What is the economic cycle?

According to Investopedia, “an economic cycle, also known as a business cycle, refers to economic fluctuations between periods of expansion and contraction. Factors such as gross domestic product (GDP), interest rates, total employment, and consumer spending can help determine the current economic cycle stage.”

Understanding economic cycles is important not only in the for-profit sector, but also for charities and nonprofits. By recognizing these cycles, organizations can navigate fundraising challenges more effectively. This knowledge helps them predict when donors are more likely to contribute and when they may not have the ability to support you financially, allowing the organization to plan for periods with reduced financial support. Being aware of economic fluctuations enables organizations to create strategies and adapt, ensuring sustainability and continued support for their mission during varying economic conditions.

There are four distinct economic cycles: recession, recovery, growth and contraction. Each of these cycles impacts the broader economy and consequently your organization. In this article, we will discuss each of these economic cycles, exploring how they affect your efforts, the specific challenges they present, and effective fundraising strategies to overcome these challenges. And by understanding these cycles, your organization can better navigate the complexities of fundraising, ensuring resilience and continued support for your mission during varying economic conditions.

Impact of Economic Cycles on Fundraising

Recession: Navigating Economic Downturns

A recession is a period of economic decline marked by reduced consumer spending and increased unemployment. During such times, individual donations often decrease, corporate donors and sponsors may tighten their budgets, and government funding might also be reduced. The general uncertainty that accompanies a recession leads people to cut back on discretionary spending, which frequently includes donations to charities and nonprofits.

This challenging environment requires strategic planning and adaptability to ensure continued support for your organization's mission, as there may be difficulty securing funding from larger funders and donations from the general public due to budgetary constraints. Furthermore, what makes this difficult is there may be an increase in the demand for services further putting a strain on the organization.

To navigate the challenges of a recession, consider the following strategies:

Diversify Funding Sources: Reducing reliance on any single type of donor is important. By creating a funding model that includes a mix of revenue sources, your organization can better withstand fluctuations in the economy. This way, if one revenue stream decreases, you have other sources to rely on.
Strengthen Donor Relationships: Enhance your communication and engagement with existing donors. Use data to personalize your messages and keep donors connected during difficult times. For those unable to give, inform them of other ways to support your organization, so when they are in a position to donate again, they feel valued and informed.
Highlight Critical Needs: Emphasize the urgency and importance of your services during tough times to appeal to donors' compassion. Not all donors may be equally affected by the recession, so clear communication can help maintain their support. Also, utilize language from your case for support to effectively convey how they can make a difference.
Leverage Community Resources and Partnerships: Consider collaborating with other organizations, local businesses, and community groups to share resources and support each other's fundraising efforts. You can also engage volunteers for fundraising and administrative tasks to enhance your team’s capacity. Additionally, you can consider encouraging in-kind donations of goods and services to help offset operational costs, enabling your organization to continue its essential work despite economic challenges.

These strategies will help your organization remain resilient and effective in fulfilling its mission, even during periods of economic uncertainty.

Recovery: Rebounding with Resilience

A recovery is a period of economic improvement following a recession, characterized by gradual increases in consumer confidence and spending. During this time, people may start to feel less anxious about their finances, leading to an increase in donations and funding opportunities. However, competition for funds may remain high as the economy recovers.

The challenges during a recovery include re-establishing donor communication, as you may not have had the capacity to keep donors informed during times of high demand. Additionally, managing the recovery of funding streams can be difficult if some fundraising activities slowed or stopped altogether. And finally, balancing immediate needs with long-term planning is essential to ensure sustainable growth during this time.

To navigate the challenges of a recovery, consider the following strategies:

Re-engage Lapsed Donors. Identify donors who were unable to give during the recession and have since lapsed. Communicate the positive impact of their previous support and inform them of your current initiatives. Also, highlight the importance of their continued support when they are able to give again.
Focus on Donor Stewardship. Donor stewardship is critical for maintaining strong relationships. Transparency, and frequent communication with donors help build long-term relationships and retain donors. Regularly update current donors on recovery progress and successes, expressing gratitude for their ongoing support. Develop a stewardship plan focusing on relationship-building, using techniques like donor segmentation to tailor communications effectively.
Utilize Technology. Leverage free or low-cost online tools and platforms to streamline fundraising activities and manage donor relationships efficiently. Tools like a donor database can help you create donor summaries, allowing you to track and manage all historical interactions with your supporters. This provides an overview of your donor engagement ensuring meaningful interactions with each supporter.

