Cancer Research UK and the British Red Cross have both predicted falls in fundraising income due to the new regulatory environment. David Ainsworth asks what the long-term cost of fundraising changes will be.

For a while now estimates have been flying around about much money the sector will lose as a result of various regulatory changes mooted for fundraising.

There are several main changes, including but not limited to:

• A tightening of the codes governing fundraising
• A new Fundraising Regulator with more budget to enforce these codes
• A new Fundraising Preference Service which will allow donors to opt out of all communications from charities
• A stricter interpretation of the Telephone Preference Service rules by the Information Commissioner’s Office
• EU rules expected to require “unambiguous consent” before you can contact donors – often interpreted as requiring donors to tick an opt-in box.

The most recent reminder of the cost of fundraising rules appeared this week when the British Red Cross said there would be “consequences” to a £10m cut in its fundraising spend, while last week Ed Aspel of CRUK claimed his charity’s move to opt-in would cost “tens of millions”.

But it’s far from the first such prediction. Last year fundraising think tank Rogare estimated the cost at £2bn a year – 20 per cent of all fundraising income – in five years’ time. Rogare also reported that fundraisers themselves had made estimates, and guessed the cost would be around £1.7bn a year.

My feeling is that the Rogare estimates are too high. The short-term impact of changes from CRUK and the Red Cross, among others, is difficult to guess, but I suspect the long-term effects could be lower than we suspect.

The argument so far

The Rogare estimates were originally presented as the predicted cost of just the FPS. But in fact it’s a whole package of measures. But the single largest factor in the predictions is arguably the need for fundraisers to obtain “unambiguous consent” before contacting donors. These rules are to be introduced by the EU, and are nothing to do with the proposed solutions to the current furore. Arguably the next largest impact will come from a stricter enforcement of the TPS, which is already in force.

Nonetheless, Sargeant was pretty stinging about the impact of the FPS, saying “One wonders if either NCVO or the minister have bothered to conduct any analysis of the impact of their proposals. One wonders too if the Institute of Fundraising, which has rushed to endorse these proposals, has any real sense of the likely impact on its members.”

There has been a fairly bitter debate over this between NCVO and Rogare. It’s fair to say there’s not much love lost on either side.

Which leads us on to the numbers. What, exactly, are the predictions?

How we arrive at £2bn

The Rogare assumptions, as I understand them, go like this:

• Total voluntary income is £10bn. Direct response channels are worth half of this.
• Of all new donors acquired via direct response, only those who can be contacted are likely to be retained as regular givers.
• Charities will be required to ask donors to opt in to communications, rather than the current position, in which donors themselves have responsibility to opt out.
• Opt-in rates are likely to be 50 per cent, so the number of donors who can be contacted will halve. This will cause donor attrition rates to rise from 50 per cent to 75 per cent.
• Stricter TPS rules, among other things, will lead to the death of telephone fundraising altogether within five years, reducing the fundraising market by 10 per cent.
• In five years’ time, 10 per cent of current donors will be subscribed to the FPS.
• All of these negative changes will lead to a mild increase in public trust, which will lead to a small increase in new donors. Say 10 per cent, of whom only half will be retained.

It’s not clear whether these effects are likely to be considered cumulative. But in any case, I’d like to look at some issues which could affect the validity of these assumptions.

'Unambiguous consent' is not opt-in

It seems that none of the new rules will require donors to opt in to communications. Daniel Fluskey of the Institute of Fundraising, recently addressed this issue in far more depth than I am able to, in an excellent blog.

Despite this, the Rogare point still has validity: when assessing whether a donor has given consent to be contacted, a much higher standard will apply than right now. But if Fluskey is correct, it seems likely that the new rules will not destroy charities’ ability to communicate with half their donors.

Will FPS be such a big deal?

I suspect FPS takeup may be a lot lower than many expect; even if it does receive widespread tabloid marketing, most people will remain unaware of its existence. It may loom large in the sector’s consciousness, but the millions of ordinary givers just aren’t paying attention. Charities probably get less than 20 minutes of their time each week, and the FPS only a few seconds.

Even among those who know about, most will not sign up. Even for those who do sign up, the proposed FPS structure is unlikely to lead to a blanket ban for all charities.

Furthermore the FPS, like the TPS and MPS, is not additive to unambiguous consent. If you’re confident you have consent, you can get in touch with an FPS-registered donor.

Donors who opt in may be better prospects

Let’s say Charity X ask one-time donors to fill out a form saying “Tick this box if you want to hear from X again”. Half do, half don’t.

