April 2008

1. Answerman: Retention rates—and what to do about them
By Peter Schoewe

2. Suffering?

3. Data: Calculating individual donor value
By John Sauvé-Rodd

4. Cloudy

5. Best Practices: Best practices online
By Tom Gaffny

6. Ask Mal

7. HandsOn: Search engine optimization (Part 2)
By Lance Trebesch and Taylor Robinson

8. Optimistic

9. Spotlight on Success: Cooperation is the answer (Part 2)
By Managing Editor Deborah Block and Paul Karps

10. Ellipses...

Mal Warwick, Editor
Deborah Block, Managing Editor
Kieu Tran, Production Manager

Contributing Editors:
Nick Allen, Donordigital
Ken Burnett, Cascaid Consulting
Harvey McKinnon, Harvey McKinnon Associates
Jerold Panas, Jerold Panas, Linzy & Partners
Steve Thomas, Stephen Thomas
Joe White, Share Group, Inc.

1. Retention rates—and what to do about them

By Peter Schoewe

Donor retention is one of the most important statistics in direct response fundraising. But it can also be one of the most confounding. If you've ever looked at a number you've been told is your retention rate—and you're not sure what to do about it—please keep reading. By monitoring retention rates—and taking action to change them—you can greatly increase the health of your fundraising program.

Donor retention is most often measured in a 12-month timeframe—either by fiscal year, calendar year, or a rolling 12-month period. You can calculate your retention percentage by counting the total number donors who gave a gift in the prior 12-month period and then counting the number from that same pool of donors who gave again in the current 12-month period.

For example, if 10,000 donors gave you a gift in your prior fiscal year, and 5,000 of those same donors gave a gift in the current fiscal year, the overall retention rate for your file is 50%.

Three segments to watch

Retention rates vary greatly by type of donor, so you should calculate retention for several different segments within your file. Retention can be calculated for any segment of donors (for example, sustainers or high-dollar donors)—but there are three major segments you should look at regularly to gauge the health of your direct response program:

1. Continuing, or multi-year donors. These are donors who have given gifts in both of the 12-month periods prior to the current period. Typically, they will have the highest retention rate of any segment on your file.

2. New, or first-year donors. These are donors who gave their first gift ever to your organization in the prior 12-month period. New donors have the lowest retention rates, as much as 40% less than multi-year segments.

3. Reactivated donors. By definition, reactivated donors gave a gift in the prior 12-month period, but did not give a gift in the 12-month period before that. The retention rates for reactivated donors should fall somewhere between multi-year donors and first-year donors.

What's to be done?

Once you've calculated these retention percentages, what do you do with them? First, you should not blindly compare your retention rates to other organizations. The most widely published retention rates are from huge direct response programs subject to different dynamics than most fundraising files—and could mislead you into thinking your retention rate is healthier than it actually is.

In addition, your retention rate is the outcome of hundreds of decisions you've made about your program and your fundraising needs over the past 24 months. Even similar organizations may have different patterns of retention based on their new donor acquisition program, mailing schedule, and the age of their direct response program.

That means the best way to make decisions about your retention is to monitor the trends in your own file. You should measure your retention rates at least once a year—and ideally every quarter. If you see your retention rates going up, you know you're presenting a compelling case to your donors, inspiring them to continue their support of your organization.

What if retention is slipping?

But if your retention rates are going down, you could have trouble. When you see the percentages dropping, what should you do?

First, take a step back and think about what's been going on in your program. There are situations in which a decline in retention is part of a deliberate fundraising strategy . If you've increased your acquisition quantity, you should expect both overall retention and first-year retention to fall, because you're being more aggressive in order to get less committed donors onto your file. Similarly, if you begin using premium offers in your mailings, you'll see an increase in your response rates, but a decrease in your retention—as you attract transactional donors into the fold.

But if you haven't made a change that explains falling retention, you need to take strategic action to reverse the trend. And the actions you take should depend on the segments that are having the problem.

If your multi-year retention remains strong, but your new-donor retention is dropping, you should increase your efforts to get a second gift from new donors as quickly as possible. When you let your new donors wait for a year or even six months after their first gift before contacting them again, you're much more likely to lose them, wasting the money you invested in acquiring them.

