Overall Performance Metrics are Rubbish

Overall Performance Metrics are Rubbish

Your ‘healthy overall retention rate’ is a lie and you should feel bad about believing it. Well, probably. Let’s start with this. Take a look at the chart below and tell me if you’d rather be Organization Blue or Organization Orange? The choice is obvious right? Orange is killing it… WRONG! So, so, so wrong. Now let’s look at projected revenue for the same orgs: What the heck. How is this even possible? It’s not only very possible, I see it all the time. In creating the scenario above, I made each performance metric for Org Blue and Org Orange exactly the same. Their retention by lifecycle – all at the same benchmark levels, their gift sizes and frequency – held constant. Everything about the two orgs is identical except for one thing: Orange is acquiring 10% fewer donors each year, while Blue is acquiring 10% more. Why does that impact retention? Since Blue is adequately growing its file, it has a higher proportion of donors each year in transitional segments (second-year/reactivated). These two lifecycles have lower retention rates than long-term loyal donors. Meanwhile, donors in the active file for Orange are  dropping like flies because the only ones it has left who are factored into overall retention rate are the increasingly lonely, but high performing multi-year donors. These remaining loyal donors are propping up the overall metrics on a crashing file. There are two lessons here… If you like your org and don’t want to have to start a new one, keep acquiring new donors. Always. That’s the lesson from this specific scenario. But what I really want...

Disaster Donor Retention – Reprise

Like you, over the past several weeks our attention has been focused on Hurricane Harvey and Hurricane Irma and the destructive paths that they’ve carved through the U.S. And as our managing partner Bill returns home from his 2nd evacuation in less than 12 months, our thoughts and prayers are with the many people who were affected by the storms. But, as we did last year at this time after Hurricane Matthew, we think it’s a good time to look at the trends of new donors who respond to natural disasters and their retention in the following year – or lack thereof. Below is a graph for a social services nonprofit in an area hit by a natural disaster in FY13. This graph shows the number of new donors acquired each year. There was an 88% spike in the number of new donors in FY13, then a 58% decrease in new donors the next year. And below is the overall retention for the same organization. Their overall Retention dropped 12% – from 53% to 46% in the year after the disaster (although retention recovered nicely in FY15). And in FY14, Second Year Donor Retention dropped 30%, from 6 to 18%! Sometimes, there’s little that can be done to increase these new donors’ retention. They are motivated to give by the disaster and may not be converted to give to the organization’s overall mission. In surveys, many donors don’t even consider themselves donors TO the organization, but instead to the event. “I gave to Hurricane Matthew”, NOT “I gave to XYZ Organization.” Still, these donors should receive all of the stewardship...
The Last Word in Measuring Engagement

The Last Word in Measuring Engagement

If you could summarize the consultant chatter over the past decade into one phrase, I would nominate “donor engagement” as the winning phrase. But what does that mean exactly? As a donor behavior scientist, I am a firm believer in what Peter Drucker said: “If you can’t measure it, you can’t manage it.” So, here at Analytical Ones, we’ve developed a new Engagement Score (ES). We think it’s the last word in measuring engagement. Over the past decade, we’ve been experimenting with many different models to best measure engagement. The problem is they tend to get far too complicated. And sometimes a simple metric is better than a perfect metric. Last week, my business partner stumbled upon this reddit link and shared it with me: https://i.redd.it/fy0zvuob8tfz.jpg Basically, this link shows the different ways Starbucks calculates Long-term Value (LTV). To summarize, their “average” 20-year customer LTV is $14,100. Think about that. The average beverage costs between $3-$4 at Starbucks. Talk about engagement. Now, at Analytical Ones, we think a 20-year LTV is far too long of a period. We use a 5-year LTV instead. Starbucks 5-year LTV would be $3,525. Our new ES is based on two assumptions: 1) That engagement is best measured by LTV; and, 2) Starbucks is the Gold Standard of engagement. OK, this may not be a perfect model because it doesn’t consider volunteering and other measures. But we think any of our model’s deficiencies are mitigated by the beauty of its simplicity. You can calculate your ES by dividing your organization’s 5-year donor LTV by 3,525, then multiply by 100. Or, by equation: ((Nonprofit LTV/Starbucks...