That doesn’t seem likely to reduce potential long-term givers by 50 per cent. After all, surely the first group are by far the better fundraising prospects? Surely you wouldn’t have that much luck, asking for money from people who don’t want to talk to you?

What will your fundraisers do instead?

If fundraisers were only able to contact half as many people, that would leave them with quite a lot of free time. The estimate of a £2bn reduction assumes they spend that time sitting still, staring helplessly at the phone, cursing their inability to use it.

But this is a profession that prides itself on innovation, and its skill at fresh approaches. Surely they will find another way. Maybe social media? Maybe lotteries? Maybe more focus on events? Maybe empowering supporters to ask on your behalf?

And if none of that works, charities could at least save money by making all those unemployed phone-watchers redundant.

How will donor behaviour change?

The pessimistic scenario assumes no change in donor behaviour, following the new rules, apart from a mild uptick in trust.

But exposure, not trust, is the crucial factor here.

It seems inarguable that people only give if they’re asked. But is it true that people give twice as much if they’re asked twice as much?

I’m pretty sure the answer’s no. Standard economic theory suggests that each contact is less productive than the last. And it’s perfectly possible that after a certain point, contacts actually become counterproductive, causing donors to cancel existing regular gifts, or to warn their friends not to support a particular charity.

Human beings seem to have a charity budget – around £1 in every £200 they earn.  That doesn’t seem to change if charities ramp up the pressure. It just irritates and upsets donors.

I’m basing my thesis on research by Cass Business School, which showed virtually unchanged habits of total charitable giving for several decades, despite changing tactics when it comes to asking for money. (Although interestingly, it does show that giving is becoming more of a minority sport, and that more giving is coming from older people; they’re perhaps less optimistic than I am in their interpretation of their own results, and their assessment of human behaviour).

The problem is that if one charity increases its contacts, all others have to follow. While asking more doesn’t seem to increase the slice of the pie, it can certainly increase your share of it, so this creates an arms race – everyone is creating more sophisticated and effective asks, and running to stand still.

The problem is that because the public identify charities as a homogenous group, and struggle to remember whether they were asked to give by Oxfam or the Red Cross, for example, those who are annoyed at being pestered blame the sector as a whole, not the individual organisations.

Over the last decade – presumably driven by that fact, and the ubiquity of the necessary technology – charities have hugely increased the number of asks, and in exchange they’ve got a decrease in trust, questions in Parliament, and exactly the same amount of cash as always.

What about charities’ own behaviour?

The Rogare calculations assume the biggest changes following last year’s media criticism will be those of regulation. But I suspect that’s not the case. It looks as if culture and trust might be the really important issues.

Charities’ own response to the crisis has been to massively cut spending in the short term – to stop spending on some things altogether. As shown today, the British Red Cross cut its fundraising spending by 21 per cent last year. That’s nothing to do with regulation, per se, and everything to do with a culture of caution.

My guess is that this will cause fundraising income to fall for a while.

The Cass data suggests to me that if everyone together asked less, you should get little change, so reductions in fundraising spend shouldn’t feed through to reductions in giving, if, and it's a big if, everyone does it.

I don’t know whether that will prove true in the short term, though. People are used to being asked a certain amount. Even if this theory is right – and I can’t prove it, so it’s a hell of a gamble – it will take the public a while to adjust.

What about public trust?

Rogare assumes that if charities change their ways, there will be a small uptick in public trust. Their suggestion is that increasing public trust is not worth the price – at least that it’s not as important as applying pressure when it comes to obtaining money.

Most charities I’ve spoken to assume either that there has been no decline in trust, or that their actions will have the desired effect.

But public trust could also continue to decline, despite everyone’s actions. Trust is an oil tanker. You don’t notice it moving until a long time after it swings off course, and it doesn’t stop until long after you hit the brakes.

I tend to think this won’t happen, actually. But it’s certainly worth considering that it could.

Okay. So what?

So there are three factors which could affect giving – a loss of public trust, charities’ own reduced spending, and increased regulation. If giving drops, it will be very hard to know which of these has had the impact.

I have my own prediction as to where we’ll be in five years’ time. And it’s that the new rules will have had no significant effect on total fundraised income. So long as charities continue to deliver outcomes the public care about, in a trustworthy fashion, and find the right balance – asking for money firmly, but not in such a pushy way that it really annoys the public and government – then giving will remain constant as a percentage of household income.

I believe that culture will change, but fundraisers will continue to find ways to ask effectively, within the new constraints. And the British public, with its natural generosity, will continue to give.