Increasing new-donor retention

A great way to increase new-donor retention is to create a multi-channel conversion strategy, using a series of mailings, phone calls, and, if possible, online outreaches. A successful conversion series needs to be implemented regularly, and it should welcome the donors, present them with your most successful and compelling appeal, and invite them to give to you on a regular basis through a sustainer program. You should begin your conversion series within three months of the new donor being added to your file.

A conversion series can also battle dropping retention in reactivated donors, but you should be sure to tailor your messages to recognize that these donors already have a connection to you. Citing the number of years they've been a donor to your organization—or even sending them an anniversary card—can strengthen their renewed commitment to your work.

By far, the most disturbing trend to discover is that your multi-year retention rates are falling. These are your most dedicated donors—and the source of most of the net revenue from any direct response program.

Is multi-year retention dropping?

Unfortunately, a decline in multi-year retention is often attributed to the wrong cause— that you're bothering your donors by getting in touch with them too frequently. And you can easily create a retention death spiral by cutting back on the number of times you give donors the opportunity to offer you their support.

Instead, you should focus on the offers you're currently putting in front of your best donors. Here are a couple of questions you should ask yourself:

 Do you have an active sustainer program—in which donors can choose to offer their support monthly or quarterly?

 Do you invite donors to become sustainers online, through phone contacts, and through your acknowledgment program?

 Do you ask all your donors to renew their support or their membership at least once per year?

 Are your appeals urgent and emotional? Are you using a copywriter who's allowed to express your need for funds without burying it in distant and institutional language?

 Do you have a multi-channel contact strategy for your donors—in which you give them opportunities to become fully informed about your work and, also, to interact with you in ways that go beyond offering a gift?

If you answer "no" to any of the above questions, you have room to improve your direct response file—and should be able to turn around a decline in multi-year retention. The investment you make to keep your most valuable donors will not only result in a healthier direct response program. It will also increase your potential to realize major gifts and bequests.

Peter Schoewe is Senior Consultant, Mal Warwick Associates, 2550 Ninth Street, Suite 103, Berkeley CA 94710-2516, phone (510) 843-8888, fax (510) 843-0142, Web www.malwarwick.com, e-mail peter@malwarwick.com.

2. Suffering?

Which types of nonprofits fare the worst in recessionary times? According to The Chronicle of Philanthropy, a study by the Nonprofit Finance Fund finds charities that depend on government aid, such as social services, are the most likely to suffer in a rocky economy. What’s more, charities that fared poorly in the last recession, in 2001, continued to face deficits in 2005, the last year that was analyzed. In fact, many groups were in poorer shape in 2005 than they had been in 2001.

 

Join Mal and more than 50 other first-class fundraising trainers and consultants at the International Fundraising Congress (IFC), what Mal terms “the world’s best fundraising conference.” The sessions are challenging—and the parties are fun! This year’s 28th IFC will be held 14-17 October 2008 in Noordwijkerhout, The Netherlands. To register or just to obtain more information, click here.

3. Donor-level profitability calculations in 8 easy steps

By John Sauvé-Rodd

Editor's Note: UK data maven John Sauvé-Rodd contributed a recent article to this newsletter advocating that fundraisers drill down to the profitability of individual donors, enabling them to achieve higher levels of cost efficiency by eliminating unprofitable donors from appeals. Here's his eight-step process to make that calculation.

1. You have to start by knowing what your costs are—and not just direct costs. Ask for, and don't take no for an answer on, salaries and overheads, because requests for costs often brings sighs, scratching of heads, and "I'll get back to you."

2. Build a cost model and apply costs to donor gross revenue for each and every donor. The results will be shocking, startling, and revealing.

3. The cost model should feature three layers of costs: C1 (direct costs, where most of the money goes), C2 (salaries and any social insurance or training costs), and finally C3 (your share of overheads such as heat, light, insurance, corporate charges, and the like). When you have information about these three costs, deduct them from gross revenues to obtain net profit or P. This will result in three profit levels: P1 (the profit after direct costs), P2 (including salaries), and finally P3 (with all overheads included). You must do all three profit levels if you're to truly understand how profit (and loss) works at the donor level.

