July 16, 2009

Shrinking Universe When It Comes To House Files

Nonprofits appear to be cutting back on solicitation volume, focusing on their current donor files and trying to reactivate lapsed donors during this economic downturn.

“We’re seeing volumes on lists across the board decrease,” said Diana Estremera, senior vice president at May Development Services, a division of Direct Media, in Greenwich, Conn. “That’s a drag because if you’re trying to achieve quantity, it forces you to go to outside lists that are out of their core range,” she said.

That forces some decisions, such as using a list that won’t perform as well to fill quantity, or cutting back on volume. More often than not, she said, nonprofits will cut back on volume, and eventually will see fewer names on their house file and those of other groups.

“Things are definitely soft, response-wise. Average gifts are higher than ever before but response rates are still pretty low or lower than projected,” Estremera said. Simply meeting projected numbers is good for nonprofits because most are coming in under projections, she said.

“When universes are shrinking and core lists are shrinking, everyone is looking aggressively elsewhere,” said Susan Rice Rappaport, president, data acquisition, at American List Counsel (ALC) in Princeton, N.J.

Like other nonprofits, the best donors for People for the Ethical Treatment of Animals (PETA) are other donor lists, said Development Director Steve Kehrli. The plan is to stay in that family of lists. “There hasn’t been a drop-off in that performance at all,” he said. However, 12 months from now, it should be interesting to see what performance is like, starting in the fall, when it’ll be about a year since the economy really started to tailspin.

“You wouldn’t see a dropoff in performance right away, especially with donor files. You’re taking names that are 12 months from other files,” Kehrli said. “Probably as we come up to the fall, then we really start to look at the core lists we use year over year,” he said.

Kehrli expects that a year from now, when organizations order lists, there won’t be as many new names that would’ve been generated from outside lists. As nonprofits stay within their core files, cutting back on outside lists to reduce expenses and mailing more lapsed names, there will be more use of modeling. “You’ll see organizations moving toward optimization to strengthen the performance of lists they use on a regular basis,” he said.

Optimization is a way to take a mediocre list and enhance the performance almost as much as the core list, Estremera said. Each name in a merge/purge is scored based on a model built with a lot of data, including response history from an organization’s own merges. Optimization can predict the lowest viability of names contributing to a nonprofit, allowing an organization to cut the bottom portion of a merge/purge and only mail the most viable names.

“Results would go up,” Estremera said, and that process also can be applied to lists. “If you apply optimization on a list-by-list basis, you improve that list and continue on it and as opposed to being in the mix of mediocre to bad, it drops off entirely,” she said.

Nearly 90 percent of rollout lists purchased during the past two years by one large national nonprofit, which asked not to be identified, saw a drop in response rate and almost two-thirds of rollout lists saw a decrease in average gift. Less than 4 percent saw an increase in both average gift and response rate.

“People are more interested in seeing what’s out there in the alternative space,” said Heather Maylander, managing director of Lake Group Media in Rye, N.Y. “Fundraisers are more open to seeing what mobile texting is about,” she said, and whether other techniques will work for fundraisers.

Maylander said she’s also starting to see lists that previously were restricted from other fundraisers. The largest example she’s seen is Doctors Without Borders, which now is available on exchange only. “Larger files are doing more enhancements and selects that were not being offered before,” she said.

Co-operative databases are more available nowadays. Where once Target Analytics Group was the only game in town, now there’s Lake Group Media’s DonorBase, Epsilon’s Abacus and Wiland Direct getting into the fundraising space, Maylander said.

A division of Lake Group Media, DonorBase has grown each quarter since it launched its co-operative database three years ago, and development director Bruce Demaree expects it to continue into 2009.

“Overall, the trend we’re seeing is definitely an emphasis on our clients making more robust use of their own data, using their data as a means of lowering campaign costs,” said Demaree. “They’re really seeking to get the most bang for the buck these days,” he said.

Demaree said that’s playing out with nonprofits mining their lapsed donor files, paying more attention to tools and technology to effectively segment those files and find donors who will give again. “It’s typically much less expensive to identify and mail expired donors,” he said.

“Over the past couple of years, we’ve really seen much more choice within co-operative prospecting solutions than we ever have for nonprofits,” Demaree said. More nonprofits are embracing co-ops, not just to connect to relapsed donors, but also to get more insight about their donors, he said.

“Co-ops provide a lot of the tools that help maximize the efficiency of campaigns," Demaree said. “As times get tighter, the value of co-ops rises in terms of solutions they provide,” he said. When times are good, there might not be as much pressure to seek out channels that are the most cost-effective. Though if an organization is very proprietary about its data and sharing with other organizations, co-ops might not be right for them.

Nonprofits mining their own data on acquisition side are paying closer attention to the long-term value (LTV) of a donor, Demaree said. Organizations are seeking to maximize the dollars invested in donors, aiming for those who have a demonstrated ability to give multiple gifts and a capability to turn it into a profitable relationship as quickly as possible.

“The importance of closely monitoring those results (LTV) is increasingly apparent as an important metric,” Demaree said. “They want to make sure they’re getting and converting donors that can have proven loyalty moving forward,” he said.

Co-op lists have helped PETA examine its lapsed pool and “smartly reactivate donors in that pool at a more cost-effective ratio rather than a cold prospect off a magazine list,” said Kerhli. “It’s not just new names but the co-op is helping reactivate lapsed names and helping to qualify warm leads,” he said.

Direct mail and acquisition for PETA have been doing well. Kerhli attributes that success to keeping the message fresh to prospective new members that animals suffer more in a down economy, but also to the fact that the nonprofit has a strong control package. “In a down economy, a good control package is a blessing,” he said, while the organization tests others too.

Co-ops are not for everyone. Larger nonprofits should beware the law of diminishing returns, ALC’s Rappaport said. They might find they’re putting in a million names but only getting 100,000 names to mail. “Make sure what you’re putting in is what you’re getting out,” she said, estimating it probably takes two years to determine the value of a list commitment, from test to rollout.

Smaller nonprofits, such as small chapters all over the country or individual organizations without a national force behind them, can benefit from co-ops, according to Estremera. “They can’t afford the costs of fundraising in the mail,” she said. “Their territory is so small, they can’t go out and get a list, especially with shrinking volume. But if they combine efforts with others in a state it becomes viable,” she said.

Time Consumer Marketing Inc. will be testing a new propensity model this summer. Not unlike a co-op, the propensity model requires a smaller sample of a nonprofit’s file to help build a model universe for participants within a certain category or cause, according to Christine Slusarek, executive director, list management, at Time Consumer Marketing, Inc. For example, organizations related to children’s health, such as March of Dimes, Cystic Fibrosis Foundation and Juvenile Diabetes Research Foundation, each would contribute some of their data to create a model universe.

The types of causes identified for the propensity model so far include environmental, children’s health, animal welfare and political, Slusarek said. Each cause would have a separate model universe.

It’s like a co-op but the propensity model doesn’t require an organization’s entire donor file. The model would have a minimum commitment of 150,000 to 250,000 names, Slusarek said. “The idea is to create a model universe,” she said.

The size of the universe will vary depending on the cause, Slusarek said, and participants’ names will determine the universe and how well they match to the database. “The universe can range, but we’re looking for something between 3 million and 5 million; anything bigger than that is too broad, and anything smaller probably would not have a lot of legs to it,” she said.

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

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