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.

Give your donors what they need – where they need it

Do your donors (or potential donors) have the information they need so they can move to the next step of the donation process? A recent exchange with a colleague made me want to revisit this concept.

I invited our Creative Director to submit some recent brilliance to a competition hosted by the Integrated Marketing Advisory Board on whose board I sit. My email to her was as follows:

Subject: Free Industry awards competition, and I’m on the board

I’d be pleased if we can submit some recent award nominations into the IMAB competition. Deadline is Feb 7. [I included a link to the submissions page.]

Thanks.

She wrote back and said, “I don’t see anything about entry costs.”

Now mind you, this Creative Director is (a) brilliant and (b) writes and edits email copy for a living! But she missed the word “free” in my email subject line. “Free” was not mentioned in either my email copy or, embarrassingly, on the entry page (we’ve since fixed it).

The moral? Using “Free” in the subject line may have helped her decide to open the email, but it needed to be mentioned again within the email body, and/or on the landing page, to convince her that entering this competition wouldn’t bust her budget.

A long time ago, another brilliant copywriter explained to me that each piece of a direct mail package had to stand on its own. The letter and reply device, and all other inserts, had to have the organization’s name and address visible, in case they became separated from the reply envelope. This kind of redundancy is low-cost and increases response incrementally.

Ditto for an online encounter. Tease them in the subject line to get them to open it, but don’t expect them to read the subject line once they get inside the email. The email body should incite them to click the link, whereupon they will forget what was in the email. Give them all the information they need on the page where they are now.

Right now the biggest online fundraising gap is between the top of your donation page and the bottom. That is, 20% or so of people who click to the page finish it. Why do 80% bail out? Maybe you’re giving them too many options elsewhere, or too little information (or emotional reinforcement) on the page itself.

Would you like me to look at your online donation process? Contact me for an audit.

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.

Capital Campaign v. Annual Fund – Avoid the Conflict

Our newest client, a cancer center at a large university, said ominously, “The Health Center is going into a new Capital Campaign in April.” Those words are usually conveyed in the tone of voice once reserved for “Hannibal, his armies, and elephants are just over that ridge.” Indeed, weaker agencies have fled clients for fear that the fundraising ambitions of the client cannot be met in the face of the larger institution’s $23Kazillian, 25-year capital campaign.

But fearing the capital campaign is akin to my Boston colleagues fearing winter: it happens, with regularity. Deal with it. Here’s how, with thanks to one of those Boston colleagues, Vice President Mary Bogucki of Amergent.

Get on board with the campaign: That great fundraiser, Michael Corleone, would say, “Keep your donors close, and the capital campaign team closer.” Get a seat at that table. Know what’s going on with the campaign and when. Get the style book so you can incorporate the campaign graphics into some of your own messages.

Hopefully your leadership understands that your donors are responsible for bringing the institution to its current point of “bulging at the seams” which led to the campaign. They need to be thanked for that, to be invited into the campaign if they wish, and to support the ongoing work of your institution while the campaign is underway.

Get your donors on board: Mary says, “By proactively notifying your direct mail donors of your Capital Campaign efforts, you have a greater chance to garner their support for the Campaign than if they heard the news through third-party channels. The primary challenge is to find the best way to inform current direct mail donors about the Campaign and make them feel part of the process. The intention is not to turn direct mail donors into “bricks and mortar” donors, rather, it is to make sure they feel informed – by YOU – of the events taking place. Your message will need to convey the importance of your organization’s mission.”

Mary suggests that you allow your donors to raise their own hands if they’re interested in supporting the capital campaign. She also suggests you keep all donors informed via articles in newsletters and pages on your website. Give them the option to contribute to the campaign a few times each year.

Overall, the campaign should be conveyed as a validation of their giving through the years, of the need within your community for your services, and as an assurance that you’ll be there for a long time as, together, you meet those needs.

Read Mary’s full article, and contribute your own thoughts and experiences below!

 

Following up on the initial gift

Six weeks ago, I made first-time gifts online, of $25 each, to five different children’s hospitals. I documented the online giving process earlier, and now I want to describe what the five hospitals did (or didn’t do) after they got my gift. I won’t mention names here; I’ll call them “A” through “E”. (If you are a children’s hospital and want more details, or want to participate in this study, let me know).

From all five, I received an immediate, automatic email acknowledging my gift. Four of the five actually said “Thank you” while one called it a “purchase confirmation” (what did I purchase?). That hospital also sent a second email the next day with an attached PDF file of my gift receipt, with instructions to “Please review the receipt and store with your other tax receipts.” Still no “Thank you for your gift” and no invitation to do anything further. Only one of the five gave me my gift information, matching gift information and a suggestion that I pursue that with my employer. It also included a link back to the hospital website, though without any incentive to go there.

Only one of the five actually told me a story in the thank-you, and invited me to go to the website for more information on one of the children:

ACHF-TKU

Since the thank-you emails, I have received additional email from only three of the five. One sent an elaborate Thanksgiving e-card more recently, but still no invitation to give or take further action. One, affiliated with a university, sent me two alumni newsletters (they should know I’m not an alum) and a foundation newsletter, but no stories about children and no further invitations to take action. Only one has a vibrant email campaign. From them I have received eight email messages, spaced about once per week, with different stories and approaches.

(Eight in as many weeks is too much, you say? I disagree, especially at this time of year, but surely you agree that none is too few.)

In the mail, the follow-up has been just as disparate. I realize that many organizations have long lead times for their mail appeals (which is why they should have extra stock to use for new donors) and so I expect to have mail to report on for years to come. In fact, we should make arrangements in my will for someone to carry on this report, since I’m confident that I will continue to receive mail from these hospitals long after I’m feed to the worms.

I’ll report on mail next time.