By implementing these strategies, your organization can help rebuild donor relationships, and can help your organization effectively navigate the recovery phase without requiring significant additional resources.

Growth: Thriving in Opportunity

The growth period is marked by significant economic expansion, characterized by increased consumer confidence and spending. During this time, people generally feel more secure about their finances, resulting in a higher potential for increased donations, sponsorships, and grants.

However, this phase also presents several challenges. One key challenge is managing rapid growth, which includes ensuring that you have the necessary tools to accurately track and manage donations. Additionally, it is important to maintain donor engagement by staying in touch with donors after they have made their contributions, keeping them informed about the impact of their gifts. Furthermore, balancing program expansion with organizational capacity. While the influx of support during the growth phase may allow you to expand your programs, it is essential to ensure that you have the appropriate staff and resources to sustain this growth effectively.

To effectively navigate the challenges of the growth cycle, consider the following strategies:

Launch a Small Fundraising Campaign. For smaller organizations, instead of large-scale initiatives, consider hosting community-focused fundraising events. Depending on your capacity, this could include local events that are easier to manage but still engage your supporters and raise funds. These smaller campaigns can capitalize on the positive economic climate without overextending your organization’s resources.
Focus on Donor Retention. Many organizations tend to prioritize acquiring new donors, but maintaining existing relationships is often easier and is more cost efficient. Increase donor retention by delivering impactful and transparent reports on how your donor’s gifts are used, and by keeping donors informed about recent initiatives and successes. This ongoing communication helps to strengthen trust and loyalty.
Leverage Consulting Services. If your organization has the resources, consider engaging with a fundraising consultant to strategically plan and manage growth. A consultant can help ensure sustainability and impact in the future, providing you with a custom fundraising strategy to better weather any challenges or crises that may arise.

Contraction: Adapting to Slowdowns

The contraction period is a time of economic slowdown following a growth phase, often signaling that a recession may be approaching. During this time, there is typically a reduction in donations and funding, accompanied by increased caution among donors and sponsors.

The challenges in this phase include anticipating and preparing for a potential decrease in donations and funding from major contributors. It is essential to maintain donor engagement during this uncertain period and to consider adjusting your organization’s budget to account for any anticipated financial challenges. By staying proactive and adaptable, your organization can better navigate the contraction phase and ensure continued support for your mission.

To effectively navigate the challenges of the contraction cycle, consider the following strategies:

Monitor economic indicators to anticipate and prepare for funding shifts. Keep an eye on economic indicators to help your organization anticipate changes in funding. These indicators can provide a helpful gauge of the economy’s health. Some examples of economic key indicators are:
- Gross Domestic Product (GDP): This measures the total value of everything produced in a country or region. A high GDP indicates that the economy is strong, while a low GDP indicates that the economy may be facing challenges.
- Unemployment Rate: This shows the number of people without jobs. A high unemployment rate means more people are out of work, which usually is not good for the economy.
- Inflation Rate: This measures how quickly prices for goods and services are rising. High inflation can lower purchasing power for consumers, and reduce the value of donations.

These indicators often move together and are more useful when observed over a long period rather than a short period of time. By keeping an eye on these indicators from time to time, as your capacity allows, you can better prepare for shifts in funding and economic conditions.

Optimize Operational Efficiency. During economic slowdowns, it's essential to maximize the efficiency of your operations. Rather than focusing solely on cost-cutting, it might be worthwhile to explore investing in personal development and training for your team. By enhancing the skills and capabilities of your staff, your organization can become more efficient and resilient, even during challenging economic times.
Highlight the Impact of Small Donations. Emphasize to your supporters that every contribution, no matter the size, makes a significant difference and highlight the vital role that small donors play in sustaining your mission. Sharing stories and examples of how small donations have collectively supported your programs and initiatives.

By focusing on operational enhancement and personal development, your organization can become more efficient and resilient, even during challenging economic times.

Understanding economic cycles is important for effective fundraising. Organizations can take proactive steps to navigate these cycles on their own by staying informed and adaptable. However, if additional support is needed, engaging consulting services can provide valuable insights and help develop resilient and adaptive fundraising strategies, ensuring your organization is well-prepared and stronger for the future.

Navigating Economic Cycles: How Organizations Can Adapt Their Fundraising Strategies