Are you investing enough in digital?

ALS home page featuring Ice Bucket Challenge

ALS Association home page

No, this is NOT another “ice bucket challenge” blog post. That’s been covered, and that story isn’t even new. It just validates what Heather Fignar and I, and many others, have been saying for years: give people a reason to have fun, express their creativity, employ social media and mobile technology, integrate it across all channels and all parts of your organization (especially media relations) and you have a good chance at making a splash, (pun intended) if not some real money.

No, this is about meaningful, ongoing investment in digital advertising, and why your nonprofit is probably woefully behind the times. So far behind, that I had to go to big box retail to show you the way. That’s right… a company selling hammers, power saws, kitchen cabinets, and 2″x4″s is kicking your butt in digital revenue.

Home Depot is investing 36% of its total ad budget into digital media, especially email messaging and social media. Print only gets 10%. Digital’s share is increasing. “We like the ROI” says their Chief Financial Officer.

The company says its continued transition to online sales and digital marketing are also key, according to Craig Menear, President, U.S. Retail.

“We’ve shifted to more targeted personalized messaging to become more relevant to customers, and as a result, costs attributable to print advertising are down 60% since 2010, and have been shifted to more efficient advertising.”

So how much does Home Depot sell online? Less than three percent of its sales originate at its new website. What? How can it make money by investing 36% of its ad budget (translation: fundraising budget) in a medium that generates less then three percent of its revenue? Because one doesn’t allocate one’s investment in growth based on the past; one invests based on the future, and Home Depot is betting on digital to drive future sales.

Also, Home Depot knows that the value of its digital investment goes way beyond the amount of orders actually placed online. It knows that handymen and handywomen scope out new product ideas, watch how-to videos, read emails with special offers, and then go into the store to do business “the old-fashioned” way.

Lest you think this is a new trend, an article from 2011 lays out the plan. Home Depot had just embarked on a $1.1 Billion investment in its new website, despite then-current online sales of just one percent of total retail. They knew, according to industry research, that “around 48% of retail sales will be influenced by the Internet in 2011 and projects this to rise to 53% by 2014.”

Sadly, many healthcare nonprofits I know budget their digital investment as if it were part of their continuing, proven, direct mail budget, expecting it to return $4 or $5 in revenue this year from every dollar invested. Then, they don’t even do a good job of measuring the impact of that paltry investment beyond the online donation page.

 

 

 

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How many new donors do you need?

One of the most important strategic decisions any development office can make is the allocation of its scarce fundraising resources into new donor acquisition. Yet, this question is often put aside until the rest of the budget is set. The result is disappointing donor growth.

Since new donor acquisition is almost always conducted at a first-year net cash outflow (each new donor may return only $.60 of each $1.00 you invest in its acquisition), it drains resources from other budget items. Of course, it’s also the only way to replace donors who die, move away, or lose interest, and the only way to grow your program in the future.

Here are three strategies, each described in the extreme to illustrate the point:

The “George Allen” approach

George Allen was the winningest football coach of both the Los Angeles Rams and the Washington Redskins. He became famous for trading away future year’s draft choices to acquire quality, veteran football players who produced results immediately. It helped him compile a winning record until the veterans retired. He was let go after the 1977 season, after which the team could do no better than .500 for the next four years.

In other words, you can cut or even eliminate acquisition, for a short time. This will result in greater short-term net revenue, but ultimately a decline in your gross and net fundraising. Even if  you retain 80% of donors from one year to the next, after three years, you’ll have only 51% of the donors you started with. I also call this the “Detroit City Bus Maintenance Deferral” method for obvious reasons. Many nonprofits practiced this in 2009 and 2010, and they’re still digging out of their downward revenue spiral.

The Amazon Approach

Jeff Bezos built Amazon into what it is today by plowing virtually all profits back into growth. It was a deliberate, and ultimately successful, attempt to capture market share and grow into a firm that now accounts for 20% of all U.S. e-commerce. He was able to continue this for so many years because he was able to eloquently articulate his plan, and demonstrate successful growth each quarter.

If your board, and your donors, are willing to reward dramatic donor growth year after year in exchange for net revenue to fund the mission, this can be successful for you, too.  Good luck with that.

