A decade ago, I co-wrote a book called Keep Your Donors: The Guide to Better Communications and Stronger Relationships. In it, I ask, “Why bother to keep your donors?”
The answer? Because it’s the right thing to do, morally and ethically. Treat your donors well because you should, darn it. That’s common courtesy and appropriate behavior.
Why else? Because it’s the smart business thing to do. Treat your donors well because that’s how you raise more money.
Loyalty is the holy grail of any business, whether you’re a nonprofit organization or a for-profit organization.
Let’s consider the facts—the economics of donor retention.
Yes, sure—do your happy dance about total dollars raised. Definitely compare total charitable dollars raised this year against last year and previous years. Yes, be happy if you’re raising more money every year.
Then, figure out why you’re raising more total dollars. Analyze your strategies and tactics. Analyze your marketplace. Compare your results to sector standards. Evaluate your focus on and application of best practice, body of knowledge, and research.
Okay. Total dollars raised. Part of economics.
The Economics of Research and Body of Knowledge
How much time does your organization spend studying best practices and the body of knowledge? To what degree do you, the supposed professional, follow research?
Please don’t tell me you don’t have enough time to study and follow research and the body of knowledge and best practices. Top professionals make the time.
I recently read research documenting that nonprofit organizations don’t pay much attention to research. On the other hand, for-profits pay lots and lots of attention to research. Please forgive me for saying, WTF?!
Here’s a big fundamental problem: The fundraising field and fundraisers are still not sufficiently professional. What do I mean by that?
We don’t have sufficient academic research. We’re still newbies when it comes to valuing and conducting doctoral research in realms like psychology, sociology, behavioral science, neuroscience, systems thinking, and on and on.
And we’re treated accordingly. Board members question what we say, because we’re not a true profession with strong links to academic research and conclusions. Board members and bosses don’t question the medical professional or the attorneys or the engineers or….
True professions link to the academy. Pay attention to the Hartsook Centre for Sustainable Philanthropy at Plymouth University in the United Kingdom. This is the first academic institution to conduct research on fundraising specifically, not philanthropy—how to raise more money by doing fundraising better.
And if your organization continues to be unwilling to learn, then find another job. You deserve better.
Total Dollars Raised or Something Else
If you follow the body of knowledge and best practices and research, you know that total dollars raised is not the primary statistic.
The most important statistic for you and your organization to examine is actually your donor retention rates. It’s the same in for-profit businesses.
Loyalty is the holy grail of fundraising. Roger Craver and Tom Belford, the agitators at The Agitator, made that comment back in 2009. I keep reiterating it. I also add the comment that loyalty is the holy grail of any business.
So what’s loyalty/retention?
First, there’s year-on-year loyalty. What percent of your donors continues giving to you year after year?
I’m on your board, and I want that statistic reported regularly in the finance and fundraising reports. I’m the CEO/ED, and I’m thinking about adding in donor retention rates as part of fundraiser performance review.
And how does your organization’s donor retention/loyalty rates compare to the field? What’s considered good?
Follow the annual report from the Fundraising Effectiveness Project. Look at the marvelous infographics prepared by Bloomerang each year.
Year-on-year donor retention rates in the United States are now up to 46 percent. Do you think that’s good, as an industry standard? Ask one of your board members who works in a for-profit company what’s expected as a customer retention rate.
I asked a bank VP that. He was VP of marketing, and he said he’d be fired if customer retention rate wasn’t 95 percent.
How successful do you think your local bakery would be with a 46 percent or even 50 percent customer loyalty rate?
What do you think Apple’s customer retention rate is?
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Thus far, I haven’t found any research that documents what donor retention rates should be, but I talk with research colleagues and top-tier fundraisers regularly about retention. Everyone agrees that 50 percent isn’t good enough.
So that’s year-on-year donor loyalty—your new best friend.
Danger re Your New Best Friend
You’re excited about year-on-year retention rates. And relationship building isn’t as hard as asking for gifts. You’ll find that board members and even staff embrace and participate in these adventures.
(I know, you’re tired of the buts, but there are so many and we are so bad at retention work.)
There’s a danger point in building that year-on-year donor loyalty. Danger comes with the first gift. Research shows that seven out of ten first-time donors don’t give a second gift.
And why is that? Because we are so bad at nurturing relationships. We can’t even retain donors for a second gift!
Of course, there’s a body of knowledge and best practices that have been passed on for years and years about how to retain donors. Read it! Read the new stuff, too. Follow the research about how to transition first-time donors into a next gift. (I’m not going to mention all the names in this column. You can find them on the Internet, in my blogs and newsletters. And so forth.)
But Wait! There’s More!
Research estimates that it costs ten times more to acquire a new customer or donor than it does to keep a current one.
Yes, you read that correctly. From a financial point of view, it’s lots cheaper to retain your current donors than to acquire new ones.
Can you imagine justifying that the fundraising budget needs more money because retention rates are so low that we have to acquire new donors, and that’s expensive?
Of course, you have to pay attention to acquisition, too. Because there’s natural attrition of donors, like geographic relocation or the permanent relocation of death.
And speaking of death—who are the likeliest prospects for bequests? Loyal donors. Not old people. Not wealthy people. Loyal donors!
Did you know that the largest gift most people ever give is a bequest? Yet, U.S. nonprofits don’t spend much time on bequest fundraising. That’s what research says. What are we waiting for?
So, in summary, you always have to acquire new donors. But first you work hard to retain your current donors. That’s the proverbial “no brainer.” And there’s extensive research—and more coming—about relationship building to nurture loyalty.
Retention matters. Loyalty is the holy grail of any business, including fundraising.
How will you remind yourself and your colleagues?
How about some bumper stickers and some equations? Maybe posting them around the office could help.
Here are some to start with. What would you add?
Research (both practitioner and academic) + Application = Better Results (in any area of operation)
Academics + Practice = Stronger Professions and Stronger Professionals
Body of knowledge and best practices improve when we have academic and practice research—and then test (and test some more)
Donor retention produces $$$ (or £££, or euro sign, etc.)
Extraordinary Experiences + Donor-Centered Communications = Relationship Building
A little scenario
Your NGO acquired 100 new donors this year. Seven out of ten won’t renew, leaving you with thirty for the next year. Forty-three percent of those thirty may become year-on-year donors, leaving you with thirteen.
Try justifying that to your boss and board. Better yet, use this scenario to justify a wonderful relationship-building program that doesn’t cost anywhere near as much as donor acquisition, and engages board members in no-cost or low-cost activity.