UK Charity Sector Review: Challenges and Opportunities in Fundraising and Digital Engagement

1. September 2017 THE UK CHARITY MARKET SECTOR REVIEW

2. CHARITY SECTOR REMAINS STRONG Small rise in charities’ incomes to £45.5 billion in 2016, with rising individual donations replacing declining public sector grants: • Slowdown from previous years in income growth to 1.2% • Drop in proportion of public sector grants to 33% (from £6.6 billion in 2003 to £2.2 billion) • Fears over future of £200 million annual EU structural grants Ongoing concentration in income among fewer, larger charities: • 0.4% charities with £10+ million annual revenue account for 48% total revenue raised • 90% charities have income under £500,000 High levels of public participation in charities: • 765,000 paid employees, more than in hospitality or auto industries • 2/3 employees are female • 21 million volunteers, of whom 14 million monthly • 44 million donate, with average monthly £14 donation • Young (16-24) and old (65+) most likely to give time/skill to charity, but young much less likely to donate Sources: Mintel Charitable Giving, Sept 2016; NCVO Almanac 2017

3. SECTOR REPUTATION SEEMS TO HAVE Latest survey data shows high levels of public trust in charity sector (% agreement to top 2 statements on 5 point scale): • 65% see charities as accurate source of information, ranked second after friends and family • 64% believe charities have a positive effect • 53% perceive charities as important and unbiased • 42% charity leaders seen as trustworthy (vs 21% business leaders, 19% MPs and 31% for charity leaders in 2016) But ongoing knowledge gaps indicate charities have yet to fully inform and engage with public: • Continuing high levels of ignorance on how charity income is spent, with public wish that 60%+ income goes to help beneficiaries • 56% would give more if there was more detail on how money was spent • 35% claim they will leave money to charity, only 7% do Examples of charity’s good work need to be publicised more widely egg: • 40% of costs of medical research, and 60% of costs of cancer research, are funded by charities SURVIVED RECENT SHOCKS Sources: nfpSynergy Charity Awareness Monitor 2017; NVCO Almanac

4. MOUNTING PRESSURE ON REVENUE MPs increasingly critical of charities: • 63% believe charities too political • Government review into all aspects of charity management coincides with calls for new, independent charity watchdog BREXIT and economic slowdown likely to put a brake on donations and funding: • Decline in donating to overseas charities as greater proportion goes to domestic causes • Ad hoc donations growing, but donations by direct debit static • Experts predict declining revenues as households face squeeze • Uncertainty about revenue streams as many UK Charities benefit from EU funding Charity shop profitability poor compared with US and UK retail sector: • UK charity shop profits average 17% vs 83% in US, 18% for Next Growing resistance to phone, door-to-door and street collections: • Public Fundraising Association levied £165K in fines from sector • 3300 on-street offences reported • Charity Commission issued a formal warning to 1700 charities to review fundraising methods CHANNELS Sources: nfpSynergy 2017 Charity Monitor; House of Commons ‘Charities & the voluntary sector, 2016’; Civil Society

5. ‘DIGITAL IMMATURITY’ A BARRIER TO MORE Digital know-how in charity sector improving but still poor compared with other industries: • Only 50% charities have basic digital skills • 43% do not have a website • 64% have no social media presence • 66% cannot accept online donations, 87% cannot accept mobile Most charities accept that upgrading digital skills is essential: • 72% accept need to develop digital skills • 60% use digital channels for advertising (vs 30% in 2015) • 74% use internet banking facilities (vs 49% in 2015) Added pressure on improving digital skills comes from future squeeze on donations. Experts believe future charity ‘winners’ will be those who can strengthen relationships with current donor base by engaging with their channels of choice EFFICIENT FUNDRAISING Sources: Lloyds/Accenture UK Business Digital Index 2016

6. RECENT SUCCESSFUL INITIATIVES SUGGEST FUTURE OPPORTUNITIES Rise in latest YouGov Charity Index suggests charities have turned a corner after recent scrutiny: • Brand health measure aggregating reputation, satisfaction, value, quality grew by 7% in last year • Memorable, high profile events may have caught public imagination Recent initiatives include: • Marie Curie ‘Great Daffodil Appeal’: 6% awareness rise in 2 weeks; for a small donation people wear a Daffodil pin to support Marie Curie providing care for people with terminal illness and their families • Cancer Research ‘World Cancer Day’ • NSPCC ‘Big Board Game’ • Red Cross ‘Open Gardens’ • Macmillan Coffee Mornings, with Marks & Spencer as partner Sources: YouGov 2017

7. FPS & GDPR WILL IMPACT SIGNIFICANTLY Fundraising Preference Service (FPS) launch in July 2017, combined with new General Data Protection Regulation (GDPR) laws in May 2018, will significantly effect fundraising strategies: • Both initiatives strongly supported by general public FPS allows public to ‘opt out’ of any/all comms from charities: • Puts pressure on charities to maintain accurate databases, & rules out inter charity data share • Suggests greater reliance on existing donor relationships General Data Protection Regulation (GDPR): • Wide-ranging security, protection and privacy laws aim to give consumers greater control of personal data • Puts onus on businesses to record exactly how data is collected and processed, what permissions or consents exist Rules around First vs Third Party data clarified: • First-party marketing to existing customers/warm leads requires opt out message • Third-party marketing to cold prospects requires them to have previously opted in, meaning data sourcing with correct proof of consent much harder SIX STEPS PREPARING FOR GDPR Map data flows Set up project team Check data consents Best Practice data capture & consent Test retention/acquisition with Mail and Door Drop Evaluate, iterate

8. OPPORTUNITIES FOR MARKETING Key challenge is to strengthen relationships with existing donor base, as economic climate worsens and tighter regulations take effect, and continue to address consumer scepticism: • Strong loyalty to ‘favourite’ charities shown by current donors, especially women and 55+ age group • Preference for communication that builds an emotional connection (52% support) rather than relying on shock value (37% support) • Demand for information and transparency: explain charity’s structure, role, cost base and achievements and “show me how my money is being used” Evidence of recent trends suggests immediate messaging opportunities: • ‘Big idea’ campaigns focused on specific day/week offer blueprint to build awareness • Social media and local print (DM, door-drops) drive engagement, often through undertaking a challenge using friends and family networks • Print is ideal medium to explain detail of big idea, with materials to share Sources: Mintel; TFF Lifting the Lid