Donor Acquisition In A Recession
Awhile back, reporting on results from our Vital Signs survey on fundraisers’ assessment of their near-term fundraising prospects, I expressed surprise that a handful of respondents indicated they would be increasing their new donor acquisition efforts in 2009. What I expected was that most fundraisers would face terrific pressure, based on falling returns and management pressure to protect short-term net income, merely to maintain prospecting levels, if not to cut back. And the survey results bore out my suspicion.
Recently, Steve Hitchcock at Bread for the World took me to task for my observation. Here’s our exchange, plus some comments from Roger, which I think bring to focus the considerations that argue for carefully proceeding with new donor prospecting in 2009 …
In your vital signs posting, you indicated you were curious about the circumstances of those who were increasing their direct mail acquisition efforts in 2009.
I was one of those who stated that, in 2009, we planned to increase acquisition quantities. I don’t really see an alternative. Do you?
I’ve been doing this work for a very long time – including 22 years with Mal Warwick & Associates until January of last year. Since then, I’ve been an employee of Bread for the World, which had been an MWA client since 1989. Perhaps my long tenure is blinding me to some new realities.
But, as with most organizations, response rates to Bread for the World acquisition mailings dropped by about 40 percent in the summer of 2007. Response rates have nudged up slightly but nowhere near the pre-2007 results. Fortunately, membership renewal rates have stayed steady, and the organization is blessed with more than 4,500 monthly donors in its Baker’s Dozen. At this point, even though acquisition response rates are down, the newly acquired members appear to converting to continuing members (and Baker’s Dozen participants) at the same rate in the past.
In 2008, we mailed more acquisition pieces than we had planned at the beginning of the year, and we plan to mail even more in 2009. It’s the only way I see to maintain the same size of membership base – and sustain roughly the same level of membership revenue. The tactic “mailing more to your best donors” may produce more revenue in the short run, but – very soon – you’ll end up with fewer “best donors” to mail, phone, and e-mail.
If I’m overlooking something, I’d love to hear from you.
I replied briefly …
No argument from me on basic notion that the bucket — hopefully with as few leaks as possible — needs to be re-filled (at least maintained). The issue is: at what cost? If it can’t be re-filled at a sustainable investment cost — either because attrition is so severe, and/or acquisition rates are too paltry — then you have a dying organization.
. . .
I think most direct marketing fundraisers regard prospecting as an investment. And in normal times they are prepared to make that investment based upon historical data that they can reasonably expect to recoup the investment in an acceptable time frame through the income their new donors will yield.
Of course, implicit in this calculus are a series of risks, factors and calculations:
- What is an acceptable timeframe for recoupment?
- Do I in fact have evidence of a mailable universe of acquisition prospects for my cause/charity that can be expected to yield adequate response in terms of new donors?
- Will these new donors indeed yield the lifetime value I have projected (and just how well grounded is my lifetime value calculation in the first place)?
These are questions that involve risk even in the best of times. In the worst of times, they can be paralyzing.
And the best single way I know to help mitigate the risk is to make damn sure I am taking every possible step to retain existing donors and optimize their value. There’s no point in increasing my prospecting risk if I’m just pouring new donors into a leaky bucket. And, arguably, fundraisers should know more about — and can do more about — retaining and developing current donors than finding the magic formula that will yield new donors.
But do they know and do more about retention? As Roger said in his post last Wednesday, unfortunately not. That’s why, with our sister DonorTrends, we will be undertaking a full court press in 2009 (and beyond) to better understand donor retention (Loyalty, if you will) and develop actionable strategies and tools to improve it.
Meantime, here below is Roger’s response to the issues Steve raised.
Roger adds …
The great, and largely unacknowledged problem, to effective fundraising over the long term is the pitiful state of information.
However, if an organization truly understands the source of its gifts and understands how the process of upgrading over the years truly works (in spite of what most organizations or consultants do), they would be willing to pay far more for the right type of newly acquired donor. Why? Because in virtually all organizations a significant portion of the major gifts spring from the ‘small’ gift programs and so do significant (although not the majority) of bequests. And when these riches are imputed back to acquisition costs the return on investment is terrific.
The principal barriers in securing a sustainable and always-growing future are: 1) lack of long term finances and investment understanding on the part of most fundraisers and boards (immediate, next-year returns are the rule); 2) Pitiful analysis of the source of gifts over the long term; 3) almost primitive metric devices like RFM (recency, frequency and monetary value) which measure the past but tell little about the future and 4) just plain intellectual laziness. (Intellectual accomplishment is measured, sadly, by whether or not someone has mastered Xcel and can map last year’s activity over to next year’s projections.)
Steve’s question is exactly on point for any organization truly concerned about its future. The fact is that that most should be investing (interesting that most fundraisers refer to this as ‘subsidizing’) two to three times more than they currently do. And if they tracked back to the sources of their greatest current largesse, they’d understand why. Few bother.
His question is particularly germane in this climate when most fundraisers and CEO’s will freeze, either by cutting costs, and most importantly, reducing or eliminating investment in new donor acquisition and increased expenditures on retaining and upgrading the ‘core’ supporters. This is why historically there is usually a dramatic fall in income one, two and three years after a recession or major crisis. They turn off the fountain of the future (prospecting) in order to save on today’s water bill.
I’ve been thinking a lot about this and I’ve come to the conclusion that the most practical course of education for most fundraisers would be a minimum of five years experience on a well-run farm. They would learn the cost of not investing in seed corn…they would understand that an investment in weeding (cultivation) and good fertilizer (information and accountability for donors) is essential for sustainability. And, if they were fortunate enough to work on a farm with an orchard they would come to understand that it takes 3 sometimes 4 or even 5 years to bring in a high-yield, highly profitable harvest of fruit from newly planted and continually pruned trees.
Sorry for the tirade, but I felt Steve’s good question deserves a candid response.
Yours in sustainable agriculture,
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