Determining a donor's lifetime value

Nonprofit executives at a recent national conference learned about the possible benefits of Lifetime Value, a calculation of the number of new donors an organization is able to enlist and the average subsequent revenue, considering both average gift and retention.

Briefly, Lifetime Value can be applied by combining donors into six-month groupings based upon the date of an initial gifts. New donors are then analyzed based on renewal gifts and the results are standardized to reflect giving over the 12-month period following acquisition.

What are the benefits of incorporating Lifetime Value into an organization's planning?

• Acquisition success can be balanced with improved retention.
• An organization can ensure that it is acquiring donors who meet its profit and loss benchmarks in its renewal program.
• Lifetime Value helps offset problems that result when acquisition metrics are at odds with renewal goals.
• Decisions made to "improve" acquisition metrics are sometimes made to the detriment of renewals, therefore acquisition success can be integrated with renewal goals.

Knowing your constituency and keeping it

Understanding one’s constituency is essential for any nonprofit, even one that is a religious institution.

In his book The Disappearing Donor, E. Dale Berkey offered the results of a survey undertaken by his firm Berkey Brendel Sheline that casts light on the demographics of those who donate to ministries.

• Lapsed donors are significantly more likely to be married, and active donors are more likely to be widowed. Lapsed donors in the highest segment are even more likely to be married than active donors in this segment, who are more likely to be widowed.
• Approximately nine out of 10 respondents are Caucasian. Active donors are more likely to be Caucasian compared with lapsed donors. At 6 percent, lapsed donors are more likely to be African-American than active donors (4 percent). However, an analysis of respondents by organization reveals that no single organization is responsible for the disparity in lapsed and active ethnicity.
• Four out of 10 respondents have completed a four-year degree or more. There is no significant difference in education levels.
• The approximate median income for lapsed respondents is $55,600, significantly more than the median income for active donor respondents at $47,500. Income does not appear to be a key factor with regard to lapsing.
• For both active and lapsed groups, four out of 10 respondents were male, six in 10 female. As the annual cumulative giving segment increases, there was a higher likelihood for respondents to be male, for active and lapsed respondents.

RETAINING, UPGRADING YOUR DONORS

As hard (and expensive) as it is to find donors, the last thing a fundraiser wants to do is to lose one. Therefore it is fundamental in building a successful fundraising program that you must cultivate the relationship with your donors. 

Forming stronger bonds and engaging in a dialog with donors leads to more involved supporters, longer retention, and larger gifts, according to Geoff Peters, president, Creative Direct Response, Crofton, Md.

If the donor was acquired by direct mail this can be done through the same channel (i.e. direct mail) or through different channels such as telemarketing. There are a number of “donor involvement” tools that vary according to the charity and its cause. They can be as simple as asking the donor to become involved by signing a petition or calling their congressperson or even attending a seminar or special event.  Some involvement tools are more complex such as inviting the donor to volunteer and become involved personally (e.g. “Help Habitat for Humanity build a home” or “Visit the slums in Haiti with Food for the Poor”).

According to Peters, retention can also be aided by upgrading donors.  This will encourage donors to contribute in larger amounts, or more frequently (e.g. monthly) and for a longer period of time.  Upgrading donors is not solely about asking for higher dollar amounts, it is also about cultivating a stronger relationship which in turn is evidenced by a greater financial commitment. 

So when upgrading donors, there must be a reason given for the upgrade.  Sometimes this is as simple as reminding them of the great need (e.g. “people are starving”) or it can be more personal such as “your support is appreciated but we really need you to help out by sponsoring a child and making a commitment to a monthly gift.”

Whatever your cause, involving donors more deeply will produce fundraising benefits as well as a greater sense of satisfaction by the donor that they are supporting a cause to which they feel close.  It also makes the fundraiser’s job more fun.

CHARTING YOUR STANDARDS OF GIVING

A successful capital campaign requires many ingredients, from preparation to follow-up work once the campaign has concluded.. In his book Conducting a Successful Capital Campaign, Kent E. Dove recommended a standards-of-giving chart, also known as a gifts table, as a concrete mathematical demonstration of the importance of major gifts to a successful capital campaign.

According to Dove, such a chart is of importance to volunteers and donors alike, and can serve several functions throughout the campaign:

• It indicates the number and size of the various gifts that will be needed if the institution is to reach its goal.
• It serves as a reality test, especially with the board and the major donors from whom leadership gifts are expected.
• It is a vital part of the market survey used to determine the feasibility of the projected goal.
• Once firmly established, it defines the goals that must be met in order for the campaign to succeed. (It is also to be hoped that it will raise the sights of prospective donors.)
• It establishes specific guidelines for volunteers to use in patterns of gift solicitation.
• It is an essential management tool, providing the purest and truest indicator of progress to date in any given campaign.
• It is a valuable evaluation tool after the campaign

Easy and cheap donor research

One of the key ingredients in successful fundraising is effective prospecting. In their book Essential Principles for Fundraising Success, G. Douglas Alexander and Kristina J. Carlson offer a few tips about resource and prospect research:

• To get an estimate of someone’s salary range, try www.salary.com. On the home page, pick a category and ZIP code. Then define the job title and “Create Basic Salary Report.”
• To find other career information, try using a news archive such as www.newslibraby.com.  This allows you to search many newspaper archives at one time.
• If the person you are researching is a lawyer or doctor, try www.lawyers.com or www.amaassn.org.
• More and more property records are online. Usually the information available includes the name of the property owner, the address of the property, the address of the property owner if different, the assessed value, the year of assessment and possibly the appraised or market value.
• For individuals with public companies, one of the best places to look is the company’s proxy statement.
• If you are interested in seeing if your prospect is an active political contributor, check www.opensecrets.org.
• Ownership of airplanes might be a good indicator of wealth. One free site is www.landings.com, and one for-pay site is www.knowx.com.
• Be sure to check with a local library to see whit kind of resources it has.

Keys to effective cultivation

Fundraisers know that donors do not simply materialize but must be cultivated.

Speaking at a recent international conference on healthcare philanthropy, Sherri Birkeland, vice president of development and planning for the North Country Health Services Foundation in Bemidji, Minn., and Charles R. Hillary, president of Hillary Lyons Associates, Inc. of Dimondale, Mich., pointed out that the objectives of donor cultivation are to create opportunities for an organization’s representatives to listen to donors, express appreciation to donors in meaningful ways, involve donors in the work of the organization and increase the likelihood of subsequent additional donation.

Further, gathering information is the key to donor cultivation, and further that such gathering has four main elements.
Those key elements are:

• Adopt an inquiring attitude. The resource development professional needs to have a researcher’s mentality. Take notes on what works, what doesn’t, and what prospects say about their motivations.
• Listen. Ask questions, but do more listening than talking.
• Keep meticulous records. Develop a means to record all constituent contacts and use if faithfully.
• Training. Use a system that is user-friendly and make sure staff is properly trained. The best program is useless if nobody knows how to use it.

Power donor relationship building

The difference between Tiger Woods and the next guy is easily in the fundamentals -- the grip, the stance, the swing. More precisely, it's in how each one executes those fundamentals.  The difference between a good fundraiser and a great one?  It's in the fundamentals as well.

Through his book, Let's Have Lunch Together, the workshops hosted by his namesake consulting firm, and through his speeches, Marshall Howard teaches the importance of building strong relationships.  "You must figure out how to climb up the relationship ladder, develop donor relationships, rather than try to figure out schemes to separate them from their money," said Howard, who spoke at the New Jersey Chapter of the Association of Fundraising Professionals' 2006 Conference on Philanthropy.

Howard offered the four fundamentals of "power" relationship building:

     1. Reach out. To create high emotional-impact time with prospective donors, consider how you communicate with them.  "I don't email.  Emails create the lowest impact of anything - one notch below letters."  Having figured out through relationship building what his clients enjoy, Howard, for example, takes one client shopping, and another wine-tasting - high emotional-impact time.  
     2. Be more curious. "Why in the world do you keep your curiosity under wraps?" asked Howard. He then cited the "law of reciprocity," which, when loosely defined, suggests that when you share, there's an urgent need to share back.  "Share, and ask questions. They will share back -- they can't help themselves."
     3. Put the "person" first. Get to know the prospective donor as a person first, prospective donor (or board member, volunteer, etc.) second.  Collectively create mosaics about the prospective donor -- and do it as a team, both organizationally and through high emotional-impact time with the prospect.
     4. Uncover values, goals and interests, mutual and individual. The ability to connect is controlled by emotions, feelings and beliefs, said Howard. Every human being seeks to connect, and the stronger that connection, the more emotional energy that exists. The law of emotional reciprocity, loosely defined, suggests that when one gives, there's a need and a desire by the recipient to give back. "People decide emotionally; they justify logically. That said, why when we go see a donor do we plow them with facts?," asked Howard, who said that 88 percent of decisions are based on gut feeling, not fact. 

 

Updating your message for monthly giving

Monthly giving, a ongoing method of electronic funds transfers or recurring credit card transactions, has proven to be an effective means of fundraising, one that is popular with donors.

The topic was aired recently at a national conference, although one item of concern is the need to look at today’s message to donors as opposed to yesterday’s message.

The old message to donors about monthly giving had these features:

• The focus was on technology.
• There were no checks to write, no stamps to buy.
• It was easy for donors – “an automatic, electronic deduction each month”

In addition, payment programs had catchy names like EZ Gift, Autocharge, Autopay, Telegift and Electrocheck, names that were meant to reinforce the idea of quick and easy payment. The names of giving programs today are aimed at reinforcing the idea of the organization’s mission, such as Mission Direct, Innkeepers Club and Partners for Life.

The new message to donors includes the following ideas:

• “Your sustaining gift will help us with income we can count on each month.”
• “Your gift will show your dedication to the issues tha are important to you.”
• “This means that more funds will go directly toward efforts to provide housing, education, medicine and more to our missions …”