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:

netrevenue
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 revenue.

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