Barn Find of 2010

Car collectors fantasize about visiting a farmer with a used car to sell. There in the farmer's barn is a vintage Duesenberg, and the farmer is just happy to get rid of it. Multiple cars might be involved.

For me the Barn Find of 2010 happened while analyzing Network for Good's data. I was looking into the timing of giving. I knew online giving would be concentrated in the month of December, but didn't know how much. I also didn't know how concentrated giving was on December 31.



Further, the December 31st spike translates into online revenue that 24 times more than the average day of the year.

(Learn other important findings by downloading the Network for Good study. It's free!)

So what makes this finding more valuable than the vintage Duesenberg? If you're like many organizations, your website is a conflicted place. The organization tries to balance a list of goals for its website. This list includes things like PR, branding, education, advocacy, and so on. Fundraising often gets short shrift.

The December 31st spike means that even if the homepage can't be a fundraising engine year round, it should be on December 31st. Once you reap the rewards from focusing the homepage on giving for this day, you can then set your sights to the last week of December, or even the entire month.

Will Younger Donors Give to Freemium Packages?

A few weeks ago I recommended analyzing acquisition campaigns by age. Is your current control losing it among the young -- your future donors?

Here's an example of that analysis in action. It's a direct mail campaign. The organization's control package was a freemium notepad package. The test package removed the freemium. The thinking was that the freemium was an old folks gimmick and that it was a turn-off for more "mission minded" younger prospects.

Hypothesis: the freemium package would win over the mission package among older prospects and the opposite would be true among younger prospects.

The packages were tested with randomly selected panels from the client's continuation lists. We appended age information after the fact.

The age split that yielded the largest mail quantities for test reliability was at the 70 year mark. The 70+ year olds were mailed 21,000 of each package and the under 70 year olds got 15,000. This first point is that their DM continuation lists were weighted heavily toward the older end.

The graph below shows the response rates of the two packages by age:

As we expected, the Notepad package had a nice lift in response among the 70+ prospects (mostly Silent Generation). Contrary to our hypothesis, the Notepad also won among younger prospects (mostly Boomers).

The mind-blower is that the freemium had a higher lift with the under 70 crowd -- a 55% lift versus the 30% lift for their older counterparts.

The good news is that the control optimized performance from both age groups. But this finding also gives rise to developing freemiums that are specifically tailored to younger prospects.

I'll keep you posted.

How to Maximize Year-End Online Giving

Over the past few months I've had the pleasure of analyzing Network for Good's massive and rich dataset of online giving. The dataset features giving history that goes back over seven years and represents almost 2 million online donors and their nearly $400 million in giving.

This analysis identifies the peak period for online giving in December. This finding -- along with our recommendations for what to do about it -- will be presented by my TrueSense colleague Jeff Brooks and Katya Andresen of Network for Good in a FREE webinar.

The webinar will be hosted by Network for Good at 1PM (Eastern) on Tuesday, November 2. Register here.

How Long to Break-Even?

New donor acquisition can be a drag on your cash flow. It seems that most acquisition loses money out of the gate, and this impacts cash flow.

However, the payoff is in the subsequent giving of the acquired donors. Or so we've been told. What does this look like? The following graph shows Long-Term Net Revenue per New Donor for one organization:

This graph shows the average net revenue given by each new donor from one acquisition campaign. We see that the campaign lost money initially. There was a loss of about $7.50 for each donor acquired. If 10,000 new donors were acquired that would be a loss of $75,000. That's a hit to the current year's cash flow.

Fortunately, these donors continued to give (and the organization continued to offer new chances to give). By the sixth month, the subsequent giving of these donors was sufficient to recover the acquisition loss (break-even). This is excellent news.

I've run this graph on many organizations and many acquisition programs (TV, radio, DM, etc.). Some break-even within twelve months and some take as long as four years. How can a program sustain itself if it takes four years to recover an acquisition investment?

My recommendation is to run this analysis on each of your acquisition programs. Know when your campaigns break even. Sure Long-Term Value is important, but you need to count the cost. And you need to understand the impact acquisition has on your current year cash.

Is Choice Always Good?

Strategy+Business is not a publication that focuses on non-profits, but it's still a great resource for fundraisers. Check out a recent article on consumer choice.

My colleague Jeff Brooks (Future Fundraising Now) summarized the article nicely: "choice isn't good; good choice is good."

One good nugget is item #4, which talks about referring to the person's past choices to help them decide.

I've found that to be true in fundraising. In an A/B test the appeal letter that referred to the donor's past gift to the same offer generated more response than the appeal that presented the same offer without the reference.

Test this with your donors, and let me know how it worked.

What Would Your Mother Say?

Back to the Heart of the Donor study ...

One of this study's findings has puzzled me over the last month. It's this: the speed in thanking and receipting a donor's gift ranked low among the factors encouraging the donor to give a second gift.

