Charity ‘X’ wanted to test Face-to-face [F2F] in FY09 and had a relatively robust 2nd gift welcome programme in place. The above chart shows that prior to the F2F recruitment, regular donors had been staying with the charity at a rate of 96% into their second year. These were mail and ‘phone recruited donors and they were losing 4% from new into Y2. Pretty impressive.

Then in FY10 to FY11 the attrition rate plummets to just over 70% pulled down by the F2F donors. Remember that the attrition rate for the F2F donors is down at 40% but they are pulling the overall % performance down from 96%!

On further examination it turned out that it would take 50 months to break-even — this is harsh cashflow for any organisation and it is difficult to justify this level of investment with donated money.

If anyone is making F2F work — and can support it with numbers that include attrition rates by year — please let me know. Why is this material never presented at fundraising conferences?

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For  years now I have been going on like a broken record about charities recruiting low value donors and how they should be focusing on acquiring higher value donors. Despite this we find agencies and charities sending address label packs, pen packs, as well as low value monthly giving at £2 and £3 / month offers. At last year’s IoF Conference there was a high profile session on Incentives in Direct Mail advocating that incentives are fine if it improves response rates. Wrong!

We often examine the data of charities who want to recruit donors that will repay their investment over the next 3+ years. This is in answer to the strategic question “Where should I spend my acquisition budget?” and “What type of donors should we be acquiring?”

If you look at the chart below you will see that when we reviewed the performance of donors by the value of their first gift to the charity, those whose first gift was £25 or more have a much higher value — as you would expect. But look at the difference in value as the years pass by. After 4 years the £100+ 1st gift donors are worth 10x that of donors whose first gift was less than £25. And in most cases this is much higher than this graph illustrates. But….

…as we dug a bit further, we applied all of the costs related to the cultivation of those lower value donors (less than £25 first gift) and what we found was that these donors had cost the charity more to cultivate than they had returned in income. Now imagine what this figure would be like with the 1st gift less than £15 donors; or 1st gift less than £10 donors. Imagine what this figure looks like with incentive-led recruited donors. We could show you and it is an ugly scenario. No charity should be using this method of acquiring new donors unless they look at the 3+ year performance AND they take into account the ongoing cost of cultivating those donors.

Now the argument I often hear from charities who recruit at low value is this: “we recruit at low value and then upgrade the donors from there”. Nice theory, but in actual practice it doesn’t work. Low value donors are more likely to be ‘one and dones’, are less likely to upgrade and, even if they do upgrade, a 50% upgrade of £10 is £15 is still low.

It’s true that higher value donors are more expensive to acquire. But they will stay longer, upgrade more easily and become stronger advocates for your cause.

If you would like to see the LTV analysis of Regular Donors by the value of their first gift then email  us and we will send you the findings. Or, if you really want to find out we will undertake it on your own file.

In reality, you will need to recruit a mix of donors by value because of cashflow constraints. Just ensure that you have the correct mix, a solid welcome process and a very capable high value donor relations person or team in place to upgrade donors that do come in with higher gift levels.
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Who cares if a cold direct mail campaign gets a 3% response rate or if it recruits 3,000 new donors if 80% of them are not going to give a second gift? One and done. You can incentivise as much as you like but if you don’t recruit donors to the cause from the outset then they will give once and never again.

Further, this week at a Fundraising Workshop in Germany at which I was presenting, a so-called analyst was suggesting that we should be focusing more on “all of those thousands of 5 euro donors” and here I quote “because there are so many of them and together they all make up quite a bit of money” [ed. jaw drops in disbelief]

These are exactly the donors who are costing many charities more to cultivate than they are giving in cash. The problem is that many charities and “analysts” are not able to figure out which donors they should be leaving alone and which they should be developing.

For me, the important thing is to keep an eye on the underlying value within the donorbase to ensure that there is an ongoing – and growing – net income. This comes about by developing relationships with loyal and committed supporters, not just churning more and more gifts from one-off donors. I can guarantee that those heavy address label packs that contain gift cards will never – ever – work. The break-even point will take so long and might never arrive.

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Regular warm appeals are a vital part of retaining donors. In addition to raising much needed funds for projects, there is a direct correlation between the frequency of appeals sent and donor retention. As appeal frequency drops, so does donor loyalty.

