Are you a funds-raiser or a funds-depleter?

February, 2010

Basing your metrics on acquisition is like trying to bail a boat with a sieve. You work hard, but you still sink.
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Let's review the basic math behind direct mail acquisition. I'll use Alan Sharpe's numbers, since I happen to have his book, Mail Superiority, handy.

Average rate of return. Alan says an acquisition mailing will return 1 new gift for every 100 pieces mailed. Now, Alan's in Canada. And maybe strangers there are just more welcoming to fundraising appeals. In the U.S., expert Mal Warwick expects to do just half that well, anticipating a 1/2 of 1 percent return these days for acquisition mailings. I.e., for every 200 pieces you mail, you attract one new gift.

Either way, you see that direct mail acquisition of new donors is a rough game with small results.

Average gift size. Newly acquired donors will all pretty much give you "first date" gifts, i.e., modest amounts of money. Alan Sharpe figures his average first gift will be around \$35.

Average cost. Alan says you could easily spend \$1 to mail each acquisition letter, what with list rental, printing, postage and all other costs. Mailing 10,000 pieces, then, costs you \$10,000.

Bottom line. In return, let's say you achieve Alan's rosy 1 percent response. You mailed 10,000 acquisition packages. You acquired 100 new donors. And those donors sent you an average \$35 gift. Your income from this mailing amounts to \$3,500.

And you spent \$10,000. Which means you just lost \$6,500.

Are you a fundraiser or a funds-depleter? At this point, it's fair to say, you are a funds-depleter. Your acquisition effort is costing your organization money.

Why acquisition isn't even half the battle

Acquiring new donors is important, of course. The direct mail industry expects a typical house list to lose 20-25 percent of its names annually, due to normal attrition (death, moves, lost jobs, abduction by UFOs). You need to replace those folks. If you expect to grow, you have to replace them plus.

But acquiring donors, hard and expensive as it is, is actually the easy part of a fundraising program, it turns out.

I yield the floor to Dr. Adrian Sargeant, Robert F. Hartsook Professor of Fundraising at the Center on Philanthropy at Indiana University; author of Building Donor Loyalty, which introduced the eye-opening notion of donor LTV (predicted lifetime value).

In December 2009, at the Toronto AFP Congress, Dr. Sargeant delivered some very bad news indeed, based on his recent research: eight out of 10 new donors do not make a second gift. His broad explanation for this distressing finding: donors really don't like the charities they give to all that much. The "donor satisfaction" quotient is low.

>>> Takeaway >>> Where does this take us? Well, it's a long discussion for another time. I have Adrian Sargeant's permission to report on his findings, and will.

But for now, I'll propose this: the importance of acquisition pales in comparison to the importance of retention.

Most of a donor's real potential is locked inside the future. It's a fundraiser's job to unlock that potential by holding on to as many donors as possible, as long as possible. You need to closely watch your retention metrics, to evaluate the true effectiveness of your donor communications program.

What kinds of metrics? Let's start with the most basic: Do you know what percentage of first-time donors make a second gift?

Tom Ahern can be found at www.aherncomm.com