An Iconic Bull and Philanthropy

This week we have a guest post from our good friend and experienced Fundraising Strategist, Lonnie Kirby. Lonnie has worked on both the nonprofit and the agency side for over 30 years serving organizations including The Red Cross and The Salvation Army. If you have visited the financial district in New York City’s lower Manhattan you may have seen the iconic “Wall Street Bull”. The symbolism of this bull represents the confidence and strength underpinning our economy. When economic macro-trends are strong and growing the stock market is referred to as a Bull Market. WE ARE IN A BULL MARKET! Strong and confident, the current stock market may become one of the very best on record. So what does a bull market – and an iconic bull – have to do with philanthropy? In the June 12, 2017 Giving USA press release announcing their Annual Report on Philanthropy for 2016 it was noted: “…an example of the link between the economy and charitable giving trends, giving by individuals has historically correlated with changes in such national-level economic indicators as personal consumption, disposable personal income and the Standard & Poor’s 500 Index.” The Standard and Poor’s 500 index (as well as other stock market indices) are at record highs. While this macro-trend has not impacted everyone and is not a guarantee, it does serve as a directional barometer that should be noticed, noted and incorporated into your fundraising plans. How to capture this opportunity, now? With four months until the end of the year, now is the time to pause and carefully consider a plan of action between now and December...

Sustainer Donor Value

We recently did some analysis on a client’s sustainer or monthly pledge donors. The client wanted to see how much donors were worth AFTER joining the monthly pledge program compared to their value BEFORE joining the program. While this wasn’t a test and we can’t directly prove cause and effect, we do find that the donors were worth $52 more – a 24% increase – after joining the monthly pledge program. If those donors stay on the program and maintain that difference in value, that’s an additional $260 over five years for every donor that joins the monthly giving program. So, maybe that means that they can afford to invest a little more in converting annual donors to monthly pledge donors. If they get an additional 200 donors to become sustainers each year, that’s an additional $10,000 each year. So, that’s $50,000 over 5 years. With an additional 200 new sustainers EACH year that’s $150,000 cumulative over 5 years! So maybe that means the organization can also spend a little more to cultivate and thank those donors once they become monthly sustainers. Even with a welcome package that costs $10 and another $10 invested in cultivation each year, that still leaves the organization with an additional $200 net per donor over 5 years. Pledge donors are more valuable. Are you treating them that...
Disaster Donor Retention

Disaster Donor Retention

As our managing partner Bill recovers from Hurricane Matthew, it’s a good time to look at the trends of new donors who respond to natural disasters and their following year retention – or lack thereof. Below is a graph for a social services nonprofit in an area hit by a natural disaster in FY13. This graph shows the number of new donors acquired each year. There was an 88% spike in the number of new donors in FY13, then a 58% decrease in new donors the next year. Here is the overall retention for the same organization. Their overall Retention dropped 12%, from 53% to 46% in the year after the disaster (although retention recovered nicely in FY15). And in FY14, Second Year Donor Retention dropped 30%, from 26% to 18%! Often, there’s little that can be done to increase these new donors’ retention. They are motivated to give by the disaster and may not be converted to give to the organization’s overall mission. In surveys, many donors don’t even consider themselves donors TO the organization, but instead to the event. “I gave to Hurricane Matthew”, NOT “I gave to XYZ Organization.” Still, these donors should receive all of the stewardship that COULD make them convert to a long-term donor: prompt thank you letters thanking them specifically for their gift to the disaster (not a general thank you referencing general programs), follow-up information about the cause they’ve supported and how they’ve helped, and thank you phone calls for certain levels of giving. But, even more importantly may be to plan for the future: budget for the increase in mailing costs...