Chuck Longfield’s presentation at last week’s DMA’s 2013 Washington Nonprofit Conference highlights a number of disturbing trends in direct response fundraising, including increases in acquisition costs, the decline of first year retention rates, and lower loyalty among younger donors.

We’ve posted the slides below, which include charts on acquisition and retention rates by issue area. I’m also including a link to our event donor retention white paper, which offers insight into tackling the event donor retention problem.

Roger Craver of The Agitator summarizes:

  

In a nutshell here are the disturbing trends Chuck highlighted:

  • For the past 10 years — before and after the Great Recession — donor acquisition has grown increasingly expensive.
  • During the same period, first-year retention rates have significantly declined to the point where, on average, nearly 3 out of 4 newly-acquired donors leave by the end of the first year.
  • As a result, for many organizations the return on new donor acquisition is so poor that it has become too costly to acquire new donors to replace the flood of lapsing donors.

With his gentle wit and insight Chuck drew an apt analogy to what the sector is facing. “It’s like the CFO coming to the board and reporting, ‘I lost 70% on our portfolio investment this year, so please give me the same amount to invest next year and I’ll get the same result.’ You can imagine how long that CFO would last.”

Yet year after year that’s exactly what’s happening in donor acquisition and retention. The reasons:

  • “Over fishing” – highly sophisticated and efficient techniques scooping up a limited pool of donors.
  • Changing demographics — Gen X and the Millennials less loyal than the World War II and Boomer generations.
  • Failure to recognize and treat new donors as the valuable asset they represent.

Reminding the session participants of Prof. Adrian Sargeant’s dictum — “even a 10% increase in donor retention can increase the lifetime value of the donor database by 200%” — here are some of Chuck’s recommendations for dealing with the problem.

EMPHASIZE DONOR RETENTION OVER ACQUISITION

  • View new donors as valuable assets
  • When acquiring new donors, factor in whether you will retain the donor and at what dollar level

FOCUS ON LIFE-TIME VALUE, NOT RESPONSE RATES

  • Plug the leaky bucket of attrition
  • Be willing to invest in your new donors (a simple, inexpensive ‘thank you’ call will produce a 30% ROI according to Chuck)

FOCUS ON RESULTS NOT EFFORTS

  • Focus early in the relationship on those donors with greatest potential and allocate resources accordingly
  • Adopt a donor-centric, not campaign-centric focus

INVEST IN YOUR MOST PASSIONATE SUPPORTERS

  • Organize yourself to recognize a donor’s passion for your mission (willingness to take surveys, attend events, etc.)
  • In fact, put some hurdles (survey, invitations, etc) in front of donors early on to determine the most passionate.

 

Chuck is the Founder of Target Analytics and Chief Scientist at Blackbaud. His slides are below:

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In an interview with SOFII’s Ken Burnett, Chuck offers advice on boosting donor retention:

 

Under the general theme of wise investment, both time and money, to increase retention Chuck launched in with five specific, timely nuggets of advice. 

1. Acquire donors who are more likely to stay for a reasonable time.

This seems odd advice. Yet what’s truly odd is that most nonprofits don’t measure the quality of their donor file based on whether or not people stay around. We judge new donors by response rate, cost of acquisition and average gift value, not by their eventual retention rate. But today’s systems can quite easily analyse your files to compare your acquisition sources and identify those from which donors have been more likely to stay. Chuck suggests you find out what distinguishes the stayers, then actively recruit more like them.

To do this you’ll need not only to monitor and measure first year acquisition statistics but second and subsequent years retention too. After all, which is better: an acquisition list that produces a low, initial response rate but most of its donors stay two or three years at least, or a list that produces a good initial response rate but from donors who never give again? The point is you should know, so that if one source produces significantly more donors who stay, you can up your acquisition from that source.

For example, street fundraising famously suffers from high attrition and average dropout rates are regularly pored over. But do all types of donors drop out at the same rate? Do women recruited in this way stay longer than men? Do older donors stay longer than young donors? All donors are not the same. If fundraisers were to study more closely those who lapse they may find that age, social status, gender, affluence and a range of other factors all have influence. Again, they should focus only on recruiting and developing those most likely to stay.

Fundraisers should not only look differently at donors who stay longer, but also those who give more. Some donors are much more of a loss than others. Chuck’s point is, we should know this stuff, in detail, so we can make acquisition decisions based on it.

2. Invest differently in donor retention. A little invested now will improve future income even if you still do 90 per cent of all the things you know you shouldn’t.

