The Agitator

Donor-Central asks: Are we completely wrong?

Posing the possibility that donors don’t want more of a relationship with their charities … in fact, they want less. And if that’s right, says Donor-Central, then the traditional direct response model — acquire as cheaply as possible and then cultivate like hell — is breaking down.

They cite the steadily declining 5-year lifetime values of donors to an un-named “big nonprofit” to raise this point.

Let’s set aside for a moment the problems inherent in using the experience of any single organization as the basis of such theorizing. Starting with the possible ineptitude of that organization.

Assuming many organizations are seeing the same declining value pattern, what might be the non-idiosyncratic possibilities for it?

For one, steeply rising acquisition costs, which virtually every nonprofit is facing. That will certainly (and significantly) drive down the 5-year net for each successive cohort of donors.

A corollary: as groups strive to keep their acquisition numbers up, they push beyond their core market and capture more ‘less qualified’ donors who are intrinsically more casual … less committed. I’ll come back to this in a moment.

A second reason. Much reporting on the recession’s impact on giving has noted that the fall-off has occurred more in terms of average gift than loss of donors (although certainly both have occurred). That too will obviously drive down their multi-year value over the past three years. At the same time, this pattern also suggests that loyalty does indeed count. Donors give smaller gifts as opposed to abandoning ship.

A third reason is that donors are becoming more discriminating and harder to please. So each cohort will have a wider range of donors in terms of their commitment. But not knowing how to identify which of these donors might actually be more committed, groups throw money at all of them, wasting most of their resources on a larger number for whom the heart beats only faintly. When clearly there’s a Pareto principle at work, and the greatest value is buried in only 15-20% of those donors. It’s becoming far more important to be able to identify, early, those 15-20%.

That’s why the project Roger wrote about last week, now underway with our DonorVoice colleagues, is so important.

We think donor relationships remain very important, but that commitment levels vary widely … but also that commitment levels of donors can be pre-identified and investment in them optimized accordingly.

And we’re putting that theory to empirical test with more than 20 organizations who signed up with us for the experiment … our Retention Lab.

Roger last week wrote about how DonorVoice is going about this, and indicated our willingness to share the learnings with Agitator readers who wish to be kept abreast of the results. The ‘Lab’ work has already begun, so participation is closed. But you can still sign-up to get our analysis of the results. See Roger’s post for details.

In any event, theorizing aside, ours and Donor-Central’s, we’ll soon have very specific hard data on donor commitment, its value, and our ability to predict and act on it.

Tom

P.S. Thanks to at Future Fundraising Blog for pointing us to Donor-Central’s hypothesis.