Flat Earth Fundraising: Ignoring The Leaky Bucket
…the average nonprofit has a 60 to 70% chance of getting an addition contributions from existing donors;
…a 20 to 40% probability of getting a gift from a lapsed donor;
…but less than a 2% chance of receiving a gift from a prospect.
YET… day in day out thousands of nonprofits pour the bulk of their marketing and fundraising dollars into a leaky retention bucket, seemingly oblivious to this gigantic waste that endangers their very future.
Instead of realizing the 130% return on investment that comes from fixing the leaky bucket and boosting donor retention and lifetime value, most organizations persist in that same old strategy of expensive acquisition and poor retention that is massively flawed both logically and financially.
Several reasons (excuses) are generally offered up, and everyone reading this has heard them ad nausea in one variation or another:
- Because we’ve always done it this way and most other groups do it too. Further, our numbers are no worse than most groups’ — just look at the various performance Indices.
- Because acquisition is easier. We just turn it over to our list broker, printer or consultant; we really aren’t staffed to do much else.
- Because if we don’t replace the donors who leak out of our bucket we’re going to end up with less and less in the bucket; never mind the cost.
Truth be told, the real reason is: “Because we really don’t know how to improve retention and fix the leaky bucket.”
There’s no mystery to solving The Leaky Bucket Problem. However, doing so so does involve innovation, work, and most of all, the admission that the current way of doing business is deeply flawed.
The essential first step is to challenge and change the current mindsets of leadership, staff or consultants stuck in the past, but who continuously whistle past the graveyard promising to produce a different, brighter future.
I assure you you this type of mindset is guaranteed to yield no new ideas, no innovation and – far worse –a future certain of failure; perhaps not immediately, but predictably inevitable.
And so in the spirit of not only looking at but actually doing things differently, we offer these recommendations, based on empirical data and research, if you want to truly prepare for a future different from the past.
- Recognize acquisition for what it is – lead generation. Most acquisition metrics — e.g. cost to acquire, response rate, average gift — are obsessively focused on the winning the battle; very few deal with the far more important goal of winning the war.
The ‘winning the war’ metrics that are without question the most important for the survival and growth of any organization are lifetime value and year-over-year retention rates.
Our industry would be far better off if it literally stopped reporting on the ‘battle metrics’ and only looked at the ‘war ones’.
- Build donor relationships. This is the high level answer to retention. How to improve and measure the financial value of improved relationships — not soft and fuzzy, not about pink or blue paper or personalized notes. The commercial sector is way ahead of ours in figuring all this out. But bottom line: we do know how to define, measure and manage relationship building. See Kevin Schulman’s deck over at DonorVoice.
- Identify the donor experiences that strengthen the relationship. A relationship is the sum total of those shared (i.e. delivered, experienced and reciprocated) experiences. In the nonprofit world these include brand, fundraising and donor service experiences.
- Enterprise-wide segmentation. Very few, if any, nonprofits have enterprise-wide segments, groups that are understood and planned against across the whole organization. These segments differ in their needs, preferences and value. They require changes to the marketing mix, which includes offer, channel, ask and service to optimize their value. Doing so will yield enormous and outsized returns and efficiency.
- Reorganize around the donor. Radically so. Imagine 4 or 5 enterprise-wide segments and then staffing around each. This means a team comprising all the various functional areas (online, dm, donor service, marketing) charged with driving the size and lifetime value of their donor segment. Forget departments, these are donor teams.
- Collect and act on donor feedback at every touchpoint. This is common place in the commercial sector. Think of your personal experience on websites, with hotels or airlines, car dealers, restaurants. All of these sectors routinely solicit feedback post interaction/visit/event. Why doesn’t the nonprofit sector do this? No perceived need? No perceived upside? If the International House of Pancakes (IHOP) cares enough (and they do) to solicit customer feedback on the receipt with a simple 800 number and IVR system, then shouldn’t we in the nonprofit sector be at least as concerned about our donors?
- Experiment more. Fail faster. Think about direct mail testing. It takes way too long to fail. And fail is exactly what occurs the vast majority of the time. Innovation includes risk, risk includes failure. Failure is more than acceptable if it is done and learned from quickly. See Agitator Toolbox.
- Put senior leadership in charge of plotting the new destination, not steering the ship. Maintaining the current course is fairly easy, at least in the short term. Consistently high performers are those who plan for change, while still successful because they anticipate shifts in demand, needs and preference – not just of the donors but the beneficiaries of the mission.
There are a lot of nonprofits in search of reinvention. Senior leadership of these organizations should focus on better understanding the competition, recognizing when your distinctness is being undercut and recruiting new people relentlessly. This last piece, recruitment, is typified by former GE CEO Jack Welch, who spent half his time recruiting new talent. Any nonprofit CEO come close to this percentage? You should.
- Start treating donor service as profit center, not cost center. In the commercial sector and among product companies (versus service), roughly half of the reason a customer will stay or go is tied, not to the product directly, but rather, service level attributes. This means half of your retention battle has nothing to do with your mission features and organizational benefits. A large part of the reason a donor will stay or go is not mission or message or premium offer, it is how she/he is treated when encountering donor services. The opportunity here is not avoiding bad experiences (that is obvious), the real opportunity is recognizing that service can actually improve the relationship and is a critical touchpoint, one that can help to further monetize the relationship with cross-sell and upsell.
Too few nonprofits run their donor services as a profit center and core part of their business. They should.
What are you doing to fill your donor bucket with bottomless opportunity?
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