Fundraising: The Value of the Donor

Fundraising: The Value of the Donor

By Erik Linask, Group Editorial Director  |  December 11, 2012

This article originally appeared in the Nov. 2012 issue of CUSTOMER

The recent devastation left behind in the Northeast by Hurricane Sandy has resulted in countless aid campaigns to help victims of this unfortunate event. All those that have helped in the relief efforts should be praised for their donations of goods, money, and time. But, year-round, similar aid efforts are put into action for any number of causes, from medical research to educational services to children’s charities and much more. Why? Because such campaigns are successful in aiding their respective causes.

The assumption is, in most cases, that donations go directly and fully to the cause and, with reputable organizations and their campaign partners, that’s accurate. However, there are times when misunderstandings of the holistic fundraising paradigm lead to mistaken assumptions regarding the use of the funds.

First, it’s important to understand that donor campaigns are typically not one-time experiences. Rather, statistics show that donors are likely to support a cause on multiple occasions. Charities and their marketing partners understand the long-term value of their donor relationships, which result in three main types of outbound campaigns, each designed to cultivate a donor relationship and maximize the benefit for the charitable organization.

Donor Cultivation

First, let’s define donor cultivation. In order to build a trusted relationship, charities must build a relationship that educates donors about their cause, helps them understand the need and the beneficiaries, and shows the results of the campaign efforts. In that sense, becoming a donor is no different than purchasing a product in a retail store – as a customer, you have to know the product and what its benefit will be before you make a purchase.

Donor cultivation can take many forms, including traditional mailings and door-to-door engagement, phone calls or e-mails, special events (e.g., dinners, wine tastings, group meetings, etc.), or public campaigns through media outlets. The goal, however, is the same: to build a bond with individuals or groups that creates a desire to help the cause.

But, it’s not that simple. Different forms of donor cultivation are required to engage three different categories of donor: current, lapsed, and prospects.

Current donor cultivation is typically the easiest, since it deals with recent donors, who tend to be most familiar with the cause, having recently participated in aid efforts, and are statistically most likely to be recurring donors.

Lapsed donor cultivation often requires a re-introduction to the cause but, because the individuals have previously given to the cause, the return rate is still quite high.

Prospecting, however, is much more challenging because it is effectively a grass roots campaign to educate with the hope of turning people into donors. But, because there is no history of previous charitable activity, the success rate is significantly lower.

It’s important to understand that any type of fundraising activity has an associated cost, whether for service, materials, mailing expenses, or venue. Likewise, each type of donor cultivation carries with it a different rate of return. Typically, current donor cultivation results in a 2:1 return ratio; lapsed donor campaigns may break even or show a small net return, but prospecting typically is a loss leader. It’s common knowledge that customer acquisition is more expensive than customer retention. The same holds for donors.

 

Why Prospecting Works

Why, if prospecting campaigns lose money, do charities engage in them? Charities don’t generally have many real assets, other than their donor bases, and those assets don’t appear on any balance sheet unless people are generous enough to want to give to the causes. And just like no business can survive solely on an existing customer base, charities cannot rely solely on previous donors – they must engage prospects in order to replace lost donors and ideally increase the size of their donor bases.

However, the simple fact is that charitable organizations have neither the manpower nor the technology to effectively engage in many of these activities, and must forge partnerships with marketing service providers. CUSTOMER magazine recently spoke with Steve Brubaker, chief of staff at InfoCision (News - Alert), which has been in the teleservices business for 30 years, to understand exactly what goes into prospecting campaigns and why they are successful.

 Brubaker says that, because they often lose money on them , many teleservices firms no longer run prospecting campaigns. But, because of InfoCision’s long-standing reputation working with the largest and most well-known charities, such as the American Diabetes Association, the American Institute for Cancer Research and March of Dimes, they understand the long-term value of a donor and make that investment.

“As we bring on these new donors, we are able to reach back out to them and continue the relationships and continue with additional campaigns that bring in significant net dollars for the organizations we work with,” he explains.

Donor campaigns are about scale. Through complex data analytics and creative marketing, InfoCision contacts volunteers in nearly every neighborhood across the country. But, the ROI really comes into play in the follow-up stages, because the likelihood that someone who has previously donated time or money will give again is significantly higher. InfoCision runs about a 2:1 return ratio on follow-up active donor fundraising campaigns, which is clear evidence that prospecting, when done correctly, works.

It’s also important to note that not all campaigns are pure fundraising efforts. Many non-profit organizations run awareness campaigns, soliciting volunteers to distribute educational resources in their neighborhoods, which often result in new pledges of support.

