Lead gifts and matching gifts

Nonprofits often use one big donation as a way to attract many small ones, either as a lead gift or a matching gift. Under the lead gift strategy, nonprofits announce that they have already raised some of the money they need to meet their goal, and then ask other donors to make up the rest. Under the matching gift strategy, nonprofits state that a wealthy donor will match, usually 1 for 1, any number of smaller donations, up to a certain amount.

Lead gifts should work because having already raised some money sends a signal to donors that other people consider the cause to be worthy and the organization to be reliable. Matching gifts serve the same purpose, and also give donors more bang for their buck – each dollar a donor contributes provides more than one dollar’s worth of benefits. On the other hand, these strategies may fail. A lead gift might lead donors to conclude that the organization has already raised enough and doesn’t need their money, while matching gifts might cause donors to reduce the amount they donate, knowing that the match will make up the rest.

While nonprofits have been using lead gift and matching gift strategies for years, it is only recently that economists have tested whether they actually work. Two studies have found that both the matching and the lead gift strategies can be effective, and a single study that compared both found that lead gifts worked better. Here are the details.

Do lead gifts work?  

Yes. A university in Florida sent out letters to people who had never donated before, asking them to contribute money so that the university’s Center for Environmental Policy Analysis could buy new computers. They needed to raise $3000 total. The letters all said that a certain amount had already been raised, but this amount varied: either 10% (300), 33% ($1000), or 67% ($2000). Each letter was sent to 500 households, and the list of 1500 households was split randomly into the three groups.

As you can see in the table, the higher the amount already raised, the more likely people were to donate money themselves, and they donated more money. In all, letters that said the organization had already raised 67% of the money raised 7 times as much as the letters that said the organization had already raised only 10%.

 Amount already raised:
10%33%67%
Reply rate3.4%6.6%8.4%
Average donation$11.88$24.39$35.36
Total donation$202$805$1,485
Source: List & Lucking-Riley, 2002.

 

Do matching gifts work?

Again, the answer seems to be yes. A study (Karlan & List 2007) used a mailing list of prior donors to an organization that advocates for civil liberties, and divided the list randomly into four groups. One group of donors got a letter that promised no matching funds; another got a letter that promised a 100% (1:1) match, and two other groups were promised a 2:1 and 3:1 match – in other words, that for every dollar they donated, the matching donor would give two or three dollars in addition.

The study found that letters that offered a matching gift were more likely to inspire a donation than letters that didn’t have one, although the amounts given were the same. Matching at 2:1 or 3:1 did not improve the results.

 No match1:1 match2:1 match3:1 match
Response rate1.8%2.1%2.3%2.3$
Dollars per gift$45.54$45.14$45.34$41.25
Donation per letter$0.81$0.94$1.03$0.94


Which is better, lead gift or matching gifts?

By this point, you are probably planning to use your organization’s next big gift either as lead gift or as a matching gift. But which one should you use? Evidence from one study suggests that lead gift works better, at least in some circumstances. This study used fundraising letters from a German charity that offered music programs to underprivileged children. The music program was affiliated with an opera company, and the letters went out to people who had bought a ticket to at least one opera performance in the last year. One group of letters did not mention lead gift or a matching gift; a second group stated that the organization had already received a “lead gift” of 60,000 Euros; a third group said a donor would match all donations by contributing ½ a Euro for every Euro donated, up to 60,000 Euros; and a fourth group offered a 100% match up to 60,000 Euros.

Both the lead gift and the matching letters did better than the letter with no lead gift or match. The lead gift letters had a slightly lower response rate, but a much higher average gift, resulting in a higher average gift per letter sent. The two matching letters had a higher response rate and higher average gift than the letter without lead gift or matching, but the average donations were lower than they were for the letter that mentioned the lead gift. Overall, announcing a leading gift worked better than announcing a matching gift. Interestingly, a 50% match worked even better than a 100% match, with the same response rate but a higher average donation (Rasul & Huck, 2010).

