest part of this process, many would consider this next step to be the hardest: the solicitation.

There are many ways to go about requesting principal gifts, but there are also some general best practices you can follow.

First, try to schedule a meeting. If asked what it is about, be upfront and honest about the fact you’ll be soliciting a donation.

Start your solicitation by acknowledging all of the contributions this donor has made in the past and thanking them for their continuous support.

From there, you can specify how the gift would be used to contribute to your nonprofit and your cause by presenting them with a detailed plan. It is also recommended for you to give a specific value amount while also reminding the donor of what—besides cash—could count as a principal gift.

Be ready to answer any questions they might have. Be sure to also explain any sort of recognition they might receive should they decide to provide your nonprofit with the gift. If they want to remain anonymous, explain how that’s also an option available to them.

Finally, be ready to react graciously if you do not receive a positive response right away. Just because the donor is not ready (yet!) to give a principal gift, it does not mean that your relationship should end at this point.

Stewardship and Maintaining Donor Relationships

The final step in soliciting principal gifts involves acknowledging and showing your gratitude through stewardship.

When thanking your donors for their support, make sure to do so both through a letter and in person. Be sure to know ahead of time who will be thanking the donor directly and how soon after the gift has been received.

You’ll want to keep the donor in the know about your efforts and how their donation is contributing to your initiatives through emails and letters. Many nonprofits also send appreciation gifts or create giving societies to acknowledge these donors.

For ideas for appreciation gifts you can send out as part of your stewardship program, check out this post on our blog.

Best Practices for Managing a Principal Gifts Program

Excellence

Finally, it is time to discuss best practices for maintaining and growing a successful principal gifts program.

Effective Communication Strategies

One of the most important things to remember when maintaining and growing your principal gifts program is to spend a lot of time and effort developing your communication strategies.

You’ll be communicating with your donors over a long period of time while you cultivate your relationship with them both before and after the gift is given.

When engaging with your donors, it is important to be persuasive without sacrificing honesty. You want your donors to be able to trust your word and trust your nonprofit to be responsible with their donations. That cannot happen if you are lying in hopes of making a more convincing argument for donating to your cause.

You can learn some effective communication tips by checking out this post on storytelling on our blog.

Donor Stewardship Techniques

Just as important as communication are stewardship techniques.

The last thing you want to do is make your donors think that you are only interested in them for their money.

As such, it is essential to create a stewardship program that always acknowledges and thanks donors for their generosity. Keeping them informed of the real-world difference their gifts are making is a great way to demonstrate that you do not take their contributions lightly, and that you understand that your success is only possible thanks to their generosity.

For supporters who are frequent donors, who donate in large amounts, and who you can rely on to volunteer or help with other fundraisers, be sure to make personalized messages acknowledging all of their hard work and contributions.

Ongoing Relationship Management Strategies

Never cut off communication with your donor after receiving a principal gift.

When managing your relationship after receiving your principal gift, you should strive to maintain the same level of communication as you had prior. After all, just because the donation has been made and received, it does not mean that your relationship has come to an end.

The supporter gave you such a large gift because they are emotionally invested in your nonprofit and believe in your cause. As such, it is only fair that they remain an active member of your community, participating in events and campaigns.

While it is good to keep your ultimate goal in mind, remember that principal gifts are not only about that final big donation. When done right, your strategies for this fundraising method should help secure everlasting relationships that will aid your nonprofit for years to come.

Wrapping Up: The Next Steps

Giftbox

Principal gifts are difficult to get ahold of. They require a lot of years-long efforts and relationship cultivation.

However, they can also be great ways to build capacity and strengthen your nonprofit’s mission. We hope this article provided you with the guidance needed to begin planning your own principal gift strategies at your nonprofit.

Happy fundraising!

Instrumentl team

Instrumentl team

Instrumentl is the all-in-one grant management tool for nonprofits and consultants who want to find and win more grants without the stress of juggling grant work through disparate tools and sticky notes.

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