4. Revelation: Some donors cost you a great deal and should be disposed of kindly and in an ethical manner. Don't pour money down the drain. Do deals with your organization's staff managing volunteers, activists, legacies, and other programs to make the best use of the low-profit and no-profit donors.

5. With the saved costs, open up a high-profit donor section (but call it something more imaginative). Focus on the donors who really count. Steward them (whatever that means to you). Pay more attention to them. Invest in them.



A profit curve based on four cases with results mathematically averaged

6. You'll find that when you arrange donors by high to low profit and put into a bar chart, there's a sloping shape, high on the left and low on the right, and most of your profit comes from the top 20-30% of your donors. This curve is quite predictable, as my research papers show (see below about how to get them). If you change jobs, you can say with some confidence what the profit curve should look like in your organization.

7. You can test out the concept of profit calculations using only one year's worth of data, but it's better done over three to five years (if you have the data). It's very likely you'll need to extract data from the database and do the calculations. (Database systems for fundraising don't usually have the data structures needed to do what has to be done. You can try Excel, and with Excel 2007 able to take one million lines per worksheet, you've plenty of scope; but tools such as SPSS Base do a better job of aggregation and statistical/mathematical analysis.)

8. Make donor-level profitability central to your fundraising strategy. Try beginning your planning documents with these words and take it as far as you can: "All donors are important to us, but we realize that some donors are far more important, financially, than the general throng. From now on, therefore, all our activities in individual fundraising will be driven primarily by considerations of profitability, including, for the first time, donor-level calculations. This will be part of a new strategic realization: It isn't the volume of donors that counts, it's the net margin that matters."

John Sauvé-Rodd is Director, Datapreneurs.net, 54 Turnham Green Terrace, London W41RG UK, phone +44 (0) 208 742 1131, Web www.datapreneurs.net. John’s research papers on Profitability (Part 1 and Part 2) can be obtained from the author at johnsauverodd@aol.com. Part 3 about the display and visual modeling of profitability titled “Profitability Dashboards,” will be published at the end of 2008.

4. Cloudy

With the weakening economy, housing downturn, and upcoming Presidential election, you might be wondering about the prospects for nonprofit fundraising in 2008. Here's a kernel of wisdom from Patrick Rooney, director of research at the Center on Philanthropy at Indiana University, as quoted in DM News: "We know from research that giving historically goes down by 1-5% in recessionary years."

Take care.

 

Where's Mal

April 8-11, 2008
Redwood City CA

Global Philanthropy Forum

April 17-20, 2008
Toronto ON
Social Venture Network

May 1-4, 2008
Hamburg NJ
Social Venture Network Spring Conference

May 21-25, 2008
Kuala Lumpur, Malaysia
8th International Workshop on Resource Mobilisation

June 3-5, 2008
Palm Beach FL
DMA Nonprofit Leadership Summit

June 5-8, 2008
Boston MA
Business Alliance for Local Living Economies

July 23-25, 2008
Washington DC
Bridge to Integrated Direct Marketing Conference

October 14-17, 2008
Noordwijk, The Netherlands
28th International Fundraising Congress

5. Best practices online

By Tom Gaffny

At the 2008 DMA Nonprofit Conference in Washington DC, late in January, Epsilon Executive Vice President Tom Gaffny delivered an extraordinary workshop, relating the findings of his year-long study of online best practices. The presentation included a staggering 192 slides and revealed so much about the state of fundraising online today that it was virtually indigestible at one sitting. Tom graciously agreed to allow us to publish his findings piecemeal as a new column in this newsletter. What follows is the second installment.

Integrated Fundraising is not yet a widespread reality, despite the increasing buzz about its effectiveness. But some innovative nonprofits are now moving strongly in that direction, as evidenced by my year-long study of  the online fundraising programs of 144 organizations.

In response to my 144 unsolicited online gifts, I received a postal thank-you from 57 organizations in addition to the e-mail acknowledgment. And 83 organizations began sending me ongoing direct mail (with or without a thank-you to start the process).

