A DonorTrends White Paper September Top Ten Things Fundraisers Should Monitor

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1 A DonorTrends White Paper September 2006 Top Ten Things Fundraisers Should Monitor At any point in time, the non-profit fundraiser probably has one of these three questions uppermost in mind: Are we ready for tomorrow's six-figure pitch to Ms. Big? Is the proposal ready for The Huge Grant Foundation's Friday deadline? Why is our latest prospecting package sucking eggs? Fair enough understandably, this week's agenda always presses to top of mind. But if you're a fundraiser who doesn't like surprises (or you have a boss with this phobia), then what are the most critical data and trends you should be tracking if you want to stay ahead of the curve planning for success? Here are our recommendations. Since fundraisers are most interested in numbers, we've started with a few "hard data" items. But the "soft" items farther down are no less important indeed they're probably more important in terms of fashioning long term strategy. 1. New donor bonding rate No single indicator better registers the health of your direct marketing program than your renewal or retention rate for first year donors. If this rate is low, or falling, start losing sleep. You could be recruiting lousy prospects in the first place. Your message could be losing its zing. You did something to disappoint them? You let them languish too long. For some reason which you must identify, you are failing to convert first-time handraisers into institutional supporters. Why? They can't all have made a mistake in giving you their initial support! An important corollary indicator of new donor bonding is your "second gift lag time." Our hard data indicates that if it takes you much more than two months to win a second gift from a new donor, you've got a problem either of direct marketing process/tactics or with the commitment of your donor. 2. Lifetime value by source of donor Prospecting is hard, expensive work. And it's tough to explain that initial prospecting subsidy to non-marketing bosses and boards. So you've just got to know where your "best customers" are coming from. Not just to make immediate rollout list decisions, but to really understand what your optimal market segments and promotional channels are, so you can optimize your investment in new donor acquisition. Certain sources might over-deliver donors with higher lifetime value, justifying higher acquisition subsidies (in turn permitting faster file growth). Other sources might look good in the initial stats, but fail to produce durable, high 2006, DonorTrends and Craver, Mathews, Smith & Company

2 value donors (for some organizations, this might include donors acquired via premiums). You need to know the difference to set and target your prospecting investment properly. 3. Cost of funds raised The more diversified your fundraising mix gets, the more attention you need to pay to calculating the return on investment associated with each element of your overall strategy. You might be spending money on direct marketing (and perhaps multiple channels mail, online, TV, etc.), major gifts (again, with multiple tactics, from events to one-on-one cultivation), foundations, planned giving, cause-marketing, canvassing, local/chapter fundraising, whatever. How accurately can you assign full and true costs to each of these activities? If you can, what do the cost trends look like? Most importantly, how do these costs relate to actual revenue produced what is your return on your marketing investment (ROI)? You need to be able to answer questions both within and across activities. For example: Is my ROI on direct mail getting indefensible? What does a dollar invested in direct mail yield, compared to a dollar invested in online promotion? Where would I get the most return if I had another $200,000 to invest in fundraising foundations, major gifts, bequests? 4. Incremental online revenue Regularly now, we see breathless reports on surging online contributions. Without question, donors are more and more comfortable with giving online (they've "practiced" by purchasing real goods), and in some instances, like disasters, the combination of emotional impulse and convenience makes online giving a nobrainer. We want everybody to raise lots of money online! That said, we're nervous that very few groups seem to know whether they are raising new, incremental funds online, or whether their donors are simply "channel swapping" shifting their giving from their customary mail response to the online medium. To what degree might your online program be cannibalizing your mail program? Of course, even if there's a lot of channel swapping going on, your organization could still be benefiting from lower costs per dollar raised and/or larger average gifts from those who shift to online contributions (which appears to be a near universal pattern). But the point remains, if you don't know, how can you possibly be making prudent allocations of your marketing resources?! 5. Donor base "capitalization" Small gift donors are important of course for their day-to-day giving. For many organizations, they represent the bulk of operating income. But smart organizations recognize that these "average" donors are also the most important "breeding stock" for two other types of giving major gifts and planned gifts. Fundraisers must track your effectiveness at transitioning average donors into these two other categories. If "direct marketing" and "development" operate in 2

