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Fundraising Metrics Research Stewardship

Reflections on teaching the Fundraising Effectiveness Project’s Donor Retention Self Assessment Workshop

Over a year ago, my friend and colleague Michael Buckley of The Killoe Group asked if I wanted to teach the Association of Fundraising Professionals’ official course on donor retention, powered by data from the Fundraising Effectiveness Project. Since my company is a data partner of FEP, I jumped at the chance.

It takes a few months to officially approve and schedule the course itself but in late January 2019, Michael and I set up in a conference room at the Marriott in Saratoga Spring, NY and readied ourselves for seven hours of data driven discussion. While he and I had spoken about the key performance indicators of FEP’s data before, we had never done an intensive all day workshop around it and were both excited and nervous to see how long we could keep the attention of our participants.

I thought it would be useful to break down the ways that the course itself is structured and the practical realities of putting this vital data set and metrics in front of actual fundraisers. Here’s what I learned from doing this course.

Overview

The AFP has put together a stellar set of resources for workshop organizers when it comes to getting the course together. A thick and well organized faculty folder was provided as well as access to a recording on how to properly teach the course. Slides were also provided to help guide both faculty and students through the material.

The Donor Retention Workshop has three primary learning objects, which we debuted upfront:

  • Identify effective practices to retain and upgrade donors to improve fundraising effectiveness
  • Prepare a donor retention plan for the participant’s organization
  • Use data from growth-in-giving reports to develop growth-oriented fundraising strategies

With these three primary objectives serving as our anchor, we started to unpack the realities of working with donations data and how to leverage the free tools that FEP has created and put them into practice.

Section One: Why Organizations Lose Donors and Money

As we kicked things off in earnest, I was nervous that putting tons of charts in front of participants would scare away the less data savvy folks in the room. Yet what was great about the course is that it starts off with a lot of great foundational information on why it’s important to pay attention to retention.

Michael and I stressed that retention is an important metric to pay attention to when addressing donor attrition (or having people stop donating to your organization). It is one of the best ways to stop revenue loss at a nonprofit as well as the easiest path to growth of the organization.

Simply looking at overall revenue profit and loss on a yearly basis is a recipe for disaster down the line, since a few large gifts may mask an underlying issue of support of your organization from your donor base. We reminded the room that their donors are not their donors and unpacked excellent research by Adrian Sargeant on lapsed donor behavior.

Section Two: How Keeping Donors Increases Fundraising Success

This is when the rubber really started to hit the road, where we dove into the harsh reality of donor retention impact on long term growth. Sargeant’s research demonstrated that increasing the level of retention by 10% would improve the net growth in giving for a “typical” charity database by 50%. We stressed that retention was both a short term and long term strategy that would never fail.

The top reason that donors stop giving to a nonprofit is that they feel that the organization no longer cares about them, which is why we stressed the importance of prompt and gratitude focused thank you communication. The ability to thank a donor in an authentic way is well demonstrated as the most effective way to keep that donor and we didn’t let our participants forget that.

Section Three: Measuring the Effectiveness of Your Fundraising Efforts

This is where the FEP data really started to come out and play. While I’m personally used to getting up to date findings from the FEP research team, it was really exciting to see how these have been folded right into the faculty curriculum to ensure that anyone teaching this course would be able to speak about the most up to date data possible.

Key findings from 2018 that we related were:

  • Larger nonprofits perform much better than small ones
  • New gifts / donor generate the largest growth in gift dollars / donors
  • Lapsed new gifts / donors represent the greatest losses in gift dollars / donors, particularly for the lowest performing organizations

One of the most effective tools that we were provided were the Kirkwood Case Studies, which were targeted discussion items around a fictional children’s education nonprofit that allowed nonprofits to identify with the issues raised in a way that they could relate with yet not feel defensive about comparing themselves to a “more successful” organization. Kirkwood was designed to be the perfect strawman, creating insightful discussion that generated some of the most exciting discoveries I’ve experienced.

Section Four: Developing a Successful Donor Retention Plan

After an excellent lunch, we got down to the business of unpacking the case studies and seeing what we could actually do with them. One area that was not included in the faculty guide but helped us greatly was the concept of developing Donor Personas.

