A candid look at fundraising effectiveness

Last year in the American nonprofit sector, every $100 raised from new, upgraded, and previously lapsed donors was typically offset by $96 lost through gift attrition. So while this indicates a positive net-growth in giving, it’s a slim margin.

Calculate our progress by numbers of donors instead of dollars, however, and the trend is much more discouraging—every 100 new donors gained in 2012 was offset by 105 donors lost.

These numbers are the sobering bottom line from the 2013 report from the Fundraising Effectiveness Project (FEP), a collaborative research project involving 2,800 nonprofits nationwide and led by the Association of Fundraising Professionals and the Center on Nonprofits and Philanthropy at the Urban Institute.

The FEP is an ongoing, annual look at fundraising results, with the goal of helping all nonprofits better measure, compare, and maximize their annual growth in giving. For decades, research has indicated that there is an enormous untapped potential for giving in the U.S., yet total giving as a percentage of gross domestic product (GDP) has averaged a flat two percent for the last 40 years. The FEP asks, “Why hasn’t the sector been able to tap this potential and increase its share of the GDP pie?”

More simply put, why are we spending so much energy spinning our wheels?

Here are some highlights from the report, and our own considerations.

1. This is an excellent time for more and better reflection of your fundraising results from the past year. Looking only at the overall performance does not really tell you or your board what is really happening, or where to invest additional resources to improve your effectiveness. Neither is it sufficient to look only at new gifts coming in. You must compare your net gains to your losses, both in dollars and donors, from year to year.

2. It usually costs less to retain and motivate an existing donor than to attract a new one. For most organizations—and especially those that are sustaining losses or seeing only modest gains in dollars and donors—taking steps to reduce your gift and donor losses is the least expensive strategy to increase net gains.

3.  One way to look at donor loss is to consider your realm of influence or community “churn.” Even though you may believe that your universe of potential fans and champions is unlimited, particularly with social media, the truth is that there is a rather finite number of people you are reaching through your current mode of marketing and communications. Consider your best demographic target for new donors: how many adoptive families of a certain age or region of the country, for example, can you afford to find, win over, and then lose through neglect or other means? And what happens when you’ve churned through them?

4. We’ve trained for years on the question, “What is your data trying to tell you?” It is very helpful to drill down in your donor cultivation analysis to at least this level of seven categories: Gains come from new donors, upgraded donors (those who gave last year and increased their gift this year), and recaptured donors (those who gave in the past, but not for at least a year). Sames are of course your donors who gave this year at an amount equal to the immediate past year. Losses come from donors who gave this year and last year, but who downgraded the amount; lapsed donors gave last year for the first time but didn’t give this year at all; and lapsed repeat donors have given in previous consecutive years but not this year. Donor attrition and poor retention have a huge effect on your results.

5. Sadly, this is an example of “…the rich get richer.” Not surprisingly, the FEP found that larger and more mature nonprofits typically have better ratios of gains to losses. Those who raised more than $500,000 enjoyed an average 16% net gain in 2012. Organizations raising between $100,000 and $500,000 annually lost just over 5%, and the smallest nonprofits often had an average net loss of 13%.

6. Corporations strategically compute the total, true cost of a sale by adding up sales professional’s compensation or commission, support or administrative staff costs, marketing and advertising costs, retail rent, and other non-billable costs, and comparing it to the revenue. Even though it’s considered unethical for a nonprofit to pay its fundraisers on a commission or percentage, doing this kind of analysis can be a revealing exercise. Overall, how much did you spend this year to raise each dollar?

7. Once you’re willing to analyze your fundraising effectiveness, you can begin to compare each tactic for the costs-per-dollar-raised, and adjust your next annual development budget accordingly. Where this practice gets tricky, of course, is assigning a long-range cost and benefit of time spent cultivating major gifts. Your organization’s longer range history with major donors will help you balance the risk and reward of each tactic—with “balance” being the primary goal.

8. Is one dollar the same as another? There’s a curious conundrum in donor development that you’re bound to stumble over eventually. Would you rather get one large gift from a donor once—a gift that will likely never be repeated—or several, smaller annual gifts over a span of years from that donor? Would you forego the delight of that one-time gift for the potential in cultivating a gradual upgrade over time? Obviously one major factor is the age of the donor. We’re not suggesting that there is an obvious right answer to this example, but that a more critical look at your donor development assumptions and strategies—and adjusting your plans for 2014—can only improve your effectiveness.

9. As if often the case with any kind of software, you’re probably not using your donor database to its fullest capacity. The FEP works to make its survey data easy to compile and recommendations as easy as possible to implement with the help of 10 donor software firms, including well-known names like DonorPerfect, GiftWorks, and The Raiser’s Edge. The 2013 report includes step-by-step instructions on how to do this.

10. Even if this level of statistical data analysis is beyond your interest or your nonprofit’s capacity, there is still an important take-away from this somewhat mind-numbing reporting. Remember that in fundraising, “Whatever we can raise, from whomever, regardless of timing” is not a sustainable strategy. If this is your current approach, you may not exist long enough to outgrow it.

Download the 27-page report here.


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