Pledge vs. Donation: Advantages and Disadvantages of Using Pledges and Donations to Raise Money at Your Next Fundraiser
Pledge vs. Donation: Advantages and Disadvantages of Using Pledges and Donations to Raise Money at Your Next Fundraiser
Every nonprofit wants to secure more gifts made by supporters for their organization. Effective nonprofits also know the importance of building loyalty within your community, so people don't stop with a single contribution but continue supporting your charity programs over the long haul. For this reason, it's important to understand the difference between securing a pledge or a donation from your supporters -- and when it makes sense to ask for which one.
Basically, while a donation offers an immediate payment from a supporter, a pledge is a promise to make the payment at a future date. This could even help you secure multiple payments -- especially if a supporter pledges to pay $100 a month to your nonprofit over the next year. That's a lot more giving than a small one-time payment!
Despite this difference, some charitable organizations still have difficulty understanding pledges and donations, and even use the two terms interchangeably. To help you understand the difference between a pledge and a donation, we at PayBee fundraising event solutions are offering this in-depth article that not only defines the two but also goes into the pros and cons of both.
As stated, a pledge is simply a promise made to pay at a later time. A person who makes a pledge often promises to pay money to a charity organization.
In fundraising, pledges can help raise money in multiple ways. Some pledges are conditional, meaning a supporter doesn't have to make good on their pledge amount unless certain conditions are met (i.e. your volunteers ran a certain number of miles in a charity marathon, collected a certain number of cans in a recycling drive etc.) Other pledges are unconditional, meaning payment can be made whether or not a goal was met.
Pledges can offer more flexibility to the way community members support your nonprofit. For instance, if someone offers to make a pledge payment of $1200 over the course of a year, they don't have to donate the full amount immediately but can split their pledge amount payments up into monthly $100 increments. This can be easier on their income streams.
Depending on the laws of the state you're living in, certain donation pledges are more legally enforceable than others. For instance, if you pledge money in exchange for a physical prize, you could be legally required to make good on your promise. Other pledge payment promises are more ambiguous, so it's a good idea to define and document what charitable pledges made to your nonprofit mean and share them with your guests so people who read them know what they're getting into.
What are Donations?
Unlike pledges which are paid for at a future date, donation payments are made immediately. Even in the case of a recurring donor who pays a nonprofit a certain amount every month, no pledge or promise is necessary -- they simply pay the amount to your organization.
The nice thing about donations is that they can have an immediate impact on your nonprofit's programs. No need to wait for several months or for a certain challenge to be met in order to collect your revenue -- with donations, you simply collect and record your money before distributing it into your projects.
Donations also carry tax implications for the donors. For instance, many donors claim tax-deductible donations on their income tax. Since the amount of charitable deductions a person (or business) can deduct from their adjusted gross income (AGI) can vary, this could affect the amount of money a person is willing to donate to your nonprofit.
Key Differences in a Donation and Pledge
While there is some overlap between a pledge and a donation, there are some key differences as well. These include:
This is the biggest difference between a pledge and a donation. While they are both fundraising commitments that require an entity—be it a single person or an entire company— a donation is paid to a nonprofit upfront. By contrast, a pledge is simply a promise to pay an amount sometime in the future.
Legal obligations and donor commitment
Since pledges are promises to give in the future, collecting revenue from pledges is dependent on the donor's commitment to honoring their pledge. Depending on the laws of the state you're in, there may be some legal obligations for the donor to make good on their pledge. For instance, if a donor accepts certain items in exchange for a pledge (such as tickets, gift baskets etc.), they could be obligated to fulfill their pledge. This extends to promises made by your group - like naming a building after a donor in exchange for their pledge.
Conditional vs. unconditional pledges
Conditional pledges are contingent on a future event or goals. For instance, a business might pledge to match each donation made by their employees to a nonprofit - but won't be obligated to pay any money until after their employees donated.
Unconditional pledges are just promises to contribute to a campaign within a given amount of time. There are no strings attached to unconditional pledges -- the supporter will just give the promised amount.
Pros and Cons of Pledges
While your campaigns can benefit from requesting pledges from your supporters, there are some challenges inherent in managing pledges too.
When you pledge donations to a nonprofit, you don't have to pay the money upfront. This can provide supporters with more flexibility since they can make their donating schedule more convenient for them. It can be easier to create a giving pledge of $100 a month rather than drain your bank account of $1200 after one fundraiser. For this reason, your guests may be more open to contributing to your nonprofit through donor pledges, which widens your support base.
Pledges also open the door to larger contributions. For instance, if a company pledges to match employee contributions, your fundraising campaign can raise a significant larger amount of capital (provided you encourage your initial donors to give generously). Collecting pledges can also let you gain predictable revenue which helps grant regular financial support for your programs.
All that being said, managing pledges can be difficult. Where donations are straightforward and relatively easy to collect, pledges are less reliable. You're basically taking your supporters' word that they'll make good on their promise in a given amount of time. For this reason, you'll often receive pledges from a smaller pool of contributors and may receive them less frequently.
