The Annual Fund: Expert Guide to Inspiring More Support

Undoubtedly, your nonprofit’s major campaigns, such as its comprehensive and capital campaigns, contribute to its ability to reach its goals, support its community, and achieve its mission.

However, your organization could not accomplish these major undertakings without the crucial funds needed to pay for everyday expenses, like keeping the lights on in your facilities. Financing for these essential costs comes from your annual fund. 

This guide explores everything you need to know about building an annual fund strategy, including:

• Annual fund: FAQs
• Benefits of an annual fund strategy
• Steps to create an annual fund strategy
• How current giving trends impact annual funds
• Tips for hiring a consultant to help build your annual fund

Creating a standardized, repeatable process for growing your annual fund will help you scale up your fundraising efforts year after year and ultimately work more effectively toward your mission.

Annual fund: FAQs

What is the purpose of an annual fund?

An organization’s annual fund covers everyday, ongoing operational costs. These expenses include employee salaries, facility rentals and maintenance, utilities, office supplies, and other overhead costs. Many organizations also use their annual fund to support ongoing programs, such as community educational programs or research projects.

All types of charitable organizations benefit from having a robust annual fund, including:

• Educational institutions: Use their annual funds to pay for faculty and staff salaries, research supplies and equipment, scholarships, student services, and community outreach initiatives.
• Healthcare organizations: Leverage annual funds for patient care services, medical equipment needs, and free community healthcare programs, like vaccine clinics or cancer screenings.
• Arts and culture organizations, like museums: Pay for staff salaries, building maintenance feeds, educational programs, and exhibit upkeep.
• Public and human services organizations: Require annual funds to provide essential services and support to their communities, such as food pantries, community gardens, homeless shelters, and disaster relief essentials.
• Environmental organizations: Use annual funding to support conservation research and programs, necessary supplies for volunteers and staff, community awareness initiatives, and more.
• Faith-based organizations: Need annual funds to pay for staff salaries and facility upkeep, religious education classes, and community support programs like soup kitchens.

An annual fund provides the foundation for these organizations to mitigate external challenges or threats, build capacity, and continue delivering services to their communities. Think of it this way: an organization can’t reach its ultimate goal of ending childhood hunger, for example, if it can’t keep the electricity on in its community food pantry. Although utility payments are not the most glamorous aspect of the organization’s mission, they are absolutely essential to its overall success.

Annual fund vs. annual giving vs. endowment fund

Understanding the differences between these terms is essential for building a clear fundraising strategy that maximizes all three initiatives. Here’s what you need to know:

• Annual fund: Refers to the specific fund your organization pulls from to support ongoing operational expenses. Gifts to an organization’s annual fund are usually unrestricted, meaning they can be used for any purpose.
• Annual giving: A more general term that refers to all the campaigns your organization runs and donations it receives throughout the year. Our annual giving guide defines this term as “the campaigns, strategies, and initiatives nonprofits, universities, museums, healthcare organizations, and other organizations use to raise a steady, sustainable fundraising stream each year.” Annual giving donations may be restricted or unrestricted, depending on the campaign. For example, donations to a capital campaign can only support that campaign’s specific goals, whereas donations to your giving day initiative may fund any need.
• Endowment fund: A restricted fund that provides long-term, continued financial support. An endowment fund is money invested to support an organization in perpetuity. Funds are used for specific purposes, like supporting scholarships or research programs.

Annual funds and annual giving initiatives are typically considered yearly efforts, while endowment funds are meant to fund your organization over the long haul.

Where does annual funding come from?

It’s crucial to gather donations for your annual fund from various sources. Diversifying your funding helps keep your efforts stable. If one funding source decreases, you can balance it with support from other streams.

With that in mind, seek annual fund donations from sources like:

• Monthly giving and membership programs
• Grants and foundation giving
• Everyday donors
• Individual mid-level donors
• Individual major donors
• Corporate sponsors
• Fundraising events and campaigns
• Earned income (e.g., product or merchandise sales, payment for services, facility rentals, online courses, etc.)

You’ll need a dedicated strategy for building and maintaining giving pipelines to earn donations from these sources. That’s where an annual fund strategy comes into play.