A Donor Persona is a way of articulating messaging and strategy around a particular subset of donors. For simplicity, we had our groups work on three primary donor personas that we then crafted a strategy matrix around:

  • New Donors: one of the worst retention rates industry wide is around new donors to an organization, with the average organize losing 25% or so of their first time donors. The group came up with a great matrix to unpack strategy, tactics, and metrics around new donor engagement.
  • Lapsed Donors: this is where retention really starts to come into play, since it costs $1.25 to acquire a new donor yet can be significantly less costly to bring a recently lapsed donor back into the fold. The group came up with several strategies around how to bring a lapsed donor back into the fold that focused on providing a personalized touch.
  • Recaptured Donors: the unicorn of the retention world and the one that can cause the most stress and aggravation is trying to bring donors who have lost interest for several years in a row back into the fold. The group had some excellent strategies and tactics to address these types of donors, with a particular focus on individual and personalized outreach.

We encouraged all groups to think about how they would track this information in an effective way. What types of metrics mattered and what were simply vanity metrics with no bearing on outcomes? And in one of the most important growth points in the FEP data, we also encouraged the participants to think about retention in an omni-channel way.

The reality is that the most effective donor engagement strategies are ones that empower donors to give through a wide variety of mediums, yet with only so many hours and resources at our disposal we encouraged the group to be effective in how they would implement any of the strategies they thought of.

Section Five: Review and Apply What You’ve Learned

As we geared up for the end of the workshop, we wanted to ensure that each and every single participant would be able to walk out of the workshop with something actionable specific to their nonprofit. We encouraged each of them to come up with a goal around retention that they could work on, asking them to be SMART about their planning.

The results were fantastic. A few highlights:

  • One participant had run her actual data through the free tools provided by FEP and brought her print out of the results. We were able to sit down and develop a plan that focused on her top level donors with a realistic stewardship plan that involved personalized outreach through phone and direct mail
  • A participant who came up from New York City (!) stated that his organization focuses heavily on email campaigns that were crisis based in their messaging. As he worked through the data in the case study, he began to realize that adding another messaging layer around and educationally based outcomes report to donors would be an excellent way to create a long term relationship
  • We discussed how creating a culture of philanthropy is a two way street, where many times our organizations may be the first exposure an individual has with giving and our ability to steward new donors right away could mean the beginning of a long term relationship
  • We also discussed the importance of using data to demonstrate our own value as fundraising professionals to our stakeholders, especially as it relates to the salaries we draw. Being able to use data strategically will have an immediate effect on morale and burnout in our industry.

The workshop was one of the best educational experiences that I’ve been a part of and hope that others invest the time and very reasonable resources into implementing this course in their own communities.

Categories
Metrics Research

76/4, 89/14, 96/33: The New Fundraising Rules You Need to Know

As a fundraiser, you probably know the 80/20 rule: About 80 percent of your gifts will come from approximately 20 percent of your donors.

The 80/20 rule is based on the Pareto concept: a small proportion of causes produces a large proportion of result. The general 80/20 rule appears in many different professions, including science, sports, computer software, and occupational health and safety.

Today, with better technology, research projects like the Fundraising Effectiveness Project (FEP) can drill down into detailed giving data from thousands of charities. And we’re learning that the 80/20 rule, while a useful rule-of-thumb, it isn’t as precise as we need.

Applying the Pareto Principle to data from the AFP-sponsored Growth in Giving Initiative enables FEP analysts to consistently give us new research-based rules, or ratios, that as fundraisers, we need to understand. Most importantly:

Seventy-six (76) percent of contributions comes from four (4) percent of donors—those who have given $5,000 or more.

That’s right, basically three-quarters of giving comes from the top four percent of our contributors!

Furthermore, as shown in the graph below, the corollaries to our new 76/4 figure are:

  • 89 percent of giving comes from the top 14 percent of donors (those who’ve given $1000 or more) and
  • 96 percent of giving comes from the 33 percent of donors who gave $250 or more.

Try this for a truly sobering figure about how top-heavy giving can be: two thirds of donors (67 percent) account for only four (4) percent of giving!

