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.

 

 

Annual fund donors lead to major gifts

Wealth overlays alone do not generate major gifts!

At #NACCDOPAN, the conference of the National Association of Cancer Center Development Officers, Michael  Hibler of Johns Hopkins’ Sidney Kimmel Cancer Center, and Cindy McGirk of Tampa’s Moffitt Cancer Center talked about ways to use data to enhance the major and planned giving efforts of their institutions.

Cindy exploded the myth that you can take your annual fund donors, overlay a wealth screening tool, and then stop mailing and calling the top-ranked donors, turning them over to a major gifts officer. First, wealth screening alone does not indicate the propensity to make major gifts. Second, abandoning traditional annual fund contacts via mail, phone, and email leads of course to fewer gifts.

What works, according to Michael, is a more complicated analysis that includes wealth ratings but that also includes data from their own donor database, including the longevity of giving, number of gifts, and other data.

Indeed, we at Amergent have run complicated regression analyses that search for factors that correlate between donor data and major or planned gift donors. In other words, if a piece of data tends to be much more common among planned or major gift donors than it is in the general donor population, that donor looks more like a planned gift donor, and that donor would rank higher on the list. Common data elements that correlate to planned giving status include the length of the donor relationship and the number of gifts given. The size of the gifts do not matter much.

Interestingly, there is a high inverse relationship between the gap between first and second gifts and the propensity to be a planned gift donor. In other words, the shorter the time between a donor’s first and second gift, even if both were made 20 years ago, the more likely they are to be a planned gift donor. So, if you want to help grow your population of planned giving prospects over the next ten or more years, thank new donors quickly, cultivate them, and get them to make a second gift quickly.

How do Michael and Cindy use these major and planned gift indicators? One way is to run wealth screening in almost real-time against newly admitted patients (who did not opt out of such communications). When a high-propensity patient is admitted, the major gift officers talk to the patient’s doctor, and ask them to “listen for cues” that indicate an interest in giving. Partnerships with physicians is key to identifying good prospects to visit.

How are you using your data?

Cultivating new email subscribers

Most of the money being raised digitally is still the result of sending the right email message to the right person at the right time. So, a good email fundraising program must be a priority for your development team. The critical stages of email fundraising include:

  1. Making it easy to sign up
  2. Finding ways to grow your list
  3. Cultivating new subscribers
  4. Managing campaigns
from AllAboutBirds.org

from AllAboutBirds.org

At the Nonprofit Technology Conference (#14NTC) just ended, I learned from the tiny  Cornell Lab of Ornithology how they successfully cultivate new subscribers. It can easily work for healthcare organizations. Their main website email newsletter is the boring old way to do things, but they offer a free download of many owl sounds (to play on your computer, or use as a ringtone?). Go to http://www.allaboutbirds.org/guide/great_horned_owl/sounds or search on their main page for “owl sounds” and choose the owl of your choice. When you click the download button, you’re asked for just your first and last name and email address.

  • First of all, their welcoming email is great. It’s simple, thoughtful, and helpful.
  • Then, three days later, they send more information about owl sounds.
  • Three days after that, they offer more content in another email.
  • Finally, six days later, there is an email invitation to become a member (various levels starting at $39).

That’s it. Four carefully timed and crafted messages in just under two weeks. From then on, you will receive their monthly e-newsletter. Slow and steady wins the race. The average first donation is given 78 days after the first download (though that varies greatly and is influenced by the season). Between four and five percent of those who download ultimately give online. Those who also provide a postal address with their subscription are included with their  direct mail acquisition program, and this is their most responsive prospect list.

One of our healthcare clients provides similar information. They reported to us that, while initial donations from a campaign to grow their list were small, they ultimately converted (within a year) at a rate of just over two percent, and that was with just a monthly email and their few email appeal messages.

You and your colleagues may have two concerns:

  1. It’s a lot of work to create an effective email welcome series, and to send these messages at the right time (if people are signing up every day, then within two weeks, you’re sending four messages every day, to the people who signed up today and 3, 6, and 12 days ago). A good email tool or online marketing platform will make it much easier to manage.
  2. You’re concerned about “over-emailing” (let’s not use the S-word) your list. This is not an excessive saturation of the list. You should track your unsubscribe rate and be concerned if it exceeds one percent per email, but you should receive very few complaints. You should also test variations to the timing and content to find the optimum sequence for your audience.

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.

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!

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.