The Power of Co-op(eration)
For a long time, even prior to the “great recession,” many nonprofit mailers have been battling diminishing prospect results and shrinking housefiles while costs continue to rise and net income decreases. This has created a serious dilemma for many mailers because shrinking donor files also means that there are fewer good prospect names available on the rental and exchange market.
So what can mailers do to get more good names to grow their files, get better results from the names they’re renting and exchanging, improve donor renewal results, extend long-term value, and increase total net income? There are no simple solutions to these challenges, but a great place to start if you haven’t done so already is to join one or more cooperative databases to find new prospect names and take advantage of the extensive modeling capabilities co-ops provide for housefile modeling and upgrading current donors. Modeling prospect and housefile names has the potential to make an immediate positive impact on your bottom line — whether your organization is looking to reverse negative trends or continue positive ones.
This article is intended to provide a basic understanding of cooperative databases and statistical modeling, and how you can use them to increase net income. It will help you avoid what I consider to be one of the most deadly sins in direct marketing, which is making major cuts to your prospecting campaigns. Cutting, suspending or eliminating prospecting, as most of you already know, only makes the challenges facing nonprofit direct marketers more difficult.
Cooperative databases and statistical modeling are not new. In fact, statistical modeling (predictive analytics) has existed for more than 30 years, and cooperative databases (co-ops) have been around for more than 20 years. Both are used extensively by commercial mailers and other marketers to identify those most likely to buy their products and services. Some of these businesses have been so successful using modeled co-op names that 100 percent of the prospect names they use come from co-ops. Historically, nonprofit organizations have been participating in cooperative databases but to a lesser extent than commercial marketers.
A cooperative database is one where various companies and organizations contribute their buyers’ or donors’ names along with their transactional histories to create a large pool of individuals who have responded to their offers. These individuals and their transactional histories plus additional enhancement data such as demographic, psychographic and lifestyle information, etc., make up the entire cooperative database. The depth (number of transactions) and breadth (number of data sources) of data within the database give a comprehensive view of consumers’ behavior (donating, reading, buying, etc.). The greater the size, depth and breadth of a co-op, the better the view of the consumer. Once created, the database is continuously updated from buyer or donor transactional history by the co-op’s participating companies and organizations.
Co-ops (depending on their size) can provide their participants with access to as many as 200 million-plus individual consumers and donors with transactional history from hundreds or even thousands of participants.
Statistical models accurately predict the future behavior of individuals by ranking them based on hundreds of key variables and past transactions. There are two primary model categories: response models and profile models. Simply defined, response models are based on the characteristics of previous campaign responders, and profile models are based on the characteristics of a participant’s active housefile. Within each category there are various types of models that can be created, and each model is customized for every participant. The types of models created are determined by the participants’ specific objectives. Models, the logic behind them and the co-op participants vary from co-op to co-op, which is why organizations can use multiple co-ops successfully.
Using models helps organizations increase net income (“optimize” results) by mailing more efficiently. Ranking and scoring individuals from “most likely” to “least likely” to respond to an offer gives mailers the opportunity to eliminate from any mailing (house or prospect) however many low-scoring names they choose. Mailers who eliminate low-scoring names increase response and reduce total mail cost. There is also an option in prospect mailings to eliminate low-scoring names and replace them with higher-scoring names from the co-op universe to increase response.
Co-ops have most often been used by nonprofits for prospecting campaigns, but they also provide nonprofits with numerous housefile models that help maximize their donors’ long-term value. Housefile models can significantly improve campaign performance by increasing net income; efficiently reactivating lapsed donors; and identifying monthly donor, major-gift and planned-gift prospects. Essentially, co-ops provide participants with an extensive, low-cost modeling toolbox for both prospects and donors.
How can a co-op help?
If you already participate in a co-op, but only take acquisition names as one of your vertical lists, test net file optimization or list optimization modeling to enhance your overall acquisition performance. Also test donor reactivation and housefile modeling to improve net income, and increase donor long-term value by identifying good prospects for other fundraising programs such as monthly giving, major gifts and planned gifts. Share your needs and objectives with your co-op account services representative, and work together to develop strategies and models that will meet or exceed your goals.
If you do not participate in a co-op, there are five good reasons for you to join one, or at least test one:
- Joining is free for most co-ops. The only requirements to join are that a participant provide its list of buyers or donors and their transactional histories and that the database is updated regularly.
- Co-ops are made up of all multi-buyers. Names added to the co-op must match a name that already exists in the database, which is why all of the names in the database are multibuyers. Names that do not match are “unique” and are not added to the co-op database.
- Model builds are free. Participants pay a very reasonable per-thousand rental fee for the names they receive, but they do not pay for model builds, which some companies charge as much as $20,000 or more to produce. Co-ops want their participants to be successful and will build and test numerous custom models for free to identify those that work best for a given participant.
- Modeled names perform better. Both acquisition and housefile names are selected and ranked from best to worst primarily based on an individual’s spending behavior (transactional history) and other factors found to be meaningful for each participant. Mailers can select the segments they wish to mail or eliminate unresponsive mailing segments, thus reducing mail cost and increasing overall mailing performance that neither traditional list-acquisition selection nor recency/frequency/monetary housefile selection can accomplish as effectively.
- Housefile models increase a donor’s long-term value. Not only do housefile models improve mail results through better selection, but they also can be used to identify the best prospects from within the current housefile for reactivation, monthly giving, major gifts and planned gifts.
You or others in your organization may have some concerns that have kept you from joining a co-op. Below are two objections heard most often and counterarguments to help overcome them:
● Objection No. 1: My board, CEO or supervisor does not want to participate because our names are unique and the organization doesn’t want other direct marketers mailing them.
Remember where your donor names originated? They came from lists of organizations that are rented and exchanged with your organization and numerous other organizations. Therefore the names on your donor file are not unique to your organization despite what some may think.
The fact is that your names already exist within a large co-op because any name from a new participant’s file must match a name already in the co-op in order for the name to be included. Names that do not match a name already in the co-op are not added. That is why, as noted earlier, all names in a co-op are multibuyers. As a result, your “unique” names do not go into the co-op.
● Objection No. 2: My names will be overused by similar organizations and become fatigued, thus diminishing results of my housefile appeals.
No single list is used as a whole. The model does not know on which lists a name appears since a single name is on multiple lists. A significant benefit of a co-op is that models are applied across the entire co-op universe, not individual lists, to identify and rank the best prospects based on the desired characteristics for a particular participant. A selection of 2 million prospects from a co-op database that contains 200 million-plus individuals represents less than 1 percent of the entire database.
Whether you are already part of a co-op or thinking about joining one (or more), take advantage of the many prospect and housefile models available. Co-op staffs are experienced direct-marketing professionals who will help you improve your fundraising results using the latest modeling techniques, resulting in greater efficiency and more net income.