The Goldilocks Approach

The “just right” donor acquisition strategy takes into account your traditional donor attrition and growth plans. If you lose 10,000 donors per year, and your growth needs require a net growth of 5,000 donors per year,  you need to invest in the addition of 15,000 new donors each year. The chart below illustrates how one organization’s donor acquisition (blue line) fell far short of  donor attrition (red line) over the past four years.

donor_gap

It’s not wrong to be opportunistic at times; if your new donor acquisition is producing good long-term donors, and the budget is available, and the board trusts you, ramp us acquisition beyond the required replacement-and-growth amount.

Nor is it wrong to be frugal; there will be extraordinary circumstances that require budget cuts, and acquisition is no more sacred than any other area of your budget.

Just know, in each case, that you’re saving for, or borrowing from, the future, in each case, and that neither is sustainable in the long run.

 

 

What makes a good donor acquisition list?

Long-Term Donor Value (LTV) is a simple concept: how much more money will you receive from a donor than what you will spend on soliciting that donor? Simple yet difficult to accurately determine and use to make informed business decisions.

Each donor is different. You acquire them in different channels, they give you different initial gift amounts, they respond to different offers, media and packages. And then what happens? What kind of donors will they turn out to be? Will they give regularly and often year after year or only once a year? Or worse, will they give only once, period? Will they migrate to giving online or become a monthly donor? Will they disclose a capacity and an affinity for giving a large gift for a specific purpose?

Unfortunately, most nonprofits make decisions about which lists to use based primarily on the response from lists used the last time they mailed. Those decisions are based heavily on response rate and average gift amount. The two metrics can be combined into “Revenue per 1000 names mailed” or (RPM).  A list that produces a 0.25% response rate and a $25 average gift has an RPM of $625. A list with twice the response rate and half the average gift also has an RMP of $625.

This similarity can be misleading. Lists that produce a high initial response rate may not produce the best long-term donors.

You might think that, once a donor gets into your database, their long-term value depends entirely on how you thank them, steward their gift, and appeal to them for more gifts. Ironically, the way you acquired them initially makes a huge difference, even after three years.

As we frequently see, lists that produce higher average gifts at a low response rate often have far higher retention rates and donor value after three years than lists that those with high response rates and lower average gifts.

Consider this real-life scenario:

LTV_gift_size

We see here that the size of the initial gift suggested makes a huge difference. All of the positive net income generated here is attributed to the new donors acquired at $15 or more. It can be scary to see that 44% of your newly acquired donors are coming onto the file below $15.

So what would you do to increase your long-term donor value in the future? How about looking at different TYPES of list sources? Or selecting only $15+ donors?

Taking a long-term look at your prospecting lets you make better investments with your donors’ money.

It’s fundraising — NOT “re-education”

Don’t think that all of your donors need to support all of your campaigns.

If you attract a new donor with a particular campaign, be thankful. You now know something about them: they care about that campaign.

So what’s the next logical step?

  1. Get them to make a second gift to that or a similar campaign.
  2. Expose them to the broad range of your campaigns, and ask them to give to a different one.

I submit you’ll do better with the first choice than the second.

Remember Venn Diagrams from middle school math? Here’s how they apply to fundraising:

Venn Diagram

You and this new donor have two concerns in common: cancer and diabetes. But, you only know about her interest in cancer, because that’s the appeal to which she gave. If your second mailing talks about diabetes, you may strike a chord, and get another gift. Great. But she may already have a favorite diabetes charity. If you write about children’s health or heart disease, you’re likely to strike out.

But, if you write back quickly, telling her how you’ve used her money in cancer care, and there are more opportunities for her to further cancer research and care at your institution, you’re more likely to get a second gift.

If you send her a newsletter that talks about other aspects of healthcare in which you excel, she may see your work in diabetes and want to support it. Great. Now you know something else about her.

But it’s very hard to try to expand  your donor’s half of the Venn diagram, to include new passions that they just don’t have now, and that’s what you’re trying to do when you mail the same appeal to everyone, and pick cancer one month and heart disease the next.

What? You have to write different appeals to each donor based on how they’ve given in the past? Only if you want to increase their renewal rate, number of gifts per year, and total annual giving.

It’s not football, where you want to mix up your run plays and passing game to keep the other side guessing. It’s more like church, where people like to sit in the same pew every Sunday and sing familiar hymns.

Rewarding your donors

Rewarding the behavior we desire helps to ensure that it continues.IgaveBlood

I  try to walk three miles several times each week. I have an app on my phone that records my walks and publishes them to my Facebook page when I’m finished. Yesterday, half way through my walk, my phone battery died, and I honestly thought about stopping my walk then and heading home.  After all, without the walk recorded, and published, why bother?

