[Guest Post] Donor Acquisition – the painful necessity of fundraising

Today it's my pleasure to share with you a post on finding new donors for your nonprofit. A few weeks ago, Bob McCarthy and I were emailing about the formulas to look at when getting new donors. So I asked him to write a blog post about it! Read it both to learn the formulas and to pick up the language of the direct mail industry. Bob is a direct response/direct mail copywriter and consultant. He offers a free ebook called "Making Snail Mail Work: 13 Lessons in Direct Mail Strategy" at www.mccarthyandking.com Bob can be reached at 508-473-8643 or on Twitter @BobMcCarthy


Donor Acquisition – the painful necessity of fundraising

Bob McCarthy on Donor Acquisition through Direct MailBy Bob McCarthy

Two minutes into the call and I am reaching for my calculator.

Two minutes and it was clear the person on the other end of the line is a newcomer to direct mail fundraising.

“Listen, I know you called me looking for a direct mail writer,” I explain, “but let’s do some math first.”

It’s pretty simple math, nothing complicated, good old fashioned arithmetic.

We start with the cost of a direct mail package – I suggest 60 cents apiece (give or take) and multiply that by the number of mail pieces. I use 10,000 because it makes the math easier. That gives us a direct mail investment of $6,000.

With a 1% response rate at an average gift of $25, you are bringing in $2,500 (100 gifts at $25 each). That’s a far cry from the $6,000 you invested.

A 2% response brings that number up to $5,000 – still shy of your outgoing costs.

At 3%, you’ve made it - $7,500 which gives you a profit of $1,500.

But here’s the problem and it’s a big one…

If you are reaching out to prospective donors for the first time – people who do not yet have a relationship with your organization – you’re not likely to see 3% … or 2%.

Even 1% is going to be a challenge – and that’s if you do everything right.

This is the harsh reality of donor acquisition direct mail.

Donor acquisition – painful but necessary

Finding new donors is a painful but necessary part of fundraising. It’s painful because donor acquisition campaigns almost never make money. It’s necessary because you need a consistent flow of new donors if only to replace those donors who leave you every year.

Of course, this may not be news to you …

You may be familiar with direct mail costs and typical response rates – for both donor acquisition and donor renewals.

You may have already done the math and realized that although new donors cost you money in the beginning, you can expect a percentage of those same donors to continue making gifts over a certain number of years (on average) – and that the total donations during that time will far exceed the initial cost of getting that donor.

You may be fully aware that donor acquisition is a critical investment in your future growth.

But you also know that donor acquisition efforts are always the first thing to go in a recession – and that if you go too long without acquiring new donors, your donor file will begin to dwindle.

And your donor file dwindles, you will see less and less income from your renewal programs.

It’s a vicious cycle. So what can you do about this?

Start with your donor acquisition costs

Instead of measuring donor acquisition by response rates or average gift or total revenue, measure it by your donor acquisition costs.
If you go back to our example above and you are generating a 1% response rate with an average gift of $25, you can easily calculate your donor acquisition cost.

>>>>$6,000 investment less $2,500 income = $3,500 loss divided by 100 donors = $35 cost per donor.

That’s not too bad for an acquisition. It won’t take too long to get that money back in renewals.
But what if your response rate is less than 1% - say, a half of 1% (.005). Then you have a very different story. Just 50 donors providing $1,250 in income.

>>>>$6,000 investment less $1,250 income = $4,750 loss divided by 50 donors = $95 cost per donor.

Ouch!

Look for different approaches – and test.

Here are a few options for donor acquisition:

  • Offer a gift in return for a donation

    This is called a back-end premium. You can offer a gift for everyone who donates or for people who give a certain amount. Keep in mind, you need to pay for those gifts so it will cut into your overall revenue.

  • Send a gift with the mailing

    This is called a front-end premium. This would be something like mailing labels, or gift cards, or decals. The hope is that receiving the gift in the mailer will get you more attention and that some people will be more driven to respond out of obligation. Again, the premiums will add to your marketing costs.

  • Reduce your starting “ask” amount

    The “ask” is the donation amount you ask for on the donation form. Typically the form will have four dollar amounts plus an “Other” option. The lowest amount is the starting point. Where you start is often the subject of much debate.

    For donor renewal campaigns, the start amount is often customized to the donor’s past gifts. For donor acquisition campaigns, you don’t have a donor history, but you need to start somewhere. And starting low will produce more donors (even if the average gift is lower).

  • Reduce mailing costs by combining with donor renewal campaigns

    In direct mail, the higher the quantity, the lower the unit cost. By combining your acquisition mailings with your renewals, you can take advantage of this volume discounting. Just be careful to adjust your message and ask amounts for your new donor audience.

Whatever you decide, be sure to implement these changes as a test against what you’re doing now.

Don’t just jump into a different approach.

And when you test, look beyond the initial response. Watch your renewal rates as well. Even if you improve your donor acquisition position, you want to be sure you haven’t sacrificed your renewal rates.

I know, more math. Time to reach for that calculator again.

About Marc Pitman

Marc A. Pitman is the author of Ask Without Fear!, director of The Nonprofit Academy, and founder of FundraisingCoach.com. A coach to leaders around the world, Marc's expertise and enthusiasm engages audiences and has caught the attention of media organizations as diverse as Al Jazeera and Fox News. Marc’s experience also includes pastoring a Vineyard church, managing a gubernatorial campaign, and teaching internet marketing and fundraising at colleges and universities. He is the husband to his best friend and the father of three amazing kids. And if you drive by him on the road, he’ll be singing 80’s tunes loud enough to embarrass his family!

Follow him on Google+, on Twitter @marcapitman, and like "Ask Without Fear!" on Facebook.

Comments

  1. One thing that hasn’t been overlooked here is targeting..

    It’s a major issue that we are still using mailing lists that only return a 1, 2 or even 3 % response in the first place? Why are we searching for a needle in a haystack when we could we be shooting fish in a barrel instead?

    Great example here of how to do it well.. (online not mail)> http://pellandbales.wordpress.com/2014/06/03/searching-for-a-needle-in-a-haystack/

    (The other lesson from this example is the 2 stage approach: it takes your point on ‘Reducing your starting “ask” amount’ to a new level by asking for something that costs the donor nothing at all. By doing this you will get the highest possible response rate and you can then use high response channel such as phone to secure the income – we are seeing c.10% of prospects convert to a monthly regular gift using this model).

  2. Bethan

    I agree that targeting is critical – in fact, more important than everything else.

    You correctly question the value of demographic lists. A much better approach is to find similar non-profits and use their lists. To use your term, these are behavioral lists.

    The only problem is they are not always available. Some will exchange lists with you (assuming you have a list of some size to exchange), some will let you rent their lists but some won’t release their lists to you under any circumstances.

    You also talk about reaching out to online communities. That seems to make a lot of sense because online is always going to be significantly cheaper, if not free.

    Strategically, I think the two-step process is a good way to get more people on board.

    But as always, it’s one thing to get people to raise their hands; it’s quite another to get them to reach into their wallets. Thanks for your comment.

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