Some years back in her book Donor-Centred Fundraising Penelope Burk showed that personally calling and thanking new donors improves first year revenue retention* (see right) by around 40 per cent. This statistic stuck in Chuck’s mind, so just over two years ago he organised the calling of new donors in large numbers. Now in its third year the exercise has shown, in volume, that it’s true, simply calling and thanking your new donors increases both renewals and average gifts. Even leaving a thank-you message on a new donor’s answering machine increases giving. Though not by much, so Chuck has worked out that it’s worth calling back at least once before leaving a message.

If it works so well, why don’t more organisations do this? Simply, it seems, because spending on the calls involves expenditure now, from this year’s budget, whereas the benefits of increased renewals and extra gifts, mostly, will not be felt until the following year.

Short-term thinking is endemic in our sector, fed among other things by fundraisers generally not staying in post long enough to reap the benefits of anything that takes more than a year to pay off. Short-term thinking particularly blights bequest and major donor programmes. These require long-term foundation-laying, so tend to be weak and under-funded in many organisations.

Clearly at some times no amount of encouraging longer-term thinking will work. So, says Chuck, if you must focus on short-term results, why not do so with 90 per cent of your resources but allocate 10 per cent to changed behaviour and see what happens? Sometimes, particularly when times are tight, it’s best not to introduce change cold turkey, to make transition a little at a time, as and when you can afford it.

Though it adds a bit more expense, it pays to record what people say on these calls, because so often it gives clues as to what matters most to them. If a donor raves about how important your organisation’s work is, you might pass along her name to your bequest or major donor programme, for a personal follow-up.  And, in Chuck’s experience, even donors who profess to be upset or inconvenienced by a call tend to give more, perhaps a sign that while they may be irritated with the call and the caller, that doesn’t mean they don’t support the cause.

3. Plug your leaky bucket. Find what it is that causes donors to not give again.

It’s hard to understand why fundraisers don’t track this data but many, if not most, do not. So, 30 per cent of your file, or whatever, did not renew their support this year. Why?

Possibly, two or three per cent died. Not much you can do about that. But, what about the others? Once a year at least you should take a day or two to find out what you can about all those who didn’t continue. You won’t discover reasons for all of them, but you should at least sample a percentage.

For example, ten to 20 per cent of your donors will have moved; a similar percentage will have changed their email addresses. How effective are your organisation’s processes for receiving their new information?  And what percentage of these donors are now effectively ‘lost’?

In response to why they stopped giving, some donors will say ‘I lost my job’ or ‘we have to cut expenditure’. You can offer them a payments holiday, put them on a ‘newsletter only’ list, let them know that they can still keep in touch for free, then maybe one day they’ll come back. Some will say, ‘ I hated your decision on the XYZ policy.’ You can politely remind them of the nine other decisions you made that they supported 100 per cent. Or you can suggest that it’s better that they influence the organisation from the inside, as an active not a lapsed donor. Some will stay, for sure.

The point is, you can’t influence people’s reason for not renewing unless you know what those reasons are. What you don’t measure, you can’t do anything about.

4. If you are struggling with a too long ‘to do’ list, get someone to do it for you.

A visitor from Mars looking at the literature of the fundraising sector would conclude that all fundraisers must love lists. ‘Ten things you must do’, ‘the three essentials of data management’, ‘the seven secrets of social media’ and such like seem de rigueur for all of us. But for many fundraisers the ubiquitous ‘to do’ list looms above them like a mountaintop obscured by clouds. Instead of helping us it just seems to be getting ever more remote, longer and harder to climb.

So cut the ‘to do’ list. Do the things that matter but get someone else to do it for you. All of the advice on this page could be delegated internally or sub-contracted externally. All the wise fundraiser needs to do is to be able to justify the cost, in terms of RoI.

5. Know which of your data and metrics to monitor and act on them.

All who would improve donor retention in their organisations know only too well the basics of a donor-centred approach as preached by SOFII and others for some time.

  • Be personal, be nice, be quick, be sincere.
  • Be available, open and accountable.
  • Tell great stories and offer wonderful feedback.
  • Make interactions ‘win/win’ for donor and cause. Offer something tangible so that giving is not a one-way street.

White Paper Download Event 360’s Event Donor White Paper for advice on converting this group of one-time supporters into long-term donors.


Jono Smith is vice president of marketing at Event 360. You can find Jono on Google+Twitter, and LinkedIn.

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