However, very few organizations are leveraging the unique power of the Web. The online medium has a unique capacity to engage, excite, involve, stimulate, even irritate . . . but too often it looks and feels like postal mail in a box.

Here from CARE, was one of the best sequences of electronic and postal communications I received from any of the 83 organizations.

Which leads me to my biggest takeaway: Everybody's got a site, but very few organizations have a real destination.

In succeeding columns, I'll focus on those best practices that allow charities to bring their supporters closer to the cause.


Tom Gaffny is Executive Vice President, Epsilon, 601 Edgewater Drive, Wakefield MA 01880-6235, phone (781) 685-6825, fax (781) 685-0817, Web www.episilon.com, e-mail tomgaffny@epsilon.com.

6. Ask Mal

Since 1994, when the Mal Warwick Associates Web site went online, Editor Mal Warwick has answered fundraising questions posed by visitors to the site. Hundreds of those Q&As are available here. In this feature, we'll spotlight one Q&A from the most recent month.

Question: I have a question about cultural differences influencing fundraising in different countries. Our organisation has managed to get funding for many new projects. But now we are facing the problem that there is no money for running costs because all the cash is restricted to these new projects. We were thinking about letting the accounting department have some rows in our e-newsletter showing their gratitude for the gifts for the new projects, but at the same time raise this issue of the need for funds for running costs. This idea was refused by some local fundraisers, saying that this might have the opposite effect, especially in the US. Is this correct, and how would you raise money for the less sexy parts of the organisation?

Mal answers: I certainly agree that cultural factors bear on fundraising—but the problem you're facing is universal. There are at least three ways you can deal with this:

(1) Set up, as a standard practice, a certain percentage of every gift or grant to be set aside to cover overhead costs. Major funders often accept this practice as necessary, since they know full well you can't operate without infrastructure. That percentage might be 10% or 20%, depending on your cost structure.

(2) Educate your donors whenever you raise money that you need to cover operating costs or you won't have the staff available to carry out the projects they want to fund. Inform them that a certain percentage of the funds they give will go to cover these costs. 

(3) Advertise how efficient you are by publicizing—through your newsletter and in every appeal—how low is the percentage of your operating costs. Certainly, anything less than 25% would be impressive to most donors except at the very largest and best-established nonprofit organizations.

These steps won't eliminate the problem, but they should help over time.

7. Make your Web site a big hit

A 30-Day Step-by-Step Guide to Dramatically Improved Search Engine Optimization (Part 2 of 4)

By Lance Trebesch and Taylor Robinson

Your week two objectives are to implement a sitemap and create and maintain a successful blog.

Having a sitemap that connects the entire Web site will eliminate the need for having multiple links on the homepage and will make the pages more "crawlable" by search engine spiders. A sitemap's purpose is to provide a central link hub for the Web site, allowing search engines or users to navigate the various pages easily. Search engines recognize new pages by following links from existing pages, so having a sitemap will ensure all pages are indexed properly. While this will have no effect on the Web site's search engine optimization (SEO) campaign, it's an important element of any successful Web site and will also help when introducing a blog (below). To download software to create your own sitemap, visit Site Map Pro.

A blog is basically an open forum where participants can discuss various topics. Nonprofits can utilize it to tell readers about organization projects, outreach programs, and upcoming events.

For SEO purposes, a blog is beneficial because other sites and blogs link to read the blog's content and therefore the Web site's overall page-rank (level of importance) increases. However, blogs are not only important for SEO purposes, they're also excellent tools for marketing and fundraising, allowing nonprofits to convey the true "heart" of their organizations.

Starting a blog

Starting a blog is not only easy, but also inexpensive. There are dozens of free or nearly free services to create blogs, including Blogger (recommended), Blog-City, EasyJournal, Blogeasy, Typead, Grey Matter, Userland, or Movable Type. Simply follow the step-by-step instructions to create your own blog today.

Once you've created a blog, you'll need to spread the word about it. To do this, begin by submitting your blog to directories. Good blog directories include Technorati, Blogcatolog, Topblogarea, and Bloghub. The directories will categorize your blog and make it available for others to read about it. Next, use one or more of the listed directories to find other blogs focused on similar topics. Identify what blogs are most closely related to your organization and read posts to gain a better understanding of blog format and writing style.