“Every time we send out letters or kits, and every time volunteers distribute them to their neighbors, it provides education and awareness that is critical to the client’s mission,” notes Brubaker. “The mission of all charitable organizations involves educating the general public whether it be for illness prevention, living healthier lives, helping those less fortunate, or other core charity messages.”

For instance, in an initial acquisition campaign in a neighborhood with no existing donors or volunteers, InfoCision might need to call up to six households before finding a volunteer to carry on the mission in the area. When that volunteer then distributes materials to his neighbors, perhaps only one or two of them might read the literature, understand the cause and the need for support, and pledge a small amount. At best, those initial campaigns break even.

But, in addition to connecting with a new volunteer and possible new donors, the marketing firm has gained valuable data for future campaigns. Instantly, the second campaign has a significantly higher rate of return than the first. The second call might go to the donor from the initial campaign who, also seeing the benefit, agrees to volunteer this time. Again, the return on the second campaign is significantly greater because the agency was able to target its messaging.

High quality call centers are uniquely positioned to provide a wide array of services to help better manage donor relationships. Business intelligence, real-time analytics and reporting, variable script-on-screen, targeted call routing and online fundraising services all work together to increase the level of personalization and thus provide an exceptional donor experience. When a donor walks away, after making a donation, feeling good about their gift and recognizing they are a critical component of the organization’s mission, they are more likely to give again the next time the organization calls, sends a letter or e-mail request.

The net result is multifaceted. The charity benefits from increased awareness and education; new donors are brought into the fold and the cause receives new donations to further its mission; and InfoCision adds valuable data to its systems that allows it to engage more effectively in future volunteer recruitment or fundraising campaigns.

“When the organization needs to send a mailing or needs a fundraising effort, we now know who to contact. We continue to see a return on investment that grows with every future campaign,” Brubaker explains. “That’s why it works.”

Do the Math

Education and prospecting campaigns cost more than other fundraising efforts; however, they provide significant long-term return on the investment for the charitable organization. A non-profit’s donor list is its greatest asset. But it’s an asset the organization is not able to list on a balance sheet so the general public might not associate a fixed dollar amount to its value. But that list represents the future growth potential for the organization based on the impact of future donations from its valued members.

The primary goal of a prospecting campaign is not net dollars. Rather, the goal is to engage people with whom the charity hasn’t had a chance to interact with previously. Not only do those new contacts have the potential to turn into future donors, but each one also becomes better educated on the importance of healthier lifestyles, how to recognize warning signs, what makes one susceptible to disease, and the importance of prevention as part of treatment. 

“Fundraising – net dollars – isn’t even part the equation until we contact those people again,” says Brubaker. “Then, we have someone who understands why this organization is important and who wants to be part of it and wants to further the relationship, and then they continue to get more involved as a volunteer and as a donor, and they contribute significantly to the organization’s fundraising efforts.”

To look at the in- and outflows for one individual charity campaign is an ill-conceived idea. Because each campaign has different goals and different metrics, one must consider the collective campaigns of the charity to accurately evaluate its success.

On average, organizations will allocate 25 percent of their entire annual budgets to administration, marketing, fundraising, and the other costs of maintaining the operation,  which means 75 percent of total revenue goes toward the core mission. To get a better picture of the overall allocation of resources , one can look at the Nonprofit’s Form 990 filed each year with the IRS. This report contains information on how much money the organization spends in total on fundraising and how much goes to programs and services, providing a much better view of the charity’s good stewardship of the funds entrusted to them.

By looking at an individual campaign, especially one that both the marketer and the charity recognize as a low revenue generator (but a high ROI investment), it’s easy to become misinformed about the success of the organization’s efforts. As does any business, charities have to spend money to make money for their causes.

And, as we’ve already discovered, each successful acquisition campaign has a multiplier attached, which brings in additional donations that are associated with other individual campaigns and aren’t directly attributed to the prospecting activities. But, without the initial campaigns, the secondary campaigns absolutely could not be as successful as they are. Thus, the only accurate way to look at an organization’s fundraising efforts is to look at the various campaigns holistically. Compare total fundraising revenue to total fundraising expenses. You’ll find that the numbers do add up.

Charities shouldn’t be measured solely on their fundraising efforts. Rather, they should be measured on their overall effectiveness in achieving their mission goals. Is the non-profit advocating and raising awareness? Is it helping fund research? By all human standards, the leading national charities are succeeding admirably. And, if it weren’t for their partnership with organizations like InfoCision, it’s a safe assumption they would soon falter in achieving those goals.




Edited by Brooke Neuman
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