These are the new Pareto figures for fundraising. Now, of course, your analyses may vary. Every charity will be different.

For this analysis, FEP selected data from the Growth in Giving Initiative (GiG) Database at the Urban Institute for 7,015 small-to mid-size organizations.  These organizations raised $6 billion in 2016 from over six million donors. GiG Database providers include Bloomerang, DonorPerfect, Neon and eTapestry (Blackbaud). 

But these findings have remained steady through the last six years of data that the FEP has been tracking giving (and receiving more and more data from an increasing number of participants).

What do we learn from these figures? Three things. First, think about those two-thirds of donors who gave less than $250 and account for about four percent of giving. How much are we spending on them? How are we cultivating them? A lot of people in that group might be new or one-time donors, and we know from other FEP data that donor retention rates for new donors giving under $100 average around 21 percent. If we can turn some of these under $100 donors into, for example, $20/month recurring supporters, we can dramatically transform our giving.

Second, we must identify our key $5,000 plus supporters—as well as potential key supporters—and enhance our donor cultivation efforts for them. Cultivation is critical! Identifying top supporters is easy, but it’s the supporters one or two tiers down— those in the $250 to $999 category, but not yet in the $1,000 up category—that we need to understand and engage with.

Third, we can use new technology to gain even more detailed and accurate data about fundraising—but we must use it! There are great tools, such as AFP’s free Fundraising Fitness Test, on the FEP website (www.afpfep.org/tools) that you can employ to benchmark and analyze your own giving data

I encourage everyone to participate in the FEP and provide their giving data to the project. Working with fundraising software providers, the FEP takes steps to ensure that the data used is anonymous. Talk to your provider if they’re not already involved, or contact the FEP (at fep@afpnet.org) for more information on how to help.

To be the most effective and efficient fundraisers possible, we need the most accurate and detailed data possible. The Fundraising Effectiveness Project is a valuable tool in improving fundraising and understanding what is working, what isn’t, and where we should best focus our efforts.

Our new rules for success, like 76/4, are a direct result of having the best data. It’s time we all got involved for the betterment of our individual organizations and the professional overall.

Categories
Fundraising Metrics

Keeping A Finger On The Pulse Of Your Organization’s Health

We all know that fitness is important to stay healthy, focused, and to overall enjoy our lives. Yet have you ever approached your nonprofit’s fundraising data the same way as you would your own health? When you’re first starting a training program, you don’t immediately jump into the heaviest weights or the highest incline on the treadmill. Today, we’re going to help you dust off those data skills, stretch your analytical mind, and put that brain to work.

What is the Fundraising Fitness Test?

In collaboration with PSI/Adventist, the Fundraising Effectiveness Project has developed the downloadable Excel-based FEP Fundraising Fitness Test (#1). It allows nonprofits to measure and evaluate their fundraising programs against a set of over 150 performance indicators by five donor giving levels. The fundraising performance reports are generated by inserting gift transaction data into the Fundraising Fitness Test Excel template.

However, we are going to concentrate on the primary items to review when first getting started with the Fundraising Fitness Test. Having data is important but we want to focus on the primary indicators that are going to be actionable and informative when you are planning your appeals and campaigns.

What are the standard reports to focus on?

Having over 150 performance indicators can be overwhelming if you’re just now getting into deep data dives that the Fundraising Effectiveness Project analyzes in its own work. That’s why we’ve put together this handy training guide so you can start getting ready for your own fitness test. Let’s look at some of the most interesting indicators that your nonprofit should pay attention to.

Donor Retention RateThe number of donors who gave last year and gave again this year, divided by the total number of donors last year.

New Donor Acquisition Rate – The number of new donors this year, divided by the total number of donors last year.

Net Gain of Donors – The net of gains in the number of donors minus losses in the number of donors from last year to this year, divided by the total number of donations last year.

Average Gift – The total dollars received divided by the total number of gifts received.

Growth In Giving – The net of gains and losses in giving from last year to this year, divided by the total value of gifts received last year.

Lapsed Donors (or Attrition Rate) – The number of donors who gave last year but not this year, divided by the total number of donors last year.

