As my colleague Jan Rossberg wrote a few months ago, rising paper and postage costs are here to stay. So what better time than now to assess who to include in your next mailing?

Here at MWD, we’re continually analyzing returns to see how best to optimize dollars spent in direct response fundraising efforts. We do this both from a channel-specific lens where we seek the highest net, but also more broadly from a donor file composition perspective.

As an example of our approach, let’s create an imaginary organization – let’s call it SAM (short for Super Awesome Mission) – and assume the following:

1. SAM has 50,000 active and recently lapsed direct response donors on file (households that gave in the past 0-36 months). Of that group, the donors are distributed as follows:

  • 25,000 gave in the past 0-12 months.
  • 17,000 gave between one and two years ago (13-24 months).
  • 8,000 last gave between two and three years ago (25-36 months).

2. All donor segments have an average gift of $50 and respond to direct mail appeals as follows:

  • 0-12 month donors have 10% response, resulting in 2,500 gifts and $125,000 in revenue (nice!).
  • 13-24 month donors have 5% response, resulting in 850 gifts and $42,500 in revenue.
  • 25-36 month donors have 1.2% response, resulting in 96 gifts and just $4,800 in revenue.

Now let’s assume the donor file composition and performance as mentioned above stays consistent over the course of three mailed appeals with subsequently rising production costs in each drop. In mailing number one, we’ll assume costs are $1 per letter, so $50,000 in total costs. In drop #2, we’ll assume $1.25, so $62,500 in total costs. In drop #3, we’ll assume $1.50, so $75,000 in total costs. The results in net revenue per donor for segments A-C across the three direct mail solicitations are below:

 

So if it’s trying to optimize, SAM should just drop segment C from the mailings and enjoy the higher net revenue, right? Wrong!

If SAM wants to keep raising money for its mission in the years to come, it needs to acquire new donors to backfill for those that lapse. We know reactivating donors is generally cheaper than acquiring new ones, so we need to put these net revenue figures into context.

Being the well-run organization that it is, SAM understands that revenue raised tomorrow is largely dependent on the donor relationships created and cultivated today. So SAM knows that a reasonable level of investment in donor relationships is worthwhile provided each donor’s long term value exceeds the costs assumed acquiring, stewarding, cultivating, and resoliciting them.

Given as much, let’s assume that concurrent with the appeals, SAM sends acquisition mailings out periodically to initiate new donor relationships. After accounting for prospects’ first gifts to the mailings, SAM sees that on average it’s acquiring donors at a net cost of $80 per person. At this level, acquiring new donors is still costlier than the most expensive segments of the three appeals.

So now if SAM is trying to optimize, it should not only include segment C in their appeals but also continually mail acquisition mailings to keep the donor file growing right? Closer, but still wrong.

The analysis so far has only considered the costs of direct mail, and we know donors exist outside of their mailboxes (or at least we hope they do).

If SAM is also investing in digital advertising and converting leads to new donors at a cost less than $80 per person, it becomes beneficial for it to allocate more acquisition investment towards digital acquisition efforts. Additionally, if SAM’s acquisition mailing net per donor changes from their average of $80, the threshold for reallocation between channels and solicitation types may change further.

The point is to be nimble and to weigh your options holistically given the available information. We know your direct response fundraising will be more complex than SAM’s. Donors don’t behave the same across years, channels, environments, or any number of other criteria. They’re people after all. We can’t definitively predict how fundraising mailings, emails, ads, phone calls, or face-to-face conversations will impact results before they happen.

However, we can try to control for those things known to inform our decisions going forward. The dynamics underpinning fundraising are numerous and constantly changing. But don’t let that deter you! The time is always right to ask, “who should get this thing anyways?”

 

About the author: David Allen, Senior Account Executive, is a fundraising professional with experience leading and supporting teams in both the for-profit and non-profit sectors. Specializing in financial and quantitative analysis and reporting, he enjoys working with numbers and data. He is a graduate of both CSU, East Bay where he earned his master's degree in economics, as well as the University of Arizona's Fred Fox School of Music where he earned his bachelor's in performance. In his free time, David loves to attend live performances, visit museums, and (struggle to) windsurf (badly).