The Donation Maximization Blog

Focusing on Acquisition Instead of Retention: A Costly Mistake

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AdobeStock_109701951.jpegDonor acquisition generally represents a substantial portion of any non-profit organization’s overall marketing efforts, and with good reason; without new donors to bolster the ranks, troublingly low donor retention rates would deplete the donor list in no time flat. Acquisition has become so effective in fact that despite the average donor retention rate reaching an all-time low of 45% in 2016, overall giving was up.

However, it’s important to keep in mind that in spite of growth in giving to the tune of $267 million, every $100 gained in 2016 was offset by $95 in losses due to gift attrition. If you look at the data in terms of donors instead of donations, for every 100 new donors acquired there were 99 lost. What does this mean for non-profit organizations that want to sustainably grow their revenue over time? The short answer is that they need to do a better job balancing their resources between acquisition and retention. Let’s look in depth at both why this is important to do, and how to get it done.

A Balancing Act

At the end of the day there’s always going to be finite resources available to any given organization, so figuring out a way to balance what you have between acquisition and retention is essential for healthy growth. Focusing heavily on the acquisition side can seem like an obvious choice for a lot of non-profits, because that’s what’s keeping the ship above water. If it wasn’t for acquisitions, donor attrition might put you in the red pretty quickly. But this is a cycle that has to be broken in order for non-profits to grow their revenue sustainably.

Donor acquisition strategies aren’t going to work every time, not matter how great they are. Understanding your Donor Acquisition Cost (DAC) can give you some real insight into how well your own strategies are working, but no matter how effectively you’re engaging with your audience it’s always going to cost more money to get a new donor than to keep an existing one. The Association of Fundraising Professionals puts it very succinctly: “taking positive steps to reduce gift and donor losses is the least expensive strategy for increasing net fundraising gains”

Getting Your Money’s Worth

It sounds like the right move is for non-profits to shift their resources away from acquisition and towards donor retention, but that’s a hard pill to swallow. After all, we’ve seen that their acquisition efforts have been largely successful. What they need is a way to amplify the impact of whatever resources they can devote to retention without having to make sacrifices on the acquisitions front. But what’s the magic bullet that’s going to make a non-profit’s retention efforts substantially more effective?

The answer comes from the world of data science, specifically the field of predictive analytics. If that term sounds like it belongs in the pages of a science fiction book, you might be surprised to learn that this technology is already being leveraged to improve performance across many different industries. The idea is simple - computer algorithms draw on all the data available to make highly-informed predictions about the future. On a large scale - geopolitics for example - these predictive engines aren’t quite accurate enough to be usable; on a small scale though, like calculating personalized ask amounts for donors, they work like a charm.

Maximizing the Value Of Existing Donors

There isn’t a non-profit around today that has the resources to research each donor individually and and determine what ask amount will keep them engaged and giving at that very moment. Instead, organizations try and segment their donor list into groups of similar individuals and hope for the best. However, by combining your database of donor information with public records a software platform is able to calculate ask amounts tailored to each and every individual on your list.

These highly-targeted ask amounts are extremely effective; in fact, non-profit organizations have seen a 17.5% net total revenue increase after contacting only half of their existing donor databases using them. By tailoring the ask amount specifically to the donor, non-profits maximize the actual value of each relationship. Because they’re not asking for too much, too little, or too often, they improve their overall donor retention rate.

To find out more about relationship-based fundraising and how you can leverage personalized ask amounts to realize donor lifetime value, check out our new whitepaper.

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