3 separate silos, "ownership" issues and the requisite sharing of intelligence and hand-offs can be nettlesome. Of course, not every $50 a year donor is capable of crossing the $1,000 threshold, or is actively thinking about bequests. But most organizations would be surprised to find out how much potential there actually is to further "capitalize" upon their small donor base. Begin by tracking how many "major gifts" and bequests originate from donors acquired via your direct marketing program. Benchmark your organization against others in these two areas. 6. The reserve pool Here we're addressing major gift prospects and conversion rates. Of course, yearover-year gains in major gifts gives you the bottom-line. But the underlying healthiness of your major gift program in sustainability terms is a function of the number of viable prospects in the cultivation pool and your ability to successfully close the sales. We suggest two metrics are you meeting an agreed-upon target for ratio of prospects to established major donors at each level of the giving pyramid say at least a 2:1 ratio (some non-profit CEOs we know would expect a 10:1 ratio)? In other words, are your outreach and cultivation programs (including your direct marketing program, per item #5) surfacing enough prospects to maintain growth? Then, to ensure that you don't simply inflate the pool with long-shot prospects, what is your year-to-year success rate at converting major donor prospects? Many development shops simply continuously add names to the pool, quietly dropping the deadwood, without coming to grips with their actual close rates. There's no point in simply "inventing" a close rate. Look candidly at your actual data for the last year establish your close rate on those prospects as a benchmark and give yourself a reasonably higher target rate for next year. 7. "Best donor" satisfaction These are the folks who know your cause and organization best, and therefore give the most. A certain amount of churn is inevitable amongst your marginal donors. But if you see signs of erosion in interest, enthusiasm and giving amongst your best donors, start sweating. Begin by uniquely defining the segment for your organization e.g., the 10% of direct marketing donors who probably contribute 30-40% of your income, plus all donors who give at the $1,000+ level. Track their actual giving behavior as discrete segments. But also survey them regularly (By the way, we offer an online Loyalty Insight Portal program for this purpose). Ask them if they have recommended your organization lately to a friend, or if they would be willing to. Monitor online, call center, relationship manager and any other feedback loops you have in place. Indeed, make a special point of providing easy-to-use feedback opportunities and tools for your "best donors" the more dynamic the better. 3

4 8. Transparency of reporting We expect that, increasingly, donors will be demanding accountability giving less out of guilt or impulse and giving more on the basis of: a) actual results, and b) perceived efficiency in the use of contributed resources. With respect to external reporting, if you have a marketing role in your organization, you need to monitor and be a strong advocate for the focus and clarity of communications in these two areas. You might not be directly responsible for achieving programmatic results, but you certainly need to be a champion of ensuring that results are effectively communicated. While you might not be the CFO, you must be a voice for candid, straightforward presentation of financial information to donors & members. As research reported recently in The Chronicle of Philanthropy underscores, charities get no free ride when it comes to credibility with and confidence of erstwhile donors. With respect to internal reporting, don't deceive yourself or anyone else about the performance of your fundraising programs. Don't pass off "managing for net income" as a cover for not having an effective prospecting program. Conversely, don't try to meet over-ambitious gross revenue targets in the short run by making unsustainable investment in fundraising costs. Use honest metrics and use them consistently over time, whatever story they tell. 9. Your competition Yes, with all appropriate gestures towards collaboration and camaraderie, you do have competition. This is a mindset too many non-profit fundraisers and communicators fail to develop. But the truth is they are trying to recruit your donors and members right now. Collect systematically and study everything "they" disseminate that you can get your hands on newsletters, direct mail, annual reports and of course visit their website regularly and sign-up for their e-newsletters, blogs, action alerts, whatever. Put it all up on the wall somewhere (an inner sanctum of course) where you can be reminded regularly that someone is chasing after your donors and activists. Maintain a list of things they are doing in terms of marketing and communications that you admire admit it, envy. Then figure out how to adapt or improve for your organization. 10. The news Duh! Headlines matter. Most obviously in terms of driving impulse giving. Could be in response to a natural disaster could be in response to a political disaster. And in today's online world, analysis indicates that the giving response will spike in a matter of days. You need to be ready ahead of time with fundraising systems and messages. But bona fide emergencies aside, nobody raises money in a vacuum at any time. Giving is strongly associated with education level, and the more educated folks 4

5 are, the more news they consume on a regular basis. Today's headline might catapult your issue from relative obscurity to "top of mind" status. Again, perhaps only fleetingly you need to be ready to pounce, especially in terms of online solicitation and direct mail special appeals. Longer term, if you observe persistent trends in news coverage or spin pertinent to your cause or issue, you can gain insight into how to better position your appeals and messages for the future. Is the media world buzzing about "values" about "security" about "global warming" about "bird flu" about "malfeasance in charities"? Maybe the latest buzz doesn t affect your cause or charity at all; maybe it's about to blow you out of the water or thrust you forward; maybe it's about to spawn out of the blue (seemingly) a new competitor, because you've been asleep at the switch. Following the news, at least the news that's most obviously pertinent to your mission, is easy these days. If you're not using RSS (look it up on ) to get customized daily news feeds online from the major, and minor, news sources around the planet, turn in your marketing badge! Some of these items are simply a matter of straightforward statistical reporting, and appropriate routines can ensure that you're getting the indicators you need on a regular basis. Some require a bit more individual persistence and ferreting out. But the more you can lift your head out of the weeds, the more successful your fundraising program -- and you -- will be. 5