Forecasting Fundraising Income During Challenging Times: Techniques for Success

By Christina Köck
Data Scientist at joint systems

---

​In the ever-evolving landscape of fundraising, accurately forecasting income is crucial for effective planning and decision-making. However, the inherent uncertainties and fluctuations in economic conditions, donor behavior, and global events make this task challenging. In this blog post, we explore various forecasting methods and highlight how they can enhance your fundraising strategy, even in the most unpredictable times.

Zum Bearbeiten hier klicken.

---

Understanding Unpredictability

No two years are alike when it comes to fundraising. Economic shifts, social changes, and unforeseen events like natural disasters or global pandemics can significantly impact donor behavior. Unlike daily sales in retail, forecasting daily income for fundraising might be neither practical nor necessary. Instead, fundraisers should focus on broader trends and patterns to make informed decisions. Of course, the specific approach will also depend on the goal of the forecasting—whether you’re looking to understand long-term trends or planning for a single year.

The Importance of Preprocessing

Effective forecasting begins with robust preprocessing of historical data. Preprocessing involves cleaning the data, removing anomalies, and normalizing trends to reflect a more accurate picture of typical fundraising patterns. For instance, income spikes or drops due to catastrophic events should be flattened out, as they do not represent normal fundraising conditions and are not predictable anyways.

To handle such anomalies, it might be necessary to predict a baseline first, using data from previous “normal” years to estimate what a typical year would have looked like without the impact of catastrophic events. This approach helps account for shifted income distribution and provides a clearer picture of underlying trends. However, experience in fundraising is essential to ensure that data cleaning is done correctly. It's important to strike a balance; data cleaning should not eliminate all uncertainty, as this could create a misleading sense of certainty in the prediction.

Time Series Forecasting with ARIMA

One of the most powerful tools for forecasting income is the ARIMA (AutoRegressive Integrated Moving Average) model. ARIMA analyzes the time series data to identify patterns and project future income based on past trends. This method relies solely on the internal trend and seasonality present in your historical data, making it a straightforward choice for many fundraisers. However, it's important to acknowledge that ARIMA’s predictions might carry significant uncertainty due to external factors influencing donor behavior, which it does not account for.

Incorporating External Factors

Fundraising income is rarely independent of external influences. Economic conditions, donor sentiment, and the relevance of your cause can all impact the effectiveness of your campaigns. To enhance the accuracy of your forecasts, consider incorporating external data such as economic indicators or social media trends. While we cannot predict future developments of these variables precisely, scenario planning can help create a range of possible outcomes, offering a more comprehensive view of potential income trajectories.

Simple Linear Forecasting

In some cases, simplicity can be highly effective. A straightforward linear yearly forecast over a longer timeframe, such as several years, can capture the overall trend in fundraising income without delving into complex relationships. For fundraising, two crucial factors to consider are the donation amount per donation and the number of donations. Since these factors often follow different trends - such as a slight increase in donation amounts and a decrease in the number of donations - they can be forecasted separately and then multiplied to estimate the total donation amount. This approach can also be applied to different donor groups, such as various generations, to reveal shifts in age patterns. However, the ultimate goal here is to keep the forecasting process simple and straightforward, in order for this method to provide a clear, big-picture view of where your fundraising efforts are headed, making it easier to set realistic goals and allocate resources efficiently.

Bringing It All Together

To summarize, effective forecasting in fundraising involves a combination of methods tailored to your specific needs and data availability:

• Preprocess Your Data: Clean and normalize historical data to reflect typical fundraising conditions.
• Use ARIMA for Time Series Forecasting: Analyze past trends to project future income, understanding its limitations regarding external influences.
• Incorporate External Data: Enhance forecast accuracy by including relevant economic and social factors, creating scenarios to cover a range of possibilities.
• Apply Simple Linear Forecasting: Use straightforward methods to capture overall trends and inform long-term planning.

Conclusion
​
Forecasting fundraising income during challenging times is not an exact science, but with the right tools and techniques, you can significantly improve your planning and decision-making. By preprocessing your data and comparing and combining methods such as time series methods (ARIMA), simple linear forecasts and the incorporation of external factors you can create a more accurate and comprehensive view of your fundraising landscape. This approach not only helps you set realistic goals but also prepares you to navigate uncertainties with greater confidence.
Embrace these forecasting methods to enhance your fundraising strategy and ensure your organization’s continued success, even in the most unpredictable times.

Next Steps?

In case you are interested in learning more about these approaches, talking to an expert or even discussing whether and how forecasting could be conducted with your data, please do not hesitate to get in touch with us.