In the Trenches: Donor Attrition: The Insidious Statistic

There are many ways to measure the performance of a donor program. Gross and net revenue, the number of active donors and their corresponding lifetime values all are critical. But the rise of donor attrition is one insidious statistic that, if ignored, will rob a new donor program of needed growth and put a mature program on a plateau.

If an organization suffers from high attrition, two temporary effects might actually appear to be good news: Average gifts rise, and net revenue can increase as loyal donors continue to give at increased rates even as the donor file continues to shrink.

A recent benchmarking study by the Target Analysis Group, a Cambridge, Mass.-based market-research firm, confirms this trend. According to the study, 37 national fundraising organizations that raised more than $1 billion from 25 million donors in 2003 reported a 2.8 percent increase in revenue, while the total number of donors dropped by .07 percent in 2003 and 2.2 percent in 2002.

To be fair, the numbers seem to be getting better. But what can be said of an organization that has fewer donors today than it had last year? And the year before? Could these charities become extinct through donor attrition?

I put this doomsday scenario before a group of fundraising professionals who work with a variety of nonprofit organizations. And because each of us has a slightly different vantage point from our respective trenches, the insights varied. But some advice was consistent.

Attacking attrition: The experts weigh in
Some fundraising professionals see donor attrition as a natural evolution in the industry.

“This trend has been going on for quite a few years, but it is an economic decision on the part of the fundraiser, not a trend for the donors,” says Jim Kirschner, president of the fundraising firm Miles River Direct, which frequently works with membership organizations. “Fundraisers are hard pressed to earn net dollars from low-dollar donors, so they have switched tactics to acquire and maintain higher-dollar donors.”

However, fundraising consultant John W. Graham, who advises a number of Christian ministries, points to the continuing tension between servicing existing donors and acquiring new ones. Because of this, development directors have cut back on acquisition efforts due to the time it takes for the investment to pay off.

“For a good while it took just 10 to 12 months to recoup the donor acquisition cost[s],” Graham affirms. “Now it takes 18 months to recoup the out-of-pocket costs to break even on a new donor.”

Mal Warwick, founder of the Berkeley, Calif.-based, full-service fundraising company Mal Warwick & Associates, put the issue in Darwinian terms: “There are fewer donors on file today only because some nonprofits are unwilling to pay the higher donor-acquisition costs necessary in today’s competitive marketplace.”

So is it inevitable that every organization faces a life cycle of growing, maturing, shrinking and then dying? Hardly.

Every fundraiser in my little group agrees that a successful nonprofit organization must always continue to seek new donors. But let’s face it, the days of a 2 percent response rate and a $20 average gift from new donors have gone the way of a $1 gallon of gas.

So if you realize net revenue from a contributor in a reasonable amount of time — say 18 months to two years — keep at it. Then develop and nurture the donor relationship with stewardship and relevant communications.

Five tips for stemming attrition
Successful organizations of all shapes and sizes know to do the following:

1. Acquire renewable donors. Simply adding new low-dollar donors who are not committed to the cause won’t pay off in the long run. Understand how to compute the lifetime value of a donor and then invest in your most loyal donors.
2. Keep supporters active. Whether you are running a donor-based or annual-membership program, don’t give up on the donor relationship until it becomes more costly to renew the contributor than to find a new one. Kirschner says that for the long-term success of a membership organization, the renewal rate is most important. For donor-based organizations, frequency and retention top the list.
3. Reactivate lapsed members. Kelley Hamilton, vice president of development for Detroit Public Television, a viewer-supported PBS-member station serving the nation’s tenth-largest television market, recently turned to her inactive file to bring in new members. Hamilton has made reactivation a strategic target for FY 2005 and is beginning the process now. For local or regional organizations that can’t simply expand their geographic reach, reactivating a past contributor usually is more cost effective than finding a new one. A number of data-services firms offer innovative ways to mine productive names from lapsed donor files.
4. Develop new relationships with donors. Graham, for example, has had great success recently in converting donors to members. Donors who had been giving twice a year increased the frequency of their giving to six to eight times when invited to join the organization as participating members.
5. Offer automatic monthly giving. The financial sting of acquiring new donors doesn’t feel so bad when 90 percent or more of your monthly donors stay with you year after year. Invite them to make gifts automatically each month — through checking or credit card accounts — and you’ve developed a relationship that’s worth the investment.

No matter the size of your file, always remember that gifts come from individuals who are seeking a relationship with you. Stemming donor attrition and improving other performance metrics are only a part of the picture.

Americans make up the most generous society in the world. The largest planned gift you will ever receive might come from the next prospect who gives you $22. So keep seeking new friends.

Tom Hurley is president of the not-for-profit division of DMW, a full-service direct-response advertising agency with offices in Wayne, Pa.; Plymouth, Mass.; and St. Louis. E-mail Tom at thurley@dmwdirect.com.