Easier Said Than Done: Choose Your Budget-Cut Battles Wisely

If you haven’t gotten it yet, the memo is probably on its way. It says, with a great many words: You must cut your fundraising budget!

You might be tempted to take a hard line on such cuts, proclaiming that fundraising is the lifeblood of the organization. But you know no one will be listening, and you’ll end up making cuts anyway.

So choose your battles. The truth is, not all cuts are going to kill you. Today, I’m going to propose one battle you should fight and another you can afford to give up.

The one to fight
You’d be crazy to cut donor acquisition. This will be a tough battle, but you should fight it like a rabid weasel.

I’m pretty sure the knife-wielders have their eyes on your donor-acquisition program. They imagine it’s a big, juicy, painless cut. Because it is, indeed, big, and — chances are — it’s a net cost to the organization. That means every dollar you cut from acquisition improves your bottom line. Today. While everyone is feeling the pressure.

But here’s the problem: Cutting donor acquisition is going to hurt in the future. It’s going to hurt a lot, and not just people’s feelings. Abandoning acquisition can create catastrophic and lasting financial impacts in the form of depressed fundraising for years to come.

In fact, cuts to donor acquisition are why this recession is going to go on hurting many nonprofits for several years after the economy has recovered and giving is back on a growth path. Don’t be one of those organizations that scrapes by and survives the recession, only to go under a year or two afterward because it made destructive cuts to its acquisition lifeline.

The hard-to-see truth is that donors grow more valuable to the organization every year they’re with you. Their responsiveness, retention, even their likelihood of upgrading their giving amounts — they all increase every year. Here’s how it plays out:

• At the point of acquisition, you’re losing money.
• By the end of the first year, you’re breaking even among those new donors.
• The following year — your second with that group — you’re earning a 2-to-1 return from them.
• In the third year, your return rises to around 3-to-1. Starting to look good.
• The real payoff comes in the fourth and following years, when those established donors are returning $10 (or more) for every dollar you spend.

If you don’t get new donors this year, you won’t have second-year donors next year. More seriously, you won’t have fourth-year donors in four years. It’s as if those cuts leave a black hole in the middle of your donor base — a vacuum where there should have been responsive, committed donors.