Benefits of an annual fund strategy

An annual fund strategy is a blueprint for your nonprofit to increase its annual funding each year and build sustainable giving streams. With an annual fund plan, you can:

• Create stronger bonds with dedicated supporters. Long-time, passionate supporters want to know that their gifts significantly impact your mission. In fact, according to our donor experience whitepaper, one of the top reasons donors continue giving is to feel part of an important cause. With an annual fund outreach strategy, you can demonstrate to donors how essential their unrestricted gifts are to your ability to achieve your goals. Knowing their gifts are covering essential costs helps donors feel more fulfilled.
• Access unrestricted funds to cover essential costs. Unrestricted funds can be used for any purpose, making them incredibly beneficial for all types of charitable organizations. If any unexpected expenses pop up, you can rest assured that you’ll have the funds to cover them.
• Test donor solicitation and retention strategies. Developing an annual fund strategy provides a structured framework for experimenting with new donor outreach methods and strategic communications. Over the course of a year, you can strategically plan, implement, and assess the effectiveness of these approaches, such as messaging, brand strategy, and segmented communications. Measure success through key metrics such as total donations received and year-over-year donor retention rates.

Building up your annual fund can pay off for your organization in the long run, helping you develop a more sustainable, reliable annual fundraising approach.

Steps to create an annual fund strategy

1. Set goals.

Setting a specific, measurable annual fund goal gives your fundraising team and supporters a clear target to aim for. Your fundraising team can then focus on scaling up your organization year after year to help you reach your mission more efficiently.

Follow these steps to set reasonable annual fund goals:

• Assess past performance. How did your nonprofit perform in the past five years? Based on recent performance, your goal should be reasonable but ambitious enough to encourage growth. Compare year-over-year growth for key metrics such as donor retention, total gifts, and average gift size.
• Understand your greatest current needs. What are the highest priority programs, projects, and expenses that currently need funding directed toward them? What were your most common challenges in acquiring this funding in previous years?
• Align goals with your mission. Use your organization’s mission statement to refine and finalize your goals. Ensure all goals support your overarching objectives and keep your stakeholders’ needs at the forefront.

After answering these questions, set quantifiable goals for your organization with relevant metrics. For example, your goals may be boosting donor retention by 25% or increasing total donations by $2 million. Set up regular reports using your constituent relationship management system (CRM) and fundraising platform that allow you to track progress against these defined targets.

2. Develop a case for support.

A case for support is a compelling argument to donors about why your organization is worthy of financial backing.

Here are the key components of a case for support:

• Impact. This is the key driver of the effectiveness of your case for support. Reach donors on an emotional level to show them how they can make a positive impact as individuals. Ensure your case for support outlines the effect of giving at different levels, from one-time small, mid-level, or major gifts to recurring monthly donations.
• Vision. Supporters want to be assured that your organization is heading in the right direction with the support of unified leadership and strategic planning. Give donors something to root for by presenting a data-backed plan to achieve your goals and clearly defining what success looks like for your organization.
• Clarity. We recommend avoiding trying to “be all things to all people” and instead focusing on three to four clear goals for your annual fundraising approach. This specification makes it easier to discuss your goals with a wider audience and makes your aims feel achievable.
• Differentiating factors. What is your organization’s intrinsic value? Why are you uniquely positioned to address the problems identified in your mission and vision statements? Show donors ready to make a charitable contribution that your organization most deserves their support.
• Urgency. Tell donors why it’s important to give now rather than delaying their support. Provide a clear timeline for your annual fund campaign and outline consequences for not reaching your goal, such as not being able to support as many students or community members as the previous year.

Create a case for support document and share it with all fundraising team members so everyone is on the same page about your messaging. Team members can adapt the language as necessary to solicit donors in different contexts. For example, they can use this messaging in emails, letters, in-person meetings, and text messages. Including images, videos, and other multimedia content fundraisers can make their case more compelling.

3. Create an annual fund campaign timeline.

Annual fund campaign planning will happen on a rolling basis as you iterate upon previous strategies and respond to shifting priorities and external circumstances, like economic conditions.

Here’s generally what the process and timeline will look like for this type of strategic planning:

• Planning: Plan out next year’s annual fund strategy at least six months before your fiscal year begins. This process involves setting goals, revamping your case for support, and conducting other preparatory activities.
• Execution: Carry out your plan throughout the year, executing your various campaigns and events.
• Assessment: Start evaluating your annual fund strategy results immediately after the campaign concludes. Host an initial review meeting to get your fundraising team’s thoughts and ideas down on paper while they’re fresh in their minds. Continue to conduct deeper analysis over the next two to three months to determine why certain results occurred and how to improve outcomes next time.