I always thought a prompt thank you was important. My mother told me growing up to always say thank you. Always write a thank you note for gifts. And do it right away. Don't these things matter to the recipient?

It seems to go against a fundamental fact of direct response -- the recency curve. The curve tells us that the donor who last gave is the donor most likely to give again. Don't you want to fill the space under the high part of the curve with the good will that results from a thank you?

So, is the Heart of the Donor study is a bunch of hot air? Not at all. I've worked with the researcher behind this work, and I can vouch for him and his work. It merely points to the challenge of self reported data. We sometimes say one thing in a focus group or survey and then do another.

That's why is good to confirm this stuff with testing in the market. If your organization is slow to thank donors, don't use this study to let yourself off the hook. Rather, test a more prompt receipt/thank you package.

The All Important Second Gift

I've been going through the Russ Reid / Grey Matter "Heart of the Donor"study. Lots of good material to inspire new thinking on donors and fundraising.

They surveyed over 2,000 donors about many aspects of their giving. They asked donors what encouraged them to give a second gift to an organization. These donors identified three things:

1. Explained the specific mission of the organization to me (76%)
2. Made me feel that my gift really made a difference (72%)
3. Gave me information about exactly what my gift helped accomplish (71%)

These all make intuitive sense. Further, it's an crucial that your donors do go on to give second gifts. The data tell us that donors who give second gifts within their first year are more than twice as likely to give again in their second year.

Two = Three

There's more. These multi-gift donors turn out to have higher long-term values (LTVs). Usually 2.5 to 3.0 times more. The following graph of one organization's direct mail acquired donors shows that multis have an LTV that is 2.8 times that of their single gift counterparts.

Recommendation

Be sure to audit what you say to new donors after their first gift. How well are you doing the three items listed above? If you're missing in any of these areas, then by all means fix it. But do test your new ideas to learn their impact.

Unpacking Long-Term Value

It's important to know the Long-Term Value (LTV) of the donors you acquire. This helps you justify the expense of acquisition. It's also important to understand the donor performance underlying LTV. Here's a basic table that does just that:

The table tracks the 5-year performance of 1,000 donors acquired in Year 1. In Year 1 the average donor gave 1.4 gifts with an average amount of $30.

In Year 2, only 400 donors continued giving. As is usually the case, these donors brought an increase to giving frequency and average gift. And they added $26 on average to their cumulative LTV.

The active donors from Year 2 become the beginning number of donors for Year 3. There are fewer donors than the prior year due to attrition. However, these donors have stronger retention (% Active). Again the performance of the donors continuing is higher than the year before. Less committed donors are leaving the fold. Those who stay have stronger giving performance.

At the end of 5 years, the cumulative LTV is $121. Each metric in the table -- % Active, Gifts per Active and Average Gift -- is instrumental in building to this eventual LTV.

If retention had been lower, the LTV would have dropped. That's why bonding donors through 2nd gift strategies is important. Same for lapse prevention and lapsed donor reactivation.

If giving frequency changes, so does LTV. That's why we need to give the donor ample opportunities to give to multiple offers and multiple channels.

Average gift also has an impact. That's where challenging yet appropriate ask amounts come into play.

The LTV metric helps you understand your organization's growth. At the same time, there's a lot going on underneath that helps us understand we can adjust strategies and tactics to improve it.

Last week I looked at the Long-Term Value of new donors. I used a 5-year timeframe to quantify LTV, as one possible approach.

An important companion metric to LTV is Long-Term Cost (LTC). LTC is sum of Cost of Acquisition (what it costs to acquire a donor) and the Cost of Cultivation (the cost to cultivate the donor beyond acquisition, using the same timeframe as used in LTV).

LTV and LTC are two building blocks to understand the acquisition program's ability to generate net revenue and to provide a return on investment.

Here's an example:

LTV = $350
LTC = $80 (COA is $40 and COC is $40)

The Long-Term Net is $270 (LTV - LTC) and the Long-Term ROI is 4.38 (LTV / LTC).

Try calculating these metrics on your various acquisition programs. The result will provide insight into where you should be spending your precious acquisition dollars for maximum growth.

What's a New Donor Worth?

Long-Term Value (LTV) is an essential performance metric. Every organization should know how much their new donors are worth. With LTV you gain an understanding of what you can afford to invest in new donor acquisition -- a key to growing your organization.

While there is no crystal ball to tell you what today's new donors are worth, you can look at past classes of new donors to understand what they were worth over the long-term. You can then assume that today's donor, acquired through similar means and circumstances, is of similar value.

Here's an example. The graph here shows the 5-year value of the class of 2005 for one organization.

