Annual Fund vs. Annual Giving

Posted on 11/26/2017 - by Dan Allenby

Capitalize

Although the terms are often used interchangeably, annual giving is not necessarily the same as the annual fund. The latter is a financial term. It’s an account or a group of accounts where monetary gifts are held. There is no universal definition for an annual fund, and criteria vary from one institution to the next.

For some organizations, the annual fund may be comprised of purely unrestricted gifts. These are gifts contributed for general purposes; donors leave it up to the institution to decide how best to allocate the funds so that they will have the biggest impact. For others, the annual fund may represent spendable gifts, regardless of their purpose or designation. This would exclude gifts to the endowment or grants, or money tied up in certain capital projects. The definition doesn’t necessarily matter as long as it is in line with institutional needs and priorities, and it’s understood by staff, volunteers, and donors.

Annual giving, by contrast, is a much broader term, one that cannot always be measured with exactness. In many ways, it’s simply the hope and aspiration that alumni or any donor will support the institution each and every year regardless of where their gifts are designated.

Annual giving is also different from major giving. If the 80‑20 rule tells you that most of the money in a fundraising effort will come from a few major donors, then it stands to reason that annual giving makes up most of the rest. In other words, annual giving can be viewed as the way the majority of donors will contribute to an institution’s overall fundraising effort.

Several characteristics of annual gifts distinguish them from major gifts. The most obvious difference is their size—major gifts are usually larger. Of course, larger is a relative term. What’s a large gift for one institution may not seem that large to another. In any case, major gifts usually take longer to cultivate and—whereas annual gift payments are typically transacted within a single fiscal year—it’s not uncommon for major gifts to be made (and “booked”) in the form of pledges and paid out over multiple years.

Another difference is their purpose. While major gifts often go to support long-term needs, annual gifts typically support current operating needs. In this context, you could also say that there are two kinds of money: money to grow on and money to live on. Liken it to developing a household budget. On the one hand, you set aside money to grow on—for long-term needs like savings, education, and retirement. On the other hand, you expend money to live on—for rent, food, and utilities. For most schools, it’s the same. They need money to grow on, which often comes from endowment or capital support in the form of major gifts. They also have money to live on, which often comes from annual giving.

Annual giving is also distinct from membership—a model used by many alumni associations. Although the techniques used to acquire and renew alumni association members and annual donors are similar across both activities, membership implies quid pro quo (i.e., an exchange of benefits or services in return for paying dues), whereas annual giving is an act of philanthropy in which nothing is promised to the donor in return, other than the good feeling it gives the donor about the impact the gift will have on others.

To be able to distinguish an annual fund from annual giving, and also to distinguish annual giving from other aspects of advancement, is important for two reasons. First, it allows you to make a stronger and clearer case for annual support to your alumni and donors. Second, it allows others (e.g., major gift officers, alumni relations officers, volunteers) to make the case for annual giving alongside competing priorities. For example, it helps them explain why it’s important to have restricted and unrestricted support, why it’s important for major donors to continue their annual giving, and why it’s important for members of the alumni association to also support the annual fund. When the entire community embraces annual giving, it serves to strengthen the institution’s culture of philanthropy.

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