Matching Funds vs Challenge Funds

Both “matching funds” and “challenge funds” multiply the power of a donor’s gift – but one works better than the other. 

Here’s a working definition of each, plus an example of how they work.   

• “Challenge funds” describe a situation where the nonprofit will receive the funds regardless of how the campaign performs.
  • If a nonprofit announces that an appeal has $50,000 in challenge funds, and the appeal raises $35,000, the nonprofit still receives (and often already has received) the $50,000 from the donors who gave/pledged the challenge funds. 

• “Matching funds” describe a situation where the matching funds are conditional, and are only released to the nonprofit in direct proportion to how much the campaign raises.
  • If a nonprofit announces that an appeal has $50,000 in matching funds, and the appeal only raises $35,000, then the nonprofit only receives $35,000 of the matching funds.

Both matching funds and challenge funds are excellent at increasing the amount of money an appeal or campaign raises.  And it’s also helpful to know that matching funds tend to work a little better than challenge funds.

The generally accepted reason matching funds are more effective is they they are conditional. This taps into what behavioral economists call “loss aversion” – your donors don’t want your nonprofit to miss out on this opportunity, which increases their likelihood to give a gift. 

It leads to copy like:

• “Please send in your gift today because I want to unlock every single dollar of the matching funds – plus, your gift will be doubled!”
• “We have until [deadline] to raise the [match amount] to take advantage of the matching funds.”
• “Every single one of these matching dollars can fund [your nonprofit’s mission], but only if we raise [match amount] by [deadline].”

That copy really drives home the conditional nature of the funds, and it works like crazy.  (As always, it helps your donors to know what’s at stake.)

The next time you have matching or challenge funds, be sure to describe them correctly.  And lean into them because both are great at increasing response rate and average gift!