Having already covered the ground that since actual Net Worth involves an individual’s total assets - their total liabilities, we cannot accurately calculate that figure for someone on whom we have an incomplete picture of both sides of the equation, it is still likely that we are going to increasingly be asked to make estimates of net worth & giving capacity.  For a good point of reference on the many pitfalls inherent in this process, take a look at Jon Thorsen’s 1998 article “Working Without a Net...”at:

http://www.prospectinfo.com/site/apps/nl/content2.asp?c=ikJYJgO5F&b=84873&content_id=%7B29E36D1A-2009-459B-84B5-80CAAA9B6C92%7D

I agree completely with his suggested alternatives of “Indicators of Wealth” and “Known Assets”.   However, for times when leaving it at that won’t do, I have compiled below a bunch of the formulas currently “out there” for calculating net worth & gift capacity estimates.  I figure we can keep adding to this list as we come across others that we want to hang on to.

A Couple of Notes:
In The Association of Fund Raising Professionals Greater NY Chapter Annual Fund Raising Day NY Conference on June 23, 2003 Melinda J. Papowitz, Director for Research, Yale Univ. Office of Development, suggested that it is a good idea to use multiple formulas to estimate giving capacity & then provide the estimates as ranges.  I think the concept of estimating gift capacity or net worth in multiple ways (if we have the data to do so) and thereby providing ranges of estimated net worth or major gift capacity is a good idea.

Secondly, be very exacting when you are reading & applying these formulas.  Many of them don’t get you directly to a net worth estimate.  For all of them you will first need to collect those “Indicators of Wealth” or “Known Assets” data.  For some of them, the formula cited provides you with an intermediary figure such as estimated annual income from which you then can calculate an estimated net worth & then from that an estimated gift capacity.  In all cases, you will need to carefully pick & choose which formulas are a best fit with the particular pieces of information that you know about the particular prospect that you are researching.

Real Estate Derived Formulas
Formula Rationale:
In a Nov. 3, 2004 APRA Seminar, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, suggested that based on IRS assumption that real estate represents about 1/3 of the average tax payer’s wealth, one can reasonably assume a major gift potential (3-5 year commitment) of 15% of the market value of a person’s real estate holdings if their total market value is greater than $1 million.  If the market value of their real estate is < $1 million, you should estimate their gift capacity at 5% of the value of their real estate.

Formula Rationale:
In a Nov. 3, 2004 APRA Seminar, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, suggested that based on IRS wealth distribution averages, if a prospect’s real estate is worth greater than $750,000, then you can estimate total wealth by dividing the value of their real estate by .224 (22.4%).  This same formula was suggested in a December 2004 seminar on gift capacity projections by Elizabeth Crabtree, Dir. Of Prospect Dev. at Brown University, and Lawrence Henze, Managing Dir. Blackbaud Analytics.  They also sited IRS wealth distribution averages for individuals whose real estate is worth > $750,000 that indicate total real estate represents 22.4% of total assets.

Formula Rationale:
The University of Virginia Foundation’s Development Office has over the years developed a real estate based formula that is derived from the same 1989 IRS tables that a lot of net worth estimators are based on & simplified that formula for real estate based calculations to 5 X entire real estate portfolio for prospects with real estate worth $400,000 or > = net worth & then 5% of that total = major gift capacity.  For prospects with real estate worth less then $400,000, net worth estimate = 3 X entire real estate portfolio & 3% of that figure = major gift capacity.

Formula Rationale:
The 2003 Mendelsohn Media Research Affluent Survey indicated that a person’s personal residence accounts for 19% - 32% of their total assets so take the value of their primary residence & divide by .19 and then repeat at .32 to get a range of estimated total assets.

Formula Rationale:
The 2003 Mendelsohn Media Research Affluent Survey indicated that “other real estate” beyond the primary residence usually accounts for 8% - 13% of total assets.

Formula Rationale:
An April 28, 2005 summary of responses on the Charity Channel site to a posting about various ways to calculate net worth included this suggestion for estimating household income based on real estate.  Take the home value & divide by 2.5 to get an estimate of household income.  The reasoning offered was that mortgage loans do not usually go beyond 2.5 times one’s annual income.

Income Derived Formulas
Formula Rationale:
In a Nov. 3, 2004 APRA Seminar, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, suggested that a reasonable estimate for major gift capacity (3-5 year commitment) based on income is 10% of the prospect’s total income over a 5 year period.

Formula Rationale:
Schervish & Havens of the Wealth & Philanthropy Center at Boston College in “Wealth & Commonwealth: New Findings on the Trends in Wealth & Philanthropy” found an average % of income given to charity for individuals with an annual income in excess of $1 million of 4.9%.

Formula Rationale:
In a December 2004 seminar on gift capacity projections, Elizabeth Crabtree, Dir. Of Prospect Dev. at Brown University, and Lawrence Henze, Managing Dir. Blackbaud Analytics, sited the following income-based formula for estimating major gift capacity: [(age x income)/10] x 5%.
In a Nov. 3, 2004 APRA Seminar, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, suggested an enhancement to this calculation by suggesting the following changes in the multiplier for the following age groups:
21-35: x1%
36-45: x 2%
46-55: x 3%
56-65: x 4%
65+:    x 5%

Formula Rationale:
Per the 2003 Mendelsohn Media Research Affluent Survey, household income accounts for 12% - 13% of total assets.  Total assets can then be estimated by dividing income by .12 or .13.

Formula Rationale:
In the Millionaire Next Door Thomas J. Stanley & William D. Danko suggested estimating net worth by taking the prospect’s age   X   total income (salary, dividends, annuity payments, etc.) divided by 10.

