Believe it or not, there was a time (not THAT long ago) when direct response fundraising for annual giving programs was a very one-dimensional exercise.
Your charity had a list of direct mail donors. You mailed appeals to them four or five times a year. They sent you lots of money. You met your goal. Everybody finished the year happy – and you planned to add new donors and grow your file again next year. When I started doing direct response fundraising in the early 1990s, that’s pretty much how it worked.
How things have changed since then!
In short, the philanthropic marketplace has fragmented all over the place. We have more channels through which to communicate with our donors. The menu of ways they can give has multiplied too. Added to that complexity is the fact that we can’t take ‘our donors’ for granted anymore. Donor attrition is a huge problem today – and it’s costing charities millions of dollars every year in lost revenue.
So, how do we create the optimal donor pyramid in today’s environment? How do we invest wisely and maximize our return on investment?
My fellow Good Workers and I have spent the past twenty years engrossed in this very question. We have worked with hundreds of clients in all sectors and regions to help them customize their programs to get the best bang for their annual giving investment buck.
Here’s what we’ve learned…
The FIVE Key Lessons
In short, there is a two-stage process involved in maximizing revenues in today’s market. The first stage is to build a solid pyramid base. The second stage is to erect a very tall pyramid (where tall = more money!) by leveraging higher order gifts from your direct response donors.
Let’s look at these in their logical sequence:
Lesson 1: Embrace Multiple Channels
If your annual giving program still relies almost exclusively on the mail, it’s time to diversify. Good Works clients have had the greatest success when they’ve used a combination of mail, phone, and email to solicit and steward their donors. Our philosophy is that the donor is the boss – so we want to give her all the choice possible with respect to how she hears from us. Now, in most programs, the mail is still the principle tactic – but email and phone add definite value in terms of timeliness, immediacy, and ability to receive feedback.
Lesson 2: Master the Fundamentals!
There are three underlying cornerstones of a successful direct response program:
- You convert the maximum possible number of first-time donors to a second gift.
- You renew the maximum possible number of donors from year to year.
- You acquire enough new donors to replace attrition.
Now, these may not be the sexiest three tasks you can imagine. But, according to UK philanthropy academic Adrian Sargeant, a 10% increase in your program’s renewal rate will lead to a 50% increase in net revenues over time. Nothing fancy here – just good, solid fundamentals. So, if you’re the type of fundraiser who stays focused on results, here’s your ticket.
Once you’ve implemented the first two lessons successfully, you’ve not only grown your net revenues by 50%, you’ve also set the stage for some big, new revenue growth through leveraged giving.
CASE IN POINT: SAVE THE PUSSYCATS
Save The Pussycats is my mythical charity that I always use to show how the philanthropy math works. STP (even pussycats love acronyms!) decides to set benchmarks and carefully monitor their KPIs (key performance indicators). By measuring their renewal rate, they’re able to both establish how many new donors they need to attract every year – and they can set a target of increasing their renewal rate by 10%. (There are a number of ways to achieve this, but that’s a subject for another day!)
After three years, STP has brought enough new donors onto the file each year to keep the number of active donors constant. They’ve also implemented a number of communication and stewardship steps that have resulted in an increase of 10% in both their conversion and renewal rates.
The upshot? STP has already increased its net revenue by 50%!
Lesson 3: Convert to Monthly
Good Workers have been doing market research on direct mail donors for years and years. One of the things we know is that about a third of your single-gift direct mail donors are also monthly donors to other charities. You already know that the lifetime value of a monthly donor is about five times greater than a single-gift donor – so it makes sense to get as many monthly donors on your file as you possibly can.
As far as goal setting goes, we think that just about every direct mail program can convert between 5% and 10% of its single-gift donors to monthly.
CASE IN POINT: SAVE THE PUSSYCATS
STP carefully selects certain donor segments and then executes a thoughtful campaign to convert these donors to monthly giving. After three years, STP has converted 8% of its donor file from single-gift to monthly giving.
The upshot? These new monthly donors increase annual net revenues by a further 20%.
Lesson 4: Move to Mid-Level
Good Workers have researched direct mail donors and asked about whether these ‘everyday’ donors have in fact made larger gifts to charity on occasion. When we polled regular direct mail donors, we found that:
- 17% had made single gifts to charity of $500 or more in their lifetimes, and that
- 11% had made cumulative gifts to charity of $1,000 or more in the previous year.
So, there are $50 direct mail donors on your file who have the capacity to give a lot more to you if they get the right messages and motivation.
Over the past several years, Good Workers have been honing our skills at identifying the right prospects for mid-level giving and fashioning the right appeals to get donors to really stretch their giving. And you know what? It works!
To further build your pyramid, let’s say that you can convert 3% of your donors to mid-level giving at the $500 to $1,000 range. By converting this very small segment of donors, you can radically improve your annual net revenue picture!
CASE IN POINT: SAVE THE PUSSYCATS
STP selects 10% of its most generous donors and designs a three-year campaign to convert this segment to mid-level giving. These donors receive a more specific offer coupled with the promise and execution of more meaningful stewardship. After three years, 2% increase their giving to the $500 level.
The upshot? This 2% segment of the file now adds 21% to annual net revenue totals!
Lesson 5: Leverage Legacies!
Again, we start with Good Works research. According to our 2014 State of the Legacy Nation Report, we know that about 90% of direct mail donors have wills – and that more than 1 in 10 of these donors have made bequests to charity.
Add to this that the average bequest donor names four charities – and that the average bequest amount is about $25,000 – that means that one donor in ten on your mail file is leaving $100,000 in bequests.
Here’s another way to do the math: Take the number of donors you mail appeals to and multiply that number by $10,000. That’s how much your donors are leaving to charity in their wills!
If you do your work and communicate legacy giving to your donors, you should reach a point where you receive bequests from about a quarter of one percent of them each year. Although this is a tiny percentage of the donor population, the money really does add up quickly!!
CASE IN POINT: SAVE THE PUSSYCATS
After five years of repeatedly communicating with its donors about legacy gifts, STP receives bequests each year from one-twentieth of one percent of its donor file.
At an average bequest amount of $25,000, STP has grown its annual net revenues by a further 15 percent!
THAT’S HOW YOU DOUBLE DOWN!
To us, it’s an alarmingly simple process. None of this is rocket science, yet very few charities set out to do this – and fewer still achieve the goal of doubling net revenues. Yet, there’s no reason for you not to do this!
There are really only three components necessary to achieving this kind of growth:
- You need to COMMIT to the strategy, and make the necessary investments of time and money.
- You need to be DISCIPLINED enough to stick to this strategy and keep working it year after year. (It’s amazing to us how easily charity leadership can get bored or distracted – even when their current strategy is working gangbusters!)
- Finally, you must be PATIENT! It’s true that Rome wasn’t built in a day – and neither was any great pyramid of giving in the world of philanthropy.
This article originally appeared at The Hilborn.