Knowing what this timeline looks like before you dive into the rest of the planning process will help keep you on track throughout the year and ensure you leave enough time to give each stage of the process the attention it deserves.

4. Make strategic investments.

Building fundraising capacity is key to growing your annual fund each year. Prioritize making strategic investments that fit your budget while helping your organization expand its reach to new audiences and raise more annually.

Investing in the following areas can help you grow fundraising and reach larger goals each year:

• Technology: Tools such as CRM and fundraising software help organize constituent and fundraising data, making tracking and reporting on annual fund progress easier.
• Major gifts: According to research from Bloomerang, over half of nonprofits say that major gifts are vital to their operations, but 75% say they lack the investment to pursue major gift fundraising. Building up your major giving program should be a core priority for your organization because every major gift has a transformational impact on your efforts.
• AI fundraising: Predictive analytics are becoming increasingly helpful for nonprofits in increasing their fundraising return on investment (ROI). These tools help organizations anticipate donor behaviors and direct more of their stewardship and cultivation efforts toward supporters who are most likely to give to support your annual fund.
• Staffing: Due to the past year’s economic challenges, more than half of nonprofits polled said they’ve struggled with staffing and turnover. Building a streamlined hiring process that focuses on the applicant’s fitness for the role and level of experience will help bring on new hires that fill gaps in your team’s capabilities. In addition, employee engagement efforts, like gathering and acting on feedback and offering professional development opportunities, will help reduce turnover.

A consultant can support your efforts to identify strategically impactful investment opportunities. They can help you determine the right time for your organization to take on AI fundraising and develop a strategy to do so safely and ethically. They can even act as a temporary or long-term additional member of your fundraising team to support staffing needs.

5. Choose fundraising methods.

Leveraging various fundraising methods helps you appeal to different audiences in your quest to build up your annual fund. Here are a few ideas for lucrative fundraising campaigns and events to pursue:

• Digital fundraising campaigns. Digital campaign ideas include social media, crowdfunding, mobile giving, email marketing, and peer-to-peer fundraising.
• Events. Workshops, webinars, Q&As, concerts, speeches, networking opportunities, community festivals or fairs, fundraising 5Ks, galas, and auctions can all support your fundraising aims. Depending on your audience’s location and preferences, these experiences can be in-person, virtual, or hybrid.
• Direct mail. Research shows that every generation, from millennials to Baby Boomers, responds to direct mail. A USPS report found that every generation believes mail brings a sense of “daily discovery.” Direct mail messages such as brochures, postcards, and personalized letters provide a unique touchpoint for donors that is often a welcome break from the crowded digital landscape.

Use your CRM and fundraising software to assess which campaigns and events supporters respond best to. Track email open rates, social media engagement rates, event attendance, and direct mail responses. Assess overall funds raised through each channel to see which ones drive the highest ROI.

6. Conduct prospect research.

Prospect research is the process of identifying potential major donors to your annual fund by assessing wealth and philanthropic indicators.

Major donors are essential to the success of any fundraising campaign because they provide the significant support needed to take your efforts to the next level. According to Bloomerang, as much as 88% of total dollars raised comes from just 12% of donors, demonstrating the transformational impact of these gifts.

By working with an experienced prospect development consultant, you can identify hidden fundraising potential in your existing donor base and steward prospects more effectively. Search for a partner who offers a broad range of services tailored to every stage of the prospecting journey. For example, BWF offers the following prospect development services:

• Wealth and philanthropic screening to identify donors with the capacity and willingness to contribute major gifts
• Donor profiling to help understand the unique characteristics of a major donor
• Donor AI to identify top prospects with the help of industry-leading AI technology and cutting-edge statistical models
• Prospect pipeline development to help move prospects from initial awareness to donating
• Relationship-building to maintain positive, long-lasting relationships with major donors

These services help build a reliable pipeline of supporters who continue donating to your organization year after year.

7. Send compelling, personalized appeals.

According to a recent consumer experience survey, 81% of customers prefer companies that offer a personalized experience. Similarly, personalization helps donors feel appreciated as unique individuals with varying interests and needs.