As mentioned, these are just the beginning of the key performance indicators that your nonprofit should be paying attention when loading data into the Fundraising Fitness Test. But why are these important in the first place?

The importance of fundraising fitness

Health is important. And just like our own health care system, your nonprofit’s health can be complicated and frustrating if you aren’t sure what to do with the information you’re given. The above metrics are a great start to understanding what is going on with your donors, but what exactly should we do about it?

We’ve heard from Ben Miller before on the importance of some of the metrics outlined here. Consider that a great starting point if you’re looking for concrete details on what to do when you have the data run through the fitness test. We have also gotten a deep dive from Jay Love on retention—one of the best starting points for understanding how your organization is doing—with some particularly exciting insights into household giving.

Yet why does any of this matter? What happens if you’re bringing in enough money to cover the bills, perhaps even exceeding last year’s revenue goal? What is the Fundraising Fitness Test going to actually do for your organization?

Let’s take a concrete example and unpack it. Let’s say your organization’s overall donor retention rate is at 59%, so you’re keeping a majority of your donors. However, you can’t just look at retention rate for a full understanding of your fundraising health. For instance, what happens if you have a high donor retention rate but have high losses in the number of donors? What story might that tell?

Simply looking at the percentages isn’t enough; your organization must look at the actual people and amounts that are being retained, lost, etc. A high retention rate of small gifts may be completely wiped out by the loss of one or two major gifts. Diving into the people behind the gifts is a vital part of completing the fitness test itself.

How can I act on the information I learn?

Once you’ve taken the test, you need to lay the information out and connect the dots together. Taking the standard reports we’ve outlined above, your organization will begin to identify holes in your donations strategy and should work to plug them. Just like if you went to the doctor and might be hitting your weight goal but have high cholesterol, your nonprofit needs to look at the full picture and create a plan to identify what to do.

Let’s break out a short overview of what can be done for each of the primary reporting items we identified above. Check to see if you see that there are issues when you run your own report.

Retention – Work on your stewardship program, creating processes to communicate with donors in a clear and meaningful way.

Acquisition – Create outreach events that are designed to introduce your nonprofit to new people in your community, such as having a board member host a party where you highlight your mission to the board member’s network of friends that have been personally invited.

Donor Gains – Ensure that any outreach efforts made, such as the board member event, are followed by solid stewardship procedures with a personal touch by appropriate staff and volunteers.

Average Gift – Review the copy of your appeals and see if they either are suggesting too little or if you provide too many options for donors to give. They’ll gravitate toward the lowest ones if you give them too much time to think about it.

Growth In Giving – Segment your donors into giving levels and try to understand the percentage gains in each level. If you’re seeing significant lag or dips in one particular level (especially the highest) then take time to create a specialized outreach plan for those types of donors.

Lapsed Donors – Check the appeal lists you’re sending out. Are you giving special attention to donors who gave at a certain point when you’re doing your appeal but haven’t yet? Spot check your lists for prominent donors and ensure you haven’t missed something.

The above is just the beginning. There are deeper metrics that the Fundraising Fitness Test can showcase, such as the Pareto Principle (80% of your revenue comes from 20% of your donors) or six-year trends of giving. When running your data through the fitness test, approach it as something that must be acted on and you’ll be on your way to a healthy check up year after year.

Categories
Metrics

6 Metrics Fundraisers Can Use to Improve Their Growth in Giving

Ask any fundraiser if tracking their donors giving history is important and the answer should undoubtedly be “yes!” Unfortunately, living in today’s world of Big Data can lead anyone to easily get lost in its vast sea of data points (check out this article in Scientific American about just how big our world of Big Data really is).

Therefore, it’s critical to narrow down which metrics matter most to your organization and how to best track them.

In general, the two most important things to consider about any metric you wish to track are:

  1. Will changing this metric improve my ability to achieve my objective?
  2. What strategies and tactics can I undertake to improve the metric?

To illustrate the how and why these two questions are important, let’s use an analogy we can all relate to – keeping a doctors’ appointment. Your objective is to get to the doctor’s office prior to your appointment time. Consider that there are three possible outcomes: arriving early (your goal to get more time with your doctor,) arriving on time, or arriving late.

