In its white paper “RFM: A Formula for Greater Direct Mail Success,” Charleston, S.C.-based nonprofit software services provider Blackbaud posits that by using a database of donors’ giving histories to do RFM analysis, organizations can increase gifts and reduce costs.
Blackbaud recommends the following tips for nonprofits interested in setting up RFM measurement.
1) Recency. Figure out how long it’s been since each donor gave — in days, weeks or months. Then use those measures to rank your donor list from the most recent to the longest lapsed. Configuring your measurement this way only works if you mail to the entire list each time; in other situations where you mail to only a segment of your list, create a system that ranks all donors who responded to the latest appeal equally.
2) Frequency. This should be the measure of the number of gifts in a given period. Pick a time period that covers a number of mailing cycles, then determine how many times each donor has given. The greater the ratio of gifts to mailings, the higher the frequency score for the donor. Blackbaud also suggests adjusting for the amount of time a donor has been on your list and how often he’s given over that period of time. Determine how far back you should go in figuring frequency based on how often you mail and the quality of your list.
3) Monetary. This can be measured in three ways: the amount of the donor’s latest gift; the amount of his biggest gift over the time period you’re looking at; or the average of all the gifts he’s given over that period. For this measure, Blackbaud recommends going with the average of all the gifts, as it is the best predictor of future returns.
Rank donors in descending order for each measure and then assign scores based on the ranking, e.g., the 20 percent of the list that gave most recently get a recency score of five. Rank donors for each measure so that in the end, each donor has a three-part RFM score — e.g., 5-1-3 — that describes his giving history.