Take these steps to create personalized appeals:

• Address appeals with each supporter’s name using your CRM data and your marketing software’s automation features.
• Reference supporters’ past involvement, whether as a donor, volunteer, beneficiary, corporate partner, or committee member. Thank them for their demonstrated commitment to your cause.
• Highlight the impact of giving at different levels. For example, let supporters know that $30 helps purchase school supplies for a student in your community, and $150 can buy a tablet for that student.
• Ask for a specific, personalized donation amount. Use donors’ past gifts to suggest an appropriate amount that encourages upgrades. For example, you may request a $40 donation from a donor who previously contributed $30 to a crowdfunding campaign.

Track donors’ responses in your CRM to better understand their preferences. For example, perhaps a donor ignored your email solicitation but responded to text outreach and made a mobile donation. Note an inclination for mobile communications in their profile to reach out on their preferred platform next time.

8. Develop a donor acknowledgment and stewardship strategy.

Engaging with donors after they give increases the chances they’ll make a repeat donation. If you can secure that critical second donation, the average retention rate for recurring donors jumps to 77%, compared to just 34% for non-recurring donors.

Ensure you acknowledge and steward your donors effectively by implementing these strategies into your annual fund plan:

• Thank supporters according to their preferences. Use your donor profiles in your CRM to understand each supporter’s communication preferences. Preferred gratitude avenues may include a phone call, email, text message, letter, or personalized video. Some donors may prefer to remain anonymous—note that in your CRM so you don’t accidentally include their names in any mass marketing materials.
• Segment donors to send more relevant communications. For example, major, monthly, new, and lapsed donors have different interests and motivations when engaging with your organization. By creating segments, you can send each group communications relevant to their engagement. For instance, new donors may receive a welcome packet, while lapsed donors receive a survey asking why they decided to stop giving.
• Invite donors to engage with your mission in multiple ways. Donors will feel a stronger connection to your organization when they’re involved in more than one initiative. Present opportunities for supporters to volunteer, participate in peer-to-peer fundraising, attend events, or become board or committee members.
• Ask for and implement supporters’ feedback. Send donors surveys to gather feedback about the giving process and how your organization can improve it. Follow up with donors after gathering responses to summarize the changes you’ll make in response to this input. Doing so shows donors that you respect their opinions and want to create a positive experience for them.

In all of your stewardship activities, prioritize showing donors the positive impact of their gifts. For example, you could share photos of children receiving new school supplies or community members cleaning up a local park after a natural disaster. Tell donors how these efforts wouldn’t be possible without their ongoing support.

9. Evaluate your results and adjust your strategy accordingly.

As mentioned above, you should start a formal review of your annual fund strategy immediately after the year wraps up. Combine real-time campaign monitoring with retrospective reviews for a complete picture of your results. For example, you may review progress metrics with your fundraising team once a month throughout the year and draw up a more comprehensive report at the year’s end with overarching data for the full campaign.

Identify positive and negative trends and determine the likeliest causes. For instance, you may have noted a significant uptick in donors signing up for your monthly giving program. What strategies fueled this increase, and how can you maintain them for better results in the future?

Assess these donor engagement metrics in particular to help understand your results:

• Number of donors at every giving level
• Number of first-time donors
• Donor retention rate
• Number of leads generated
• Number of referrals
• Number of leads resulting in closed gifts

Pinpointing exactly what went well and what needs improvement with your annual fund strategy helps you iterate on and improve your approach year after year.

How current giving trends impact annual fund strategies

The steps above will help you create a solid foundation for your annual fund strategy that you can build on each year as you figure out which fundraising approaches work best for your organization. However, it’s also important to understand recent sector-wide fundraising trends and how they may impact your organization this year. These trends may explain why certain initiatives are more effective than others.

Recent giving declines and what is fueling them

According to Giving USA 2024, overall charitable giving and individual giving dropped last year. Overall giving has yet to return to the record-setting high of 2021.

