This recent article and research conducted by Heather Yandow at Third Space Studio reminds us all that