Reduce Dependency on Year-End and Episodic Giving by Modeling Donor Sentiment Year-Round
Many nonprofit organizations have fallen into an unhealthy dependency on the impulses of episodic donors and an overreliance on year-end giving. The challenge with these two giving patterns is that they are unpredictable.
Episodic giving occurs randomly throughout the year depending on the reflexive responses of donors to environmental factors such as social, legal, political, or economic issues. While nonprofits may use these circumstances to rally new donors together to address crises with generous gifts, it’s unclear when or if any future giving will occur. The other dependency is the age-old habit of relying on year-end giving. The theory here is that marketing and fundraising will cultivate the donor relationship throughout the year, and then an appropriate level of giving will occur in Q4, which can be as much as 30% of all annual donations.
However important, excessive dependency on these two norms neglects the opportunity for enhanced fundraising performance throughout the year. This also creates a financial imbalance as well as instability in the nonprofit’s financial foundation. Nonprofit organizations experience demand for their services year-round as well as the passion from donors to support the delivery of vital services. Traditional fundraising methods have been unable to align these two phenomena, missing the opportunity to optimize cash flow from net proceeds throughout the year.
Today’s approach of continuously soliciting both episodic and year-end donors throughout the year has emerged out of fear. It’s the fear of missing out on the opportunity to secure the next gift. It’s the psychology of not knowing when or if to solicit a donor, or even knowing precisely how much to ask of a donor at the specific time of solicitation. As a result, professional fundraisers have avoided determining an answer to these difficult decisions.
Today’s most common approach is to simply lump all types of donors together and then solicit all of them through direct mail 12 to 24 times per year. And email is significantly higher, with some solicitations occurring weekly. The continuous mass solicitation of donors throughout the year is at the root of inefficient fundraising practices, as this approach, not financially optimized, does not consider differences in donor behavior, and worse yet, these solicitations often employ ask amounts that are not connected with real-time estimates of donor sentiment.
Gift array values are typically generated from static formulas, such as the approach of using recency, frequency and monetary value (RFM) to segment donors, and then using either their most recent contribution or highest previous contribution as an anchor value, which is then multiplied by static segment-based multiples, such as 1, 1.5, and 2. This static calculation is impersonal, not time sensitive, and leaves the donor feeling disconnected from supporting the mission. While it is important to maintain awareness of the cause, and donor retention demands that gift array values that seem relevant and reasonable, today’s practices miss the mark, and they can actually reduce participation, and diminish giving levels while degrading a nonprofit’s brand equity. The shortfall in today’s approach has only been exacerbated as a result of the effect of high inflation rates on fundraising.
There is now a better way of sustaining donors at the optimal level of giving, while enhancing cashflow or improving net proceeds from fundraising throughout the year.
The Value of Deeply Understanding Donor Sentiment
The solution to these problems is continuous modeling of donor sentiment throughout the year by precisely measuring donor affinity, the elasticity of giving potential, and the financial or brand impact of soliciting a donor at a specific moment in time. Unique insights on individual donor sentiment throughout the year enable nonprofits to improve net proceeds from fundraising. These capabilities provide a new level of insight on questions such as when a donor is ready to donate, how much to ask of the individual, when to invest in a specific solicitation, and how to preserve brand equity in the process.
How to Continuously Measure Donor Sentiment
Continuously measuring donor sentiment is easy if the right capabilities are employed. Behavioral economics modeling with artificial intelligence is highly accurate in measuring the precise sentiment between an individual donor and a single nonprofit organization at a specific moment in time. It then uses this donor-specific insight to nudge individuals to the optimal level of giving while retaining participation rates.
Until today, this type of personalized sentiment modeling has not been economically viable outside of the major giving segment. Behavioral economics modeling with artificial intelligence can now model individual donor sentiment for pennies per individual donor at the scale of enterprise-level direct response fundraising volumes, and then act upon these insights to optimize net-proceeds from fundraising campaigns without human intervention. This capability is inherently omnichannel, and it improves year-round cashflow by increasing net proceeds from fundraising — optimizing giving and/or lowering the cost per dollar raised throughout the year.
Given that inflation is not showing any signs of abating in 2023, Behavioral economics modeling with artificial intelligence is becoming a critical capability for fundraising professionals to balance cash flow year-round by improving giving levels when donors are ready to donate and lowering the cost per dollar raised.
Behavioral economics modeling with artificial intelligence can stabilize the financial foundation of nonprofit organizations by reducing existing dependencies on episodic and year-end giving, while balancing net proceeds from fundraising.
Michael Gorriarán the president of Arjuna Solutions, a provider of behavioral economic modeling artificial intelligence services. He is a globally experienced technology sector executive with an extensive 30-plus-year career at Microsoft, Xerox, and early-stage, high-growth business ventures. He has held executive leadership roles in advanced cloud services, enterprise software, business process outsourcing and professional services businesses.
Prior to his current role, Gorriarán was most recently general manager of worldwide commercial markets strategy group at Microsoft. He has either led, been chief operating officer, general manager or a key executive in businesses ranging from less than $10 million to more than $77 billion in annual revenues. His responsibilities have included developing and implementing new business strategies and financial models, executing turnarounds, and launching new lines of business and go-to-market plans to gain a sustainable competitive advantage around the world.
Gorriarán holds an MBA from the Kellogg School of Management at Northwestern University, and a bachelor of science in marketing, with concentrated studies in economics and Spanish, from The University of Rhode Island. He is an avid distance runner, outdoor enthusiast and active parent with his wife Kris of their two children.