Our analysis of the Giving USA report and Fundraising Effectiveness Project (FEP) identified the following factors that are potential drivers of recent giving declines and shifts:

• Economic uncertainty: High inflation, low consumer confidence, and high housing costs are a few economic factors that may lead consumers to spend less of their funds on charitable gifts.
• Declining religiosity. According to a study conducted by researchers at Baylor University, “those expressing higher levels of religiosity were found to possess more favorable attitudes toward helping others and to charitable organizations.” However, a Gallup poll found that two decades ago, an average of 42% of U.S. adults attended religious services every week or nearly every week. Currently, that figure is at 30%.
• Decreasing trust in institutions. A 2022 Gallup survey found that trust in most institutions is “at or near rock bottom.” According to Independent Sector, trust in nonprofits rebounded in 2024, after four years of decline.
• Social disconnection. American adults are simply more lonely and disconnected from one another than they used to be, potentially leading to less interest in supporting community organizations. One study found that about one-quarter of community-dwelling Americans aged 65 and older are considered socially isolated, and a significant proportion of adults in the United States report feeling lonely.

These trends are real challenges for nonprofits but not insurmountable obstacles. Read on for data-backed recommendations for facing these obstacles.

Recommendations to offset giving declines

According to a report from the Generosity Commission (an independent project of The Giving Institute and Giving USA Foundation), nonprofits should take these steps to mitigate recent challenges and make the most of their annual fund strategies:

• Create a clear case for support using the tips outlined above.
• Actively engage with other institutions in your community, including religious ones. Plan events with other organizations, such as festivals or community workshops. Share fundraising tips and best practices to foster mutual success.
• Embrace the current multifaceted qualities of charitable giving. Although giving to charitable organizations has declined overall, instances of person-to-person giving and informal volunteering have remained relatively steady. Nonprofits can support the impulse to give to individuals by facilitating peer-to-peer fundraising campaigns or sharing crowdfunding campaigns focused on individuals.
• Build community trust through “embracing good governance, accountability mechanisms, staff and leadership diversity, and public communications on operation and impact.”
• Remind donors about workplace giving opportunities, including matching gifts, volunteer grants, and volunteer time off. These initiatives can help maximize the impact of individual giving and ensure that potential gifts are not left on the table.

Use these best practices to enhance your annual fund strategy with timely best practices that help you better meet current challenges.

Tips for hiring a consultant to help build your annual fund

A fundraising consultant can help you develop a tailored annual fund strategy and adapt to shifting external circumstances or opportunities. To find the right partner for your nonprofit, you should:

• Identify your needs. What type of support do you need from a consultant? These needs could include technology, donor engagement, campaign planning, or program assessment support.
• Send out requests for proposals (RFPs). An RFP is a detailed request outlining the forms of support your nonprofit is looking for from a consultant. Define your annual fund campaign’s goals, timeline, and primary challenges you’re facing.
• Learn about each consultant’s philosophy. Every consultant approaches annual fund campaign planning differently. For example, BWF takes a people-centric and data-driven approach. We prioritize collaboration to understand your needs and build a roadmap with the right solutions for your unique goals.
• Finalize your decision and sign the contract. Before choosing a consulting partner, discuss each option with your fundraising team to outline the pros and cons. After signing the contract, create open lines of communication to collaborate with your consultant and start working toward your annual fundraising goals.

BWF: A trusted partner in annual fundraising

For over 40 years, BWF has been a reliable partner for organizations looking to raise more to fund their worthy missions. We understand the complex and shifting needs of today’s nonprofits, and work to create an annual fund plan that helps you reach your fundraising goals on time and within budget.

Our annual giving and digital marketing services include:

• Annual giving assessments to identify gaps in your current strategy and opportunities for advancement
• Donor segmentation and persona development to better personalize your donor outreach and increase communication response rates
• Donor acquisition and retention strategies to help attract new donors and retain existing ones
• AI fundraising support to help your organization leverage predictive analytics safely and effectively
• Authentic video creation to support outreach campaigns with full-service video production

Watch this video to learn how BWF helped Coastal Carolina University move into a new era with a comprehensive campaign plan, steering committee, and robust annual giving process:

Wrapping up

With these strategies and tips, you can develop a reliable annual fund strategy that helps your organization grow year after year. Looking for more resources to help build your annual fund? Start here:

• AI for Nonprofits: How to Leverage Machine Learning for Good. AI solutions can support your annual fund strategy with data-driven insights that increase ROI. Learn how to use AI at your nonprofit in this guide.
• The Ultimate Guide to Driving Year-Round Donor Engagement. Donor engagement is critical to the success of your annual fundraising goals. Use the tips in this guide to keep donors engaged and informed.
• Digital Fundraising: 10+ Revolutionary Campaign Ideas. Want to launch a digital campaign to support your annual fund goals? Explore the most lucrative fundraising ideas in this guide.

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