Plug into the blogosphere

One of the best ways to get new people looking at your blog is to post entries on other blogs with a link back to your own. According to the March 2007 Blog Readership Report, 67.3% of bloggers found information by following links from other blogs. However, bloggers don't appreciate worthless entries with the sole intention of back links. When you make a post, be sure to add something useful to the conversation and explain why your link will be worth following.

Arguably the greatest measure of blog success is the number of subscribers. Subscribers are usually consistent readers and often post entries onto the blog. The greater the number of subscribers your blog has, the more easily you can promote an upcoming event or inform constituents of a recent project's success. Copyblogger's article, "10 Effective Ways to Get More Blog Subscribers," gives great tips for how to increase the number of blog subscribers. You'll want an RSS feed for your blog to allow subscribers to receive updates when you add new blog posts.

Blogs have helped countless nonprofit organizations achieve their SEO objectives. More important, however, blogs have allowed nonprofit organizations to connect with their supporters in a completely new way. The stories, issues, and projects surrounding the organization reach a number of people who would otherwise not have been exposed. To learn more about how to put blogs to work for your organization, read one of the many informational articles on problogger or copyblogger. For examples of other nonprofit organizations that have successfully used blogs, visit:

 www.aspca.org/aspcablog/index.html

 network.bestfriends.org/Blogs/

 www.waterconserve.org/blog/water_conservation/

 www.davidsuzuki.org/blog/

 www.intelligentgiving.com/the_buzz/the_blog/

 blogs.walkerart.org/ecp/

Week 2 Checklist:

 Create sitemap

 Find blog provider

 Create your blog

 Visit topically relevant blogs and post entries

 Submit your blog to directories

 Get subscribers

 Research other ways to harness the power of the blog

Lance Trebesch and Taylor Robinson can be reached at www.ticketprinting.com or by e-mail at Lance@TicketPrinting.com.

 

8. Optimistic?

As reported in The NonProfit Times, the Philanthropic Giving Index—a nonprofit version of The Conference Board's Consumer Confidence Index—finds that optimism among healthcare fundraising professionals was at an all-time high in the summer of 2007. These fundraisers were much more optimistic than those working for other kinds of not-for-profits. They reported the most success with their major gifts programs and had the least success with telephone fundraising.

Other findings for healthcare fundraisers are that just over 67% use e-mail to communicate with their supporters, with some 19% using e-mails six or more times annually. What's more, 30.8% say that online donations constitute between 1-5% of the total contributions to their group.


Of course, now that we’ve reached this (potentially) recessionary winter (and spring) of our discontent, it will be interesting to see how these numbers have changed!

9. Cooperation is the answer (Part 2)

By Managing Editor Deborah Block and Paul Karps

In last month's issue, we began our review of an innovative cooperative effort among 14 regional Meals on Wheels providers. Spearheaded by the full-service direct mail agency Lautman Maska Neill & Company (Washington DC), these organizations—ranging in size from 1,800 to 17,000 donors—have been able to leverage their name recognition with the cost-effective nature that's inherent in the co-op concept. This, as we discussed last time, has resulted in stellar acquisition rates.

In Part 2, we'll take a closer look at some of the creative strategies being used to retain and upgrade existing donors.

The appeal process

According to Lautman Maska Neill & Company's Account Supervisor Lynn Mehaffy, seven donor appeals are scheduled during the year—though not every co-op group mails every package. But overall, she says, the appeals "do very, very well." That means anywhere from 8% up to 14%. What's more, this is combined with a "very high average gift, $50 up to $100 at year-end." 

Mehaffy, for example, mentions how the Meals on Wheels provider in Snohomish County, Washington has the highest retention of any co-op partner: 72-74% across six mailings a year. Its lowest response rate is 9% in June, going up to 16%. "With only 5,400 active donors," she adds, "they're raising $350,000."

What's working

Regarding package content and appeal themes, Mehaffy explains that the focus is more on senior women than on couples or on single men. "They're often more fragile. They've outlived their spouses, they're living longer, and they outlive their resources more quickly." 

The program uses a lot of donor involvement devices, such as sign-and-return cards. "They really get the donor thinking about the senior," says Mehaffy. "And they make the donor feel more connected to providing that meal—as opposed to just providing money for that meal. Because the card will go out with the meal."

Meal labels are also used, which are signed by the donor and affixed to a meal going to a recipient. Once again, to get the donor to make a connection with the seniors, thereby generating a higher response rate.

In general, Mehaffy and her team have found the most success in the formula of a longer letter combined with Ask amounts tied to providing services, while adding any urgency on the outer envelope. "Kind of traditional fundraising," she notes.

Ugly is in

The packages adopt a fairly humble look and feel. Or as Mehaffy puts it, what "some might say ugly."

In effect, explains Mehaffy, "anything that's been a little bit higher end or too upscale—like we've done an ARIA card—has not been very successful at all. Regardless of the location."

Mehaffy, for instance, finds it particularly interesting that credit cards don't seem to work for these groups. "It's still depressing response rates, so there's no credit card [option]. It's something we keep testing, because we think over time it might change. But it hasn't yet. We've tested it three times." Even in urban centers like New York or San Francisco, including a credit card payment option hasn't worked.

Additionally, asking for e-mail addresses also depresses response.

As Mehaffy sees it, it's probably because these donors are older.  "Meals on Wheels donors tend to skew even a little bit older than your regular direct mail donors. They're more in the 60+ than 55+ age group. And a lot are 65+."

In a similar vein, the more traditional Courier font has been tested a couple of times against Times New Roman—and is still winning. This also goes to these donors being older. To Mehaffy, "It's a font they're familiar with. And it is bigger." 

Even including the logo on the outer envelope, in most cases, depresses response.

All in all, this sort of thing tends to detract from the very humble, small-nonprofit feel the co-op groups are after. As Mehaffy explains, "I think it makes them look a little more commercial, a little more seasoned than they really want to look."

Going for the big bucks

One of the more recent additions to the program is a high-dollar package, mailed by four of the larger co-op members. This package consists of a shorter two-page letter—along with a five-page "mini-proposal" detailing each of the group's individual needs—mailed flat in a 9 x 12" envelope. (A strategy, we should add, that's proving to be highly successful for other nonprofits, as well.)

Now entering its third year, Mehaffy mentions how it's brought in some really high gifts. "The Denver Meals on Wheels provider received a $25,000 gift the first time we mailed it—from a $100 donor who came on to the file on the previous acquisition six months earlier. And there have been several $5,000 gifts from smaller, $100-500 donors."

One last tip

Finally, Mehaffy offers this advice for small organizations that are regional in nature, yet have name recognition and general awareness within the community: "Don't downplay your stature. You have a lot more going for you than you realize. So get started, even if you can't do it big or feel you can't do it perfectly. Just get started."

To see an example of a Meals on Wheels donor appeal, click here.


10. Ellipses . . .

Those of us in the business of writing direct mail fundraising letters often have the habit of using ellipses . . . and now, it seems that practice is coming into vogue online as well.

Recently the online newsletter from Marketing Sherpa featured an article entitled "The Glory of the Ellipsis" which Tom Belford quoted in the blog The Agitator.

From the article: "The art of getting a paragraph—or a long sentence—read is all about catching the eye."

Tom commented: "That's the job of the five letter‑free spaces created by an ellipsis.

"Now I feel reassured that there's a method to my madness . . . as unconscious as it has been. But now that I know why ellipses work, I'm worried that I'll think about them too much . . . and begin to overuse them! Oh well.

"Experienced direct mail copywriters know these tricks of the trade for holding the attention of their readers and moving them through a multi‑page letter. One more case where certain marketing tactics transfer readily from one medium to another . . . and maybe in this case, with even greater impact.

"But how much of your online copy is written, or at least edited, by experienced direct mail copywriters?! Too little I suspect. Count the ellipses!"

Thanks, Tom. 
 
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Mal Warwick's Newsletter: Successful Direct Mail, Telephone & Online FundraisingTM
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