Having the tools to keep track of all your pledges, remind donors of their promise, and collect pledges is important when requesting pledges from your support base. Because of this, you'll want to use a reliable fundraising platform like PayBee which has tools for organizing your finances.
Pros and Cons of Donations
Of course, donations come with their own advantages and disadvantages too. Keep the following in mind:
The greatest advantage of donations is their immediacy. These contributions usually comes in some form of cash, meaning you can immediately distribute it to your team and use it to fund your programs.
On the flip side, giving an immediate donation provides benefits for your supporters. Aside from the tax benefits of being able to write off their financial contributions, donors feel a sense of empowerment and happiness for making a worthwhile investment in their community. This can foster loyalty to your nonprofit and motivate donors to give regularly.
That said, one-time donations can only go so far in supporting your programs. Unless they're very wealthy and generous, most supporters won't be able to cut a large check for your fundraiser. Even if a single fundraising campaign is successful, you'll need to host multiple campaigns in order to sustain your financial base. For this reason, many fundraisers prefer to receive recurring contributions (that can provide larger financial support in the long run).
Strategies for Managing Pledges with Nonprofit CRM
Nonprofit constituent management (CRM) software helps nonprofits manage and streamline their fundraising efforts by tracking relationships with donors. Having a good system in place is particularly important when you want to ensure the fulfillment of the pledges you collect at your events. Be sure to have the following in place:
Effective donor management software features, like those offered by PayBee, lets your nonprofit organize and store all your donor data. This information can then be sorted and filtered to give you a better perspective on donor activity, including pledge activity.
In particular, you'll want to have a pledge tracking system in your donor management software. These tools will allow you to track any pledges made by guests at your events and alert you to any outstanding pledges you need to follow up on. This will help reduce the time it takes to manage all the pledges you receive and make it easier for you to collect all your revenue.
Once you know which of your supporters still needs to make good on their pledge promises, you'll need to have an effective communication strategy in place to get them to fulfill their pledges. Donor management software can also help with this.
Use the contact profiles created for each of your donors to learn how to best reach them -- phone calls, emails, texts etc. Review their communication histories to see how they've responded to past interactions and how to personalize your upcoming interaction with them. For instance, if their data reveals they've been supporting several of your key programs over the years, you might want to open your messaging with a thank you for their prior help before reminding them to fulfill their current pledge. Doing this ensures better fulfillment of current financial promises.
What is the difference between a pledge and a gift?
Some nonprofits request that their supporters offer "gifts" which are basically the same as donations. Gifts are given immediately to a nonprofit or charity to support their programs. A pledge is a promise to give at a later date (or several later dates if a person pledges to make recurring payments).
What is the difference between a pledge and a recurring gift?
Recurring gifts allow a supporter to offer cash gifts to a nonprofit or charity at recurring intervals (weekly, monthly etc.). Similarly, a pledge can be broken into multiple installments, allowing a constituent to offer a large donation in multiple payments.
However, where a person offering pledge payments is working toward paying off a specified promised amount (i.e. $100 a month for 12 months to pay a $1200 pledge), a person providing a recurring gift can simply keep paying their regular cash gift with no specified end date.
Can pledges be broken?
Since a pledge is simply a promise to pay in the future, it is possible that a supporter will break their pledge. For instance, if a supporter suddenly finds themselves in tough financial times that prevent them from sending $100 to a charity, they can back out of their obligation. Certain state laws do consider pledges enforceable as binding contracts, especially if something is given in return (prizes, special recognition etc.), but this varies from state to state.
Moving Forward: Including Pledge Cards in Your Donor's Options
Providing donors with pledge cards that allow them to offer pledge amounts to your nonprofit or charity is a good way to raise more revenue for your programs. Since pledges are promises to pay at a future date, they provide more flexibility in terms of payment, encouraging supporters to give larger cash gifts (which they can pay off in smaller installments), providing your nonprofit with additional, regular streams of income.
However, there are other things to consider when evaluating the pros and cons of a donation vs pledge. One-time donations may be smaller than most pledges, but they are an upfront payment that can immediately benefit your charity programs. By contrast, people who offer a pledge may need to be reminded to keep their promises, requiring you to contact them regularly so you can collect your payments.
Having a reliable and user-friendly fundraising platform like PayBee can help you expand your revenue opportunities. Our software makes it easy to offer links to donation and pledge opportunities on all of your fundraising pages. Plus, after each fundraising event, our system automatically generates reports that show where your contributions came from. This makes it easy to follow up with your guests and ensure they make good on any outstanding promises.
To see if our system is right for you, why not sign up for a free demo of the PayBee system? This will allow you to experience first-hand what it's like to use our software from both a staff and guest perspective. Participate in a mock auction that reveals how our platform encourages larger bids. Chat with our support team and get their perspective on how pledges can fit into your fundraising strategy. There's no better way to see how well we can help your nonprofit than trying our system yourself, so sign up for a free demo today!
META DESCRIPTION: Offering both pledge and donation opportunities to the guests at your fundraising events can secure more revenue for your nonprofit's programs. Here's the difference between the two and how you can enjoy the advantages of both.