July 7 , 2008

New Study: Donors & Revenue Both Drop

The number of donors and the revenue of the 72 large organizations tracked in the Target Analytics Index of National Fundraising both declined when the first quarter of 2008 is compared to the first quarter of 2007. It is the first time that both donors and revenue declined across the entire index since it has been tabulated beginning in the fall of 2001.

While the number of donors has been declining for more than two years, the revenue generated by the remaining donors has made up the difference and more, according to Target Analytics in Cambridge, Mass, a division of Blackbaud.

The declines were evident across most of the sectors in the index, according the study. The Index has not experienced positive donor growth since the U.S. Gulf Coast hurricanes in the fall of 2005.

The Index only tracks gifts of less than $5,000. Direct mail is the dominant or only revenue source for most organizations. However, Web, telemarketing, event, and other sources are included. Indicators are calculated on a cash payment basis, as opposed to a pledge basis. Gifts or donors are defined as new, retained, or reactivated according to relative gift dates rather than organization-specific business rules or source codes.

The 72 organizations reported a combined 36 million donors who have 66 million gifts totaling $1.8 billion.

Donor numbers in the index declined 4 percent when comparing the first quarter of 2007 to the first quarter of 2008. About a third (39 percent) of the organizations in the index had positive growth in the first quarter of 2008 over the same period the year before.

For the first quarter of 2008, for the first time in two and a half years, overall revenue declined as well. Revenue fell 1.8 percent when comparing Q1 2007 to Q1 2008. Some 40 percent of the organizations in the index had positive revenue growth in Q1.

Revenue per donor has been steadily increasing for the past two years. This continued into the first quarter of 2008. Revenue per donor grew 2.1 percent from Q1 2007 to Q1 2008, on top of 3.6 percent growth over the same period one year before.

Until now, increases in revenue per donor compensated for donor declines, allowing overall revenue to continue to grow. In the most recent quarter, however, continued revenue per donor growth could not make up for the donor decreases and prevent overall revenue from declining, according to Target.

“It is important to remember that first quarter numbers only represent returns over the first three months of the calendar year and that, given this short time frame, shifts in the timing of direct marketing campaigns can affect results,” said John Mastrobattista, a divisional vice president at Blackbaud. “In addition, smaller donor counts and revenue totals in Q1 tend to exaggerate the magnitude of percentage increases and decreases in donors and revenue.”

The revenue and donor declines evident in the first quarter of 2008 are not recent phenomena. Donors have been gradually declining and revenue has been gradually flattening out for the past three years.

You can see longer-term index trends more clearly with rolling 12-month quarterly medians of index data. This analysis compares the 12 months of revenue ending in one quarter to the 12 months of revenue ending in a previous quarter. This smoothes out seasonal differences and allows you to see continuous movement from one quarter to the next, instead of simply comparing one full or partial year to the next full or partial year.

Historically, rolling index revenue has grown at an average of about 1 percent per quarter. Revenue grew at faster-than-average rates during 2005 when organizations received record contributions after the Indian Ocean tsunami and the U.S. Gulf Coast hurricanes. Lower-than-average growth rates in 2006 represented a retreat to relatively normal growth rates.

Revenue continued to slow throughout 2007, paralleling the weakening economy, and had a steep downturn in the first quarter of 2008.
The end result of this is that index revenue has grown more slowly than historic norms during the past three years.

From the 12 months ending Q1 2005 to the 12 months ending Q1 2008, revenue grew 6.4 percent. This revenue growth has not kept up with inflation. When adjusted for inflation, revenue has actually declined 3.6 percent in real dollars over the same time period.

The falling donor populations visible across the index may be due to a mix of factors including economic changes, a changing generational profile in the United States, changing attitudes of donors about giving, and a change in focus by fundraisers toward higher-dollar donors, according to Target.

For most organizations, overall donor declines have been most influenced by declines in new donor acquisition.

New donors declined 2.3 percent from Q1 2007 to Q1 2008, on top of a 5.3 percent decline over the same period one year before. Just under half (47 percent) of the organizations in the index had positive new donor growth in the first quarter of 2008.

Retention rates dropped by 2.4 percent from Q1 2007 to Q1 2008. Some 39 percent of the organizations in the index had positive retention rate growth in the first quarter of 2008. By far the greatest decreases in retention came in first-year donor retention, which declined 6.6 percent in Q1 2008 compared to the same quarter one year before.

Reactivation rates declined 5 percent from Q1 2007 to Q1 2008.

The trends in the overall index are reflected across almost every industry sector. The animal welfare and environmental sectors were the only sectors that had revenue increases this quarter. All other sectors had declines.

Animal welfare organizations were also the only ones that had donor increases this quarter. The societal benefit sector had the largest donor declines and the international relief sector had the largest revenue declines.

For more than a year, societal benefit organizations have experienced perhaps the greatest fundraising challenges of any sector in the index. This sector has tended to have greater revenue and donor declines than most other sectors in the index, including significant declines in new donor acquisition, retention, and reactivation.

Donor declines continued to be significant for societal benefit organizations in the first quarter of 2008, with donor numbers falling 6 percent from Q1 2007 to Q1 2008. This was the greatest decrease in overall donor numbers of any sector in the index this quarter. Donor declines were widespread across the sector, with only 31 percent of the societal benefit organizations experiencing positive donor growth in Q1 2008.

In other areas, however, first quarter results were comparatively encouraging. The sector had a decrease of 3.9 percent in overall revenue from Q1 2007 to Q1 2008. Although this was a decline, it actually put the societal benefit organizations in the middle of the index sectors. And almost half (47 percent) of the organizations in the sector saw positive revenue growth this quarter.

Even more encouragingly, new donor acquisition for the sector increased 6.1 percent in Q1 2008. Societal benefit was one of only two sectors (along with animal welfare) to experience new donor increases this quarter; all other sectors had declines in acquisition. A full 69 percent of the organizations in this sector had positive new donor growth in Q1.

To read the complete report, go to www.blackbaud.com/targetanalytics

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This article is from NPT Weekly, a publication of The NonProfit Times.

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