 No matchLead gift½:1 match1:1 match
Response rate3.7%3.5%4.2%4.2$
Average gift$73.20$132$101$92
Gift per letter$2.7491$4.62$4.242$3.864

A second study also found that lead gifts work better than matching gifts (Rondeau & List, 2008.) In this study, the British Columbia chapter of the Sierra Club of Canada asked donors to support an expansion of their environmental education programs for children. Letters went out to 3,000 prior donors in four groups of 750 each. Each letter explained that they were soliciting money from 749 other donors and seeking to reach a target needed to expand the program to new classrooms. If they did not reach that target, the program wouldn’t run and the donors’ money would be refunded to them. The four groups got these different treatments:

High goal: The letters asked the 750 donors to provide $5000.

Low goal: The letters asked the 750 donors to provide $2500.

Challenge: The letters stated an anonymous donor had provided a challenge gift of $2500 and asked the 750 donors to provide the other $2500.

Matching: The letters stated that an anonymous donor would match donations 1:1 up to $2500 ($5000 total).

Results: The challenge gift performed the best, as can be seen in this table:

ConditionResponse rateAverage giftTotal amount raised
Hight control4.0%$45.83$1375
Low control4.6%$27.70$945
Challenge4.9%$43.78$1620
Matching4.8%$34.41$1235

What if we make the match contingent on overall participation?

One field experiment (Anik, Norton, & Ariely, 2017) tested the effectiveness of an innovative type of matching grant called a contingent match, where the match occurs only if some percentage of donors participate. This study tested the effects of contingent matches on 12,769 visitors to GlobalGiving.org, a website that connects donors with grassroots organizations around the world. Donors made a single donation to a charity and had the option to upgrade their one-time donation to a monthly one.

There were seven different conditions:

1) A control in which the website just thanked the donor

2) Prompt: the website asked the donor to upgrade to a recurring donation

3) Standard match: If the donor upgraded to a recurring donation, an anonymous donor would match 100% of their new donation.

4) Contingent match: Same as the standard match, but the match would only be made if 25% of donors started a recurring donation.

5-7) Contingent match: Same as #4, but the match would only be made if 50%, 75%, or 100% of the donors started a recurring donation.

The results were that the first five conditions (control, prompt, standard match, 25% match, and 50% match) all did the least well: about 3% of donors upgraded. At 100% contingent match 3.8% of donors upgraded to a recurring donation, and 75% worked the best, as 4.7% of donors upgraded.

Conclusion:

Both leading gifts and matching gifts are good ways to motivate donors.

A low match, of only 50%, works better than a match of 100%, 200%, or 300%.

Contingent matches, where 75% of donors have to participate for the match to be made, worked better than conventional matches in one study.

Two studies showed that lead gifts work better than matching gifts.

Why not try an experiment yourself? For your next mailing, send half of your list a letter naming a lead gift, and the other half a letter offering a matching gift, and see which one works better.

References:

Anik, L., Norton, M. I., & Ariely, D. (2014). Contingent match incentives increase donations. Journal of Marketing Research, 51(6), 790-801.

Karlan, D. & List, J.A. (2007). Does price matter in charitable giving? Evidence from a large-scale natural field experiment. The American Economic Review, 97(5), 1774-1793.

List, J.A., & Lucking-Riley, D. (2002). The effects of seed money and refunds on charitable giving: Experimental evidence from a university capital campaign. The Journal of Political Economy, 110, 215-233.

List, J. A., & Rondeau, D. (2003). The impact of challenge gifts on charitable giving: An experimental investigation. Economics Letters, 79, 153-159. (I could not find this source used in the article.)

Rasul, I., & Huck, S. (2010). Transactions costs in charitable giving: Evidence from two field experiments. The B.E. Journal of Economic Analysis & Policy, 10(1), Article 31.

Rondeau, D., & List, J. A. (2008). Matching and challenge gifts to charity: evidence from laboratory and natural field experiments. Experimental economics, 11(3), 253-267.