Formula Rationale:
In a Nov. 3, 2004 APRA Seminar, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, suggested one formula for estimating major gift capacity based on household income is to take 10% of annual household income (2% per year x 5 years on pledge).

Stockholding Derived Formulas
Formula Rationale:
In a Nov. 3, 2004 APRA Seminar, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, cited IRS wealth distribution averages to support this estimate of net worth based on public stock ownership — public stock represents 28.5% of total net worth.  So take the value of the stock & divide by .285 to estimate net worth.

Formula Rationale:
In a Nov. 3, 2004 APRA Seminar, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, cited the 2003 Mendelsohn Media Research Affluent Survey that corporate stock represents 38% - 44% of total securities which in turn represent 14% - 24% of total assets.
 
Formula Rationale:
In a Nov. 3, 2004 APRA Seminar, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, suggested that a reasonable estimate for major gift capacity (3-5 year commitment) based on stock holdings is 10-15% of the value of the prospect’s stock holdings if their stock holdings are worth $1 million or >.  If the stock holdings are worth less than $1 million, you should estimate their major gift capacity at 5% of the value of their stock.

Formula Rationale:
In The Association of Fund Raising Professionals Greater NY Chapter Annual Fund Raising Day NY Conference on June 23, 2003 Melinda J. Papowitz, Director for Research, Yale Univ. Office of Development, suggested calculating major gift capacity based on stocks & options by using a formula first suggested by Robert G. Millar III in a 1999 CASE Currents article “How Much is that Donor in your Records?”.  The guidelines he suggested were:
For a prospect with stocks & options worth <$500,000 - estimate gift capacity = 1-4% of the stock & options value.  For prospects with stocks & options worth $500,000-$999,999 - estimate gift capacity = 5-9% of the stock & options value.  For those with stocks & options worth > $1 million - estimate gift capacity at 10% of the stock & options value.

Formula Rationale:
The University of Virginia Development Office for many years has used the formula of taking (1-3) X the total known direct stock holdings of a prospect as an estimation of net worth. The researchers there make a judgement call on what to use as the multiplier from within that 1-3 range based on their assessment of how many unknown assets the prospect probably has.  Then from rom this they estimate major gift capacity by taking 5% of this estimated net worth figure.

Company Sales Derived Formulas
Formula Rationale:
An April 28, 2005 summary of responses on the Charity Channel site to a posting about various ways to calculate net worth included this suggestion for estimating net worth for individuals who are executives with privately held companies - “a general rule of thumb I use is $2 million in net worth for every $1 million in sales, provided the company is at least five years old”.

Gift Capacity Based on Net Worth Formulas
Formula Rationale:
In The Association of Fund Raising Professionals Greater NY Chapter Annual Fund Raising Day NY Conference on June 23, 2003 Melinda J. Papowitz, Director for Research, Yale Univ. Office of Development, cited industry standards for calculating gift capacity from estimated net worth of 2 - 5% of net worth.  These figures are based on two sets of statistics:
a Bureau of Labor Statistics 1998 study (Spending Patterns of High-Income Households) which indicated that high-earning households ($90,000+) spent 5% of their income on charitable giving-
a 2002 “Giving USA” study that showed that gifts from individuals represented 1.8% of annual income in 2001.

Formula Rationale:
In a Nov. 3, 2004 APRA Seminar, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, suggested an average of 3% - 6% of total estimated wealth as an estimator of major gift capacity.

Gift Capacity Based on Prior Giving Formulas
Formula Rationale:
In The Association of Fund Raising Professionals Greater NY Chapter Annual Fund Raising Day NY Conference on June 23, 2003 Melinda J. Papowitz, Director for Research, Yale Univ. Office of Development, suggested estimating major gift capacity based on past giving by using the formula 2 - 4 X consistent annual giving level x 5 years.  (If interest & affinity are high use 4 as the multiplier, if they are low use 2.)

Formula Rationale:
In a Nov. 3, 2004 APRA Seminar, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, offered that a common practice people estimate major gift capacity based on past giving by taking the average of consistent annual giving for the prospect & multiplying by 10 or 20.  She indicated that she thinks this formula usually under values major giving potential.

Gift Capacity Based on Private Company Ownership
Formula Rationale:
In The Association of Fund Raising Professionals Greater NY Chapter Annual Fund Raising Day NY Conference on June 23, 2003 Melinda J. Papowitz, Director for Research, Yale Univ. Office of Development, suggested calculating major gift capacity based on private company ownership by first establishing the value of the private company & then estimating the donor’s percentage of ownership of the company.  Then she suggests estimating 2-5% of the donor’s equity in the company as the giving capacity.

Gift Capacity Based on Total Verified Assets
Formula Rationale:
In a Nov. 3, 2004 APRA Seminar, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, suggested that when the value of two or more assets are known (i.e. real estate, stock, etc.) you can estimate major gift capacity at 5% - 10% of those total verified assets.

Planned Gift Capacity Based on Total Estimated Wealth
Formula Rationale:
Schervish & Havens of the Wealth & Philanthropy Center at Boston College in “Wealth & Commonwealth: New Findings on the Trends in Wealth & Philanthropy” found that for estates recorded in 2000, the average donation to charity was 11.6%.  Based on this, Christina Pulawski, Dir. Of Dev. & Donor Services at Loyola, suggests that a simple rough estimate for planned giving potential is roughly 10%+ of the prospect’s total estimated wealth.

Last updated:  06/29/06