How do we begin to set a goal?
You first set a “target” goal, based on what you must accept as very loose factors; those being the changing rates of interest (meaning changing amounts of future income), the sliding scale of actual endowment funds at work as the pledges are paid (often over several years), and the determination of the costs of the programs and services or operations (often undefined and undetermined) the funds will pay for or reduce their costs over how many years. Very indistinct and elusive factors indeed, as you can easily see—but worth the exercise to be as close as possible to an ultimate endowment campaign goal which is feasible, and which makes some sense.
When you set a goal for the campaign, do you later consider the goal achieved with pledges or promises of funds totaling the goal amount, or do you need actual cash in hand?
You work to the goal and cite the progress and the achievements to that goal by applying any money pledged or otherwise committed. Never declare ongoing progress or final results with cash payments only, because endowment campaigns are successful to the highest degree when you can offer multiyear payments of pledges to donors and prospects. And, some pledges could very well extend over many years. That is why there are pledge cards and letters of commitment used as staples of such campaigns; so donors can tell you as best they can of the schedule of the payments they can make on their pledges. This may be declared with an initial cash amount given, with the balance due to be paid at a given amount each year. For example, if the original pledge was $50,000 and you received $10,000 (or even nothing) initially, with the pledge designated to pay the balance over the next four years at $10,000 per year—you log into the campaign the achievement of a gift in the amount of $50,000.
What if people wish to pledge something in their wills to the endowment campaign?
Never record such pledges as actual endowment campaign achievements. For one thing, the money you believe to be willed, might not be there when the person dies. As well, though your organization may still be named as a beneficiary, it could turn out that the estate does not have the funds remaining to make payment. More important, a will is a changeable thing, and anyone can make adjustments to it in their lifetime and you would never know it. Wills are important, of course, and should be deeply appreciated and treasured, but the realities I cited above make them very poor and unreliable instruments for future assets upon which you can count—literally and figuratively to an endowment fund-raising campaign. When it comes to the claiming of Planned Gifts to an endowment campaign, you only claim such gifts when they are irrevocable, such as charitable trusts, paid insurance policies, and the like. In short, only those Planned Gifts which you own, even if the donor receives income for her or his life. You own the corpus, thus you can post it (the “market value”) to your endowment campaign achievement
How can we be reasonably certain that the goal we set will be met?
First and foremost, after you determine a preliminary “target” amount based on the variables cited above, you then get to work to review your viable and logical prospect base to rate and evaluate each and every one to determine if you have the potential to raise the money with the major gifts you must have for such campaigns. On that point, read my article Rating and Evaluating Prospects: Whom Do You Ask For How Much.
And remember, when you identify the sizes of gifts you need at the various levels, you always must figure that you need about four to five prospects rated at those amounts because some will not give and others will give less. So, if you want to raise, for example, one gift at $100,000—you will need about four such prospects you have identified and rated for giving potential at that $100,000 level if you are to campaign, solicit, and receive that amount. Use the chart Capital/Endowment Gift Table & Prospects Required as a guide.
I’m familiar with the rule of thumb for expenses with regard to capital campaigns. What percentage is industry best practice for endowment expenses, including a consultant?
I have seen guidelines of anywhere from 10% to 35% for fundraising campaigns. i think Charity Watch looks for 10% or less when it comes to giving a top ranking to a nonprofit. Charity Navigator, I believe, puts a limit of 35% for any campaign or organization. I have always tried to hold my expenses to 5% or less. It makes no difference what type of campaign, the process and therefore the expense guidelines would be the same. When figuring those costs make sure you include all expenses associated with employees working on the campaign.
Regarding the expenses related to run an endowment campaign, ie; printing materials, mailings, celebration event when completed etc. Is it reasonable for the donor to expect that these expenses will be taken out of the gross proceeds and then the net will be invested or should this be spelled out in some type of internal policy or should it be spelled out on the materials going to potential donors up front?
The campaign goal should include the estimated expenses. (Along with the items you cited, consider costs of any possible public display of donors’ names via wall plaques, the fee you might pay for an outside fund-raising consultant, etc.)
You know from my article, and from your own surmise, that the setting of an endowment goal is an exercise in subjectivity, due the many variables cited in my article. So, be as exacting as is practicable so you can defend the number.
But, you need to make sure the expense budget is clearly itemized, defensible and reasonable. Then, add that amount to the endowment goal you have determined, and work to that all-inclusive number.
I think it to be a good idea to publish the expense budget in your campaign material as a sign of good business sense and sensitivity to any possible questions from the donors.