I quickly realized, of course, that there were other reasons why I walk, reasons that existed long before I downloaded the app. But they are longer term rewards (better health) and less visible (who’ll know?).

Is this how we treat our donors? We make our case for support, then invite them to give privately? The reasons for them to give are long-term (better healthcare, more research) and less visible (known only to your database and their accountant).

iVoted

Why not offer more rewards to them for doing the right thing? We recently tested a link on a “thank you” page that lets donors post to Facebook that they just donated to our client. The post on Facebook had a unique link to a donation form, and the post-campaign report showed that four percent of all gifts to the campaign came through that link! (Most of those gifts were from new donors!) And, since this was the first time we tried it, the donors had no idea they’d be “rewarded” with a chance to post on Facebook until after they gave.

All to many “thank you” pages are dead ends. “Thank you for your gift. Now, go somewhere else on the web.” They’re great opportunities to show video of what you’re doing, but also to encourage the donor to brag about their new (or expanded) relationship with you. Give them a chance (and a reason) to like your Facebook page, follow you on Twitter. Better yet, give them a message to post or a tweet to send. Beyond the immediate

In your thank-you letter, don’t spend so much time on the tax receipt. Spend time thanking them and telling them what you’re doing with their gift. Invite them to follow along. Give them something to share with their friends.

To-do list:

  1. Add more content to your web donation “thank-you” pages that will involve the donor further.
  2. Add content for them to post to their social media
  3. Add content to your thank-you letter that invites your donors to “brag” to their friends
  4. Count the number of new donors from referrals, and the increase in renewal giving, that results!

New sources of direct mail donors

Every healthcare organization needs a constant flow of new donors, even if it’s just to make up for the 25% – 35% attrition in long-standing donors each year. New donors can come from in-house sources like event attendees and former patients, and from external sources like response lists, online sources and increasingly from enhanced cooperative databases.

Enhanced cooperative databases, or “coops,” have several advantages over single-sourced response lists.

A coop is the result of dozens or even hundreds of mailers pooling donor data into a single database. Some coop databases contain input only from other nonprofits; others contain customer data from mail-order firms, subscribers to magazines, etc. Most are also enhanced with demographic data such as credit, age and income.

The result: high-value lists of households in the U.S. who are distributing their discretionary income in a variety of ways. These households are available to you to use for highly targeted new donor acquisition.

Your fundraising agency (hopefully Amergent) can help you:

  • Compare your donors to the names in a coop and then rent from the coop names with similar characteristics to your donors.
  • Achieve a high average gift amount from coop names, using their model for high value.
  • Achieve a high response, using their model for response.
  • Overlap their models to achieve the best results, but to a more limited universe.

With each model, the names are ranked according to how well they match your best donors. Generally, names are grouped in five tiers: Tier I will contain the 20% of the database that matches most closely (and therefore should perform the best); Tier II will contain the next 20% of coop names that matched the next most closely. We generally recommend testing from within Tiers I and II to start.

Another advantage, according to Amergent Senior Vice President Mary Bogucki, is that “the models get around the imposed gift limit of donor organizations (most only give out their <$50 donors). They find the higher-value philanthropic donors that are not included on donor rental/exchange lists.”

In the four examples below, the new donors from coops had average gift amounts similar to those from response lists, but the percentage of new donors with gifts of over $100 is greater – up to 23% greater – than the response lists in the same mailing.

Coop_100plus_chart

With all of their advantages, you might expect these coop prospect names to cost more than response lists. In reality, they usually cost less. Most coop database managers will run the comparison against your donor file without charge if you agree to rent some Tier I or II names for acquisition. Not only is the actual cost per 1,000 names lower than it is for response lists, some coops will even supply names on a “net” basis after the merge-purge. The result, according to Amergent Account Manager Deb Cedrone, “across the board, the cost per net name is almost 50% lower for coop names compared to the overall campaign average.” See her numbers below, for a medium-sized food bank:

Coop_cpd_chart

One more advantage: when you rent response lists, some donors will appear on 2, 3 or more lists, and you have to pay for them each time. If you can replace your least-effective five or 10 response lists with coop names, you’re only getting those names once.

There are other uses for coop names, in screening new donors to see who’s worth more effort, and reactivating lapsed donors. We’ll explore those another day.