I've seen many sophisticated ways of estimating LTV. Some methods involve statistical models and present-value calculations. All this is fine and good. However, just taking a specific acquisition class and dividing their giving into the original number of donors in that class is a simple and solid approach. I have found that simpler approaches allow you to do more slicing and dicing. And this is valuable.

The graph above slices the LTV trends into three first gift ranges. It illustrates the importance of first gift amount in acquiring donors of value.

Recommendation: Start calculating the LTV of your donors -- by first gift amount, by channel, by offer.

Base Your Decisions on the Facts

Check out a thoughtful post by my fellow colleague at TrueSense Marketing, Jeff Brooks: Donor's opinion can lead you astray of the facts.

I'll add to that by highlighting a small study on thanking donors. It illustrates Jeff's main point: the importance of basing decisions on the facts, rather than opinion or hunch. It also adds texture to his point about thanking donors: It also matters how we thank donors.

The organization used to mail its thank yous to upper donors with first class postage on the carrier envelope. Then as a cost-cutting measure, they switched the postage to bulk. You'd think a small difference like that would be hardly noticeable to a donor. Keep in mind, however, that postage will affect both speed and rate of delivery. Here's what happened to response rate:

First, notice that these donors responded in the 10% range to thank you letters. That's better than most appeal letters.

Second, look at the change in response rate. It's a 20% decrease! This shows why it's important to test before making changes. Get the facts. Can you afford to lose 20% of your income from thank yous?

How Organizations Grow

Here's a valuable way to look at your organization's growth trends.

You split each year's revenue by the class of donors that provided the revenue. For example, you have donors who've been with you for over 6 years. I call these "old growth" donors. The giving of these donors is represented in the blue shade at the base of the graph. Notice how their giving declines over time. This is due to natural attrition. This shows what the organization's revenue profile would have been IF they stopped investing in new donor acquisition after 2004.

Fortunately, this organization invested in acquisition in 2005 (rust colored band) and again in 2006 (green) and this fueled growth.

All the bands collapsed in 2007 and the acquisition effort (purple) was not enough to counteract this and the result was flat growth.

The classes in 2008 (light blue) and 2009 (orange) were smaller and their revenue contribution was not sufficient to fend off decline.

The important point here is to understand your organization's revenue base and then to plan acquisition efforts to achieve the growth you desire.

What Is the Prime Age for Fundraising?

In my two previous posts, I used the US Census population projections to show growth in the prime donor audience over the next 40 years. Some may ask: How was the prime donor age range determined?

I compared the proportion of donors in each age bracket with the proportion of the US population. I used a 2008 Target Analytics study to arrive at the proportion of donors and the US Census for the US population. Their findings are consistent with what I’ve observed through the years.

The following index graph shows the results (click to enlarge graph):

Clearly, folks 55+ are more into giving through traditional channels (primarily direct mail) when compared with their younger counterparts.

But wait, there’s more. The index curve changes radically when focusing on online giving (using the same study):

The prime years for online giving are 35-74. However, as the Target study points out, online giving is still a small percentage of total donor giving for most organizations.

As online continues to become more mainstream and as the generational cohorts continue to age, online will grow.

I'd love to hear comments about what you are doing to raise funds online.

Growth Trends in the Prime Donor Population

The population in the prime fundraising age of 55-85 is expected to grow over the next 40 years, as the following graph based on U.S. Census projections shows. (Click the graph to enlarge.)

The profile of the growth is worth noting. The population grows steadily over the entire period. Not a single year of decline. For the last 10 years we’ve enjoyed a healthy period of donor population growth. The annual rate was between 2% and 3%. Fortunately, that rate of growth is expected to continue until 2019. The following graph shows the annual rate of growth more clearly.

Beginning in 2020, the annual rate of growth will slow dramatically and move to the 0.6% to 0.7% range. Organizations will be competing more fiercely for donors to fuel the growth goals in the future.

Stay tuned for more observations and thoughts in future weekly updates.

Demographic Shift to Impact Fundraising

Five generations are changing fundraising. The following graph shows how each succeeding generation builds to create the total population in the prime fundraising years of 55 to 85. (Click to enlarge the graph.)

The prime fundraising population is expected to grow from 72 million to 120 million over the next 40 years, according to U.S. Census projections. This is great news because many of these people will become donors.

However, it’s not a slam dunk. We also need to pay attention to the generations that make up this audience, which are indicated by the different shades. Over the past 10 years -- the period over which most of our direct marketing testing knowledge is based -- the dominant generations were traditional. These are the G.I. and Silent generations, indicated in blue and red, respectively. In the next 10 years, Baby Boomers will be the majority of our audience.

Much has already been written about how the generations respond differently to fundraising approaches. This generational shift has huge implications for our donor marketing.

Growth Recommendation: Split out age in your testing to learn which approaches work best with the emerging Boomer segment.

More observations and thoughts to follow in future weekly updates.