Let’s Chat about Lift

Here at analytical ones we have identified three key ways to grow revenue: Win more donorsLift the performance of the donors you already haveKeep more of the donors you already have We talk a lot about winning, acquisition and reactivation, but we don’t often talk about lifting, increasing the value of donors already on the file. So, let’s talk about it! In some recent analyses I explored what impacted donor upgrades and downgrades for donors of various values. The analysis was limited to donors who had given in both fiscal years. My primary question: how do year over year changes in average gift and gift frequency differ for higher and lower value donors? What I found was quite interesting.  For higher value donors, an increase in gift amount was the most significant contributor to upgrades. For lower value donors, while average gift did tend to increase, an increase in gift frequency was more significant to their upgrade. The same was true, conversely, for downgrading donors. Decreased gift amount was more closely related to downgrading high value donors than it was for lower value donors. This may mean that, to prevent downgrades, getting a donor to give an additional gift in a given year may either 1) Prevent them from downgrading or 2) Lead to a donor upgrading in value. How might we offer donors of higher and lower values sufficient opportunities to upgrade? How might we combat declining gift frequency to decrease downgrade percentages? Come back next week, I have a few ideas to...

Response Rate Testing and Statistical Significance

One of the more straightforward analyses we often do at Analytical Ones is to compare the results of a direct mail test to identify whether the differences are statistically significant. Though this is a straightforward analysis, there are a lot to these tests. So, let me try to clarify a couple of things. Generally, we are testing to determine whether the differences in either the response rates or average gift sizes are statically significant. Each of these tests are very different and require different data sets and tests. Let’s take the easy one first, testing the statistical difference in response rates. Because there are just two outcomes for response – yes, the donor responded, denoted by a value of “1”, or no, the donor did not respond, denoted by a value of “0” – you can use summary statistics (averages) for this test. We recommend using a Z test. All you need for testing response rates are: 1. Number of mailed in the control 2. Number of responses in the control 3. Number of mailed in the test 4. Number of responses in the test You also need to know the level of test confidence you are comfortable. Confidence levels are standards. Let me try to explain this. Typically, in Z tests, analysts use one of three confidence levels: 1. 99% 2. 95% 3. 90% If your results are significant at the 99% confidence level, it means that if you repeated the test 100 times, the result will be statistically significant 99 in 100 times. That’s a very high level of confidence. Conversely, if your results are significant at...

Net Dollars Not Donors Part 1

Somewhere over the rainbow in fundraising, two metrics were established as the gold standard: gross revenue generated and the number of donors acquired. And that’s a shame. It’s a shame because you can optimize these two metrics into organization ruin. Let’s take gross revenue. The reason it is used is because it’s simple to measure. But it has a serious drawback: it doesn’t account for what you spent to raise that money. It’s like a habitual gambler bragging about the $1,000 lottery winnings they had the night before while omitting the fact that have bought a $5 scratch ticket every week for 10 years. So their real ROI is 0.38. Wahoo! Seriously, if you are using gross revenue as your fundraising goal, you need to stop it and start using net revenue. It’s just bad stewardship to use gross revenue...

The Correlation between Direct Response ROI & Net Revenue

Any of us that have been in the fundraising agency business have had the following meeting a least a dozen times: There are a bunch of somber looking board of director types from the nonprofit organization in the main conference room. They distrust agencies. Unlike development people who see how much money agencies bring into the organizations, the board only sees the checks that are sent to the agencies. The board’s one and only metric is ROI. Somewhere along the way, they tend to get this idea that the direct response fundraising ROI and net revenue have a 1:1 correlation. They don’t. Actually, the correlation looks more like this: We have found the optimal ROI for direct response fundraising is around 4.00. Sure it’s going to vary a bit by organization and which donors you are including in your appeal letters. But generally speaking, if your ROI is under 4.00, chances are that you are mailing too deep. Or in other words, you are spending too much on mailing and you need to be looking at your segmentation selection process. Conversely, if your ROI is above 4.00, you are likely leaving net revenue on the table because you aren’t mailing deep enough. Sure, your board might be happy with those ROIs (that GuideStar and Charity Navigator place far too much emphasis on IMHO) but the fact of the matter is, those high ROIs are hurting your ability to accomplish your mission. So please don’t manage to maximize your direct response ROI. Manage to maximize your net...

The Shift to Lift

At Analytical Ones, we simplify all of our recommendations into three categories: Win (acquisition and reactivation); Lift (upgradation) and Keep (retention). If you study donor files, active donor counts peaked in 2008, at the cliff of the Great Recession. Though some organizations have stabilized their active file sizes, few organizations are able to surpass where they were in 2008. As I have reviewed our SGAs (Strategic Growth Analyses) over the past 8 years, our recommendations have been heavily weighted in the Win category. Organizations have consistently had challenges acquiring and reactivating donors. And despite a lot of effort and dollars targeted in this area, it’s not moving the needle. File sizes continue to decline. Keep rates have improved a bit over the last 8 years. But this isn’t because organizations are better at bonding with their donors. It’s more a file weighting composition thing. Since there are fewer new donors on file, the balance is tilted to Multi-Year donors which have better retention rates. Thus overall retention looks better. When it fact, they are relatively stable. The one area that has improved is Lift. Donors are giving bigger gifts. In fact, if you look at most files, in terms of revenue the improvement in average gift size has more than mitigated the decline in donor counts. Or in other words, revenue continues to grow while file sizes shrink. I think the conclusion here is though we can’t give up on winning new donors and reactivating old ones, more investment should be directed towards Lift strategies: Upgrading donors through either larger gifts, more frequent gifts, or both. This is the...

Fundraising & String Theory

Last month at DMA-NY, the American Cancer Society presented the adverse effects on their fundraising when they pulled out of direct mail acquisition. And though they received some undeserved criticism, I for one appreciated the fact they shared their results with all of us. They didn’t have to do that. So, a tip of the hat to ACS. Here’s what we all learned: Pulling out of one media adversely affects the performance of other media. Or, as String Theory professes: everything is related. For over a decade, fundraising consultants like me have been preaching the gospel of 360 integration. Though most organizations agree with this idea, sadly, most organizations don’t practice integration. Now we have some hard data (learned the hard way) on the critical importance of integrating your organization’s messages across all media. So the jury’s in. We don’t have any more excuses. Integration now. Integration tomorrow. Integration...