Acquisition or Retention: What’s Your Priority?
The 2015 Fundraising Effectiveness Survey Report by the Association of Fundraising Professionals (AFP) on donor and gift retention rates from 2005 to 2014 seems to be getting a lot of attention. It shows that retention actually has increased over the past few years. Back in 2011, AFP reported that nonprofits were losing 107 donors for every 100 gained. In 2014, it was 103 to 100, and while it’s still not great, there are many fundraisers who use it as evidence that the industry is inching closer to pre-recession levels.
There are many fundraising professionals who view the report differently—they are using the findings to reinforce their opinions that the fundraising industry has a retention problem. Based on the 2015 Nonprofit Communications Trends Report by Nonprofit Marketing Guide, most nonprofits agree, as more than half of all nonprofits (53 percent) are saying donor retention is a top goal—up from less than a third (30 percent) in 2014. It was the first time donor retention was cited as being more important than donor acquisition.
Of course, I understand that retention is critically important, and yes, I believe that it continues to be a huge issue that professional direct marketers must address, but I’m not convinced the problem is any more significant than it always has been. When more than half of an organization’s active-donor universe is expected to lapse each year, and when less than one in every two new donors ever will give a second gift to the same organization, there obviously is significant room for improvement. We absolutely must be looking for new ways to make improvements to an old problem. Even small incremental gains in retention can yield significant financial benefits to an organization, yet the potential remains largely untapped.
The AFP report suggests that retention is actually better today than it was from 2007 through 2012, but is it? There are so many variables that can skew “average” retention numbers, which makes comparisons to previous years very difficult and potentially incorrect. Donors migrate through an organization in “lifecycle” stages—largely defined by the number of consecutive years of giving. With retention rates ranging from 25 percent for new donors to 85 percent for deep-core donors, retention rates are subject to the changes in the distribution of these audiences.
In years when acquisition volumes decline, you would expect the subsequent year’s retention rates to increase as core donors likely will make up an increasingly higher percentage of the total active-donor universe—even though it’s possible that retention rates within lifecycles were down year over year. So be careful when benchmarking your organization to “industry averages.”
That said, my opinion is that new donor acquisition is really the greatest challenge facing nonprofits today, and the problem appears to be much more significant than ever. There is little evidence to suggest it’s going to get better without an infusion of new and more advanced targeting solutions.
Organizations simply can’t afford to prospect at the levels necessary to offset “normal” levels of donor attrition. Comparatively, prospect response rates are significantly lower today than they have been historically—down 35 to 50 percent in many sectors. Acquisition budgets continue to be slashed, resulting in lower mail volumes, which lead to shrinking active donor files for other organizations to prospect from. To help offset the decline of “qualified prospects,” more and more mailers are turning to co-ops as a key source of new prospects, which ultimately results in the best prospects being bombarded with solicitations.
To help make up for the decline in cold acquisition, mailers are putting more emphasis on lapsed donors, but as new donor volumes decline, so too will the available universe of lapsed donors to reactivate ... and so it goes.
As fundraisers, we face significant threats to our industry, and it’s time we put greater urgency on developing new solutions and strategies to combat old and new problems. If we don’t, we won’t need to blame the Internet for the demise of direct-mail fundraising.
Greg Fox is vice president of nonprofit vertical strategy at Merkle. He joined the company in 2000 to establish a data-driven, strategic fundraising agency group. Fox is a 30-year veteran of direct response fundraising, with expertise in developing innovative fundraising marketing strategies and solutions. He has helped raise hundreds of millions of dollars for many of the largest and most respected fundraising brands in America, and while he has broad-based fundraising experience, he is highly regarded as a leader in the national health-charity sector. Prior to joining Merkle, Fox was a founding partner in TheraCom, a leading provider of full-service specialty pharmacy solutions and marketing strategies that served the healthcare and charitable industries. He also served as vice president of direct response fundraising at the National Cystic Fibrosis Foundation, where he started his career and created the organization’s first national direct response program. Fox is an industry thought-leader, frequent speaker at industry conferences and an active participant in the DMA nonprofit federation. He graduated from Virginia Commonwealth University in Richmond, Va.