Let’s start with these two metrics:

  • The time by which you need to leave
  • How fast you need to travel

Just knowing how fast you are going or what time you left, however, does not help you get to your destination early – unless you can change either your speed or your time of departure. So according to this example, there are two strategies one can undertake to achieve the objective: either leave earlier or drive faster. But you really can’t determine if A is the best strategy without also knowing B. Then, factor in costs associated with both. Driving faster costs more money in gas. But leaving earlier costs more in time. Do you want to arrive early because you need more time with the doctor? Or are you okay with the status quo time allotted? And if you’re late, can you really afford to miss the appointment?

The same is true for fundraising metrics. Take Growth in Giving for example. Growth in Giving is defined as the gains minus the losses. If you gain more than you lose, you have a positive growth, versus losing more than you gain, which will equate to a loss. Simple enough right? This growth/loss number is very important, but if you only have that number to examine and are looking at it alone, then you’re not able to do anything except understand whether you did better or worse than the prior year.

If you really want to achieve your desired result, you need to understand how your chosen metric ties into your overall objective and what strategies and tactics you can undertake to improve that number. (Do you need more time at the doctor or are you just trying to keep the appointment?)

There are six primary metrics and multiple ways to improve their growth in giving. I will review a few of the ways these metrics can grow:

The growth number as it relates to new donors is perhaps the most straightforward but it’s also the most expensive. To improve this number, you must acquire more donors. You can do this through purchasing and trading name and address lists to create direct mail and email, fundraising events, face-to-face canvassing, telemarketing, direct TV, and peer-to-peer fundraising to name a few of the most common and tested acquisition methods. New donor acquisition is very costly at the onset because the return rate is generally quite low. Therefore, it’s very important to track the cost to acquire a donor (your CTA) for each of these programs to determine which acquisition strategies work best for your organization.

To retain or recapture a donor you’ve already acquired, the same basic acquisition strategies apply. However, it’s easier to retain a donor that is already engaged with the organization than it is to recapture. At the base of any strategy to retain/recapture a donor are a few fundamentals. First and foremost is to acknowledge how much their donations have helped the organization and thank them for their gift. Be very clear about how much you value them. Then present them with compelling reasons to continue to donate to your organization. Demonstrate that the need still exists and illustrate clearly how your organization is helping to meet that need by sending your donor regular updates. This all seems pretty straightforward, but it can be difficult to balance your need to ask for a donation while being sensitive to the donors’ ability and desire to donate again.

The retained donors that increase their giving have demonstrated their ability and desire whereas the retained donors that decrease their giving may have lost either the ability, or desire, or both. While it is difficult to gauge a donors’ ability and desire, using a donors’ past behavior can help to predict future donations. Whether you use predictive models like we do at DonorTrends, or Recency, Frequency, and Monetary value (RFM) variables, looking at your donors’ past behavior can help to determine not only how much to ask for but when to ask for it. For example, if you have donors that have given at least $100 every year in December for the past 10 years, it would be a good bet that this coming December is a good time to ask and $100 would be a good amount to ask for. If your objective is to increase their donation, further looking at their past behavior can help you determine what the right amount is to request.
The lapsing new and repeat donors are the donors that are not retained on your house file. The lapsing new donors are the ones that only gave one gift and will lapse at a much higher rate than the lapsing repeat donors. In either case, using the same fundraising methods as described above will help to reduce this number, however, you will need to test and finesse which strategies work best for your organization.

For all of these metrics, keeping track of them year over year will allow you to calculate an average for each. You can then assign a life time value (LTV) to each new donor that you acquire. Those averages will help you plan for the future and know what to expect. I recommend using a 5-year average for your LTV and then adjust your growth based on your knowledge of current trends. Using that calculated average will iron out any variances due to outside influences and give you a good place to start.

Hopefully, I’ve illustrated both how and why it’s so important for you to track these critical metrics. Fortunately, the Growth in Giving Initiative has created a free Fundraising Fitness Test that allows any non-profit to track their metrics. So there are no more excuses for missing your doctor’s appointment.