A donor’s first gift amount is a key indicator of their long term value to the charity. To this end, we strongly believe that recruiting donors with a low first gift is a false economy and may end up costing more to cultivate than the donor returns over their time with the charity.

Featuring Sir Trevor McDonald, this appeal package was very successful in recruiting new donors for the Royal Hospital for Neuro-disability. The third party endorsement provided a higher than expected % response rate and higher than anticipated average gift.

The appeal pack used a case study that demonstrated the work of the hospital in caring for people with brain injury. Sir Trevor McDonald wrote the uplift piece which accompanied the main appeal.

The % response was excellent as was the average gift. We know that a donor’s 1st gift amount is a key indicator of their subsequent long term value, so this was an important criteria for success.

I want to thank the authors for much of their thinking, but also to challenge some of the conclusions and to add to the debate. As a fundraiser involved in the development world, I am passionate about the issues of poverty and how those issues are communicated to the UK public.

The Implication of the NGO sector

The NGO sector is implicated in the state of public engagement. The paper states that “the sector’s engagement models have achieved big numbers and ever-increasing incomes, but with what impact on the quality of public engagement?”

It is interesting that back in 2002 I gave a paper at the Institute of Fundraising’s Annual Convention on the negative effects of low value, high volume fundraising as practised by charities such as Oxfam. My premise was that it would be better for these organisations to recruit fewer donors but of higher value. The premise was supported by data and analysis that showed that higher value donors are more expensive to recruit but all of their loyalty and giving metrics make it worthwhile investing in bringing them on board.

The presentation was met with a certain level of disdain from fundraisers who are focused on the acquisition of volume at all costs. There is a mentality that the larger our supporter base ergo we must be more successful. That is a worrying and incorrect conclusion. I include Oxfam as one of those who are more interested in building a large database of supporters (£2 per month will change the world) at the expense of other, longer-term objectives.

Now, Martin Kirk might be interested to know that in 2009 I undertook a major piece of analysis on the Oxfam database, the details of which I am not at liberty to disclose due to client confidentiality. However, there are some interesting principles that relate to this paper and the points that he raises.

• If a charity is focused on building volume at the expense of value in it’s donorbase, then it is likely to recruit those donors at the lowest possible entry point. I find it incredible that this is still the case with so many charity acquisition strategies. Take the Red Cross ‘address label’ pack which is costly to produce, gets a very good response and has a sharp drop-off rate. Why? Because low value donors recruited in this way,  and the £2 per month donor proposition used so extensively, is a transactional type of fundraising as opposed to cause-driven fundraising.

• One of the problems faced by larger charities is the tendency to work in silos. So the fundraising team are working on one side of the building and the programmes team on the other and the left hand either doesn’t know what the right is doing, doesn’t care, or in extreme cases works against it. Let me put a question to Martin Kirk. How involved are the overseas programmes team at Oxfam in the development of the fundraising strategy? Is there collaboration and co-operation in the planning and writing of the appeals and in the overall direction of the supporter journeys? Are members of the overseas programmes team present at briefing meetings, planning meetings and debrief and review meetings?

I would be interested to know how supportive the overseas programmes team at Oxfam were about the ‘100% Campaign’ that was run in February 2011? To me this was a cheap marketing trick that would have done little to educate the public in the issues that Oxfam are engaged in. Why give to Oxfam just because 100% of your money is going to Oxfam? Transactional fundraising that is not going to ever [likely] get a second gift.

• There is another worrying trend in the sector which is to bring in non-sector Fundraising Directors who think that selling ‘poverty’ is the same as selling books, or coffee. It isn’t. And, what is more, this leads to the transactional model of fundraising made in the first point above. Fundraising is a different transaction to any commercial transaction and unless that subtle relationship between charity and donor is understood, there will be a breakdown in the engagement with the public which is being discussed.

Andrew and Martin, I would encourage you to get on to the direct mail lists of some of the leading overseas development charities who are raising funds in the UK from the general public and ask yourself how they are communicating with you. Are they engaging you in the issues that you raise in your paper? Are you being viewed as a cash provider, or as a valued partner?

I am not saying that these NGOs are wholly to blame for the slide in public engagement that you talk about, but certainly they are responsible for much of the low-level transactional fundraising that sets aside donor education and engagement. Maybe, in the same way that some believe that charity begins at home, some honest strategic thinking and evaluation should also begin at home.
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Roll-out expected in Autumn 2011 and into early 2012.