Matching funds, as a form of incentive added on to great campaigns, works (almost) like magic. But there are some interesting quirks when it comes to matching funds and incentives you should know about.

1. Bigger Matches Don’t Lead To Bigger Results

Dean Karlan’s research on matching a few year’s back showed no significant difference when the matching offer was increased from 1 to 1 to 2 to 1 and 3 to 1. This was proven again in a more recent study by Gneezy et al in Science magazine. Why is this interesting? If donors are really rational, impact maximizing machines, then they should give more to a 2 to 1 match and even more to a 3 to 1 match… but they don’t. In my reading of these studies I haven’t seen an answer but my guess is that it’s similar to a diminishing returns concept (which has been studied and in the Science of Giving book).

This concept theorizes that the emotional reward from giving starts to flatten out as the donation amount goes up. Meaning happiness or value doesn’t continue increasing as donations increase, which is why giving more frequently in smaller amounts can actually lead to greater happiness). I think donors look at the 2 and 3 to 1 matches and while it’s great, it’s not twice or three times as great. I also believe it strikes some donors as a bit hokey as well as opposed to a 1 to 1 which is more concrete and familiar to us (buy one get one free kind of thing).

Key Takeaway: Don’t waste time and money on anything bigger than 1:1 matches.

2. Matching Funds Matter More In A Fight

In reading more on Karlan’s matching research, I found an interesting study involving political contributions to John Kerry’s campaign, with matching funds, in different states. Karlan ran matching appeals in both those that voted for him, Blue/democratic, and those that did not, Red/Republican and here’s what he found:

In blue states — defined as those that voted for John Kerry — even the existence of a matching gift had only a minor effect. It lifted the response rate by about 5 percent. In red states, though, a matching gift increased donations by about 60 percent.

Karlan goes on to say that giving is about calculating value but participating in a fight. Which makes sense. If you are beefing up the endowment of a financially stable organization, a match may help but doesn’t seem quite as necessary. But when the project means helping people now, holding off something entrenching on values or being in a fight against someone or something every dollar counts!

Key Takeaway: When the stakes are higher (case stronger, more urgent, in a fight) matching/incentives work better.

3. Extrinsic Rewards Depress Lifetime Value (And Crush Souls…)

Extrinsic rewards, or premiums, are those ‘perks’ like gift bags, coffee mugs, pens, stickers, etc. that are given in advance of a donation (typically those address labels) or in exchange for donations. A good post on DonorVoice titled Non Profit Premiums Are Literally Crack Cocaine – the Why and How of Stopping the “Drug Trade” summarizes it this way

There is reams and reams of evidence that giving people premiums (i.e. extrinsic stuff) not only fails to deliver the long term performance we require (i.e. positive lifetime values) but even more insidious, destroys the donors innate, natural motivation or incentive to donate.

Lifetime value should be a core metric, if not THE metric, your fundraising focuses on and offering these premiums aren’t helping. They work in crowdfunding campaigns on Kickstarter and Indiegogo (for-profit ones) because the consumer is buying something or investing in something. In that mindset, while they may be interested in the idea and have social reasons, they are fundamentally making a market or economic decision. In a giving mindset, good ones at least, they are making social or more emotional decisions and the introduction of market or economic rewards throws us off (this is covered in Science of Giving as well). We don’t know how to proceed and end don’t feel great about our decision making it less likely that we will give again. Not good.

Key Takeaway: Don’t mix intrinsic motivations and extrinsic rewards when trying to add incentives to your fundraising.

In Summary

Matching funds acting as incentive are great. Don’t waste funds on anything greater than a one to one match and they are best used in highly emotional and urgent campaigns. Finally, don’t confuse ‘premiums’ or extrinsic rewards with intrinsic motivations of donors as it can lower giving over time and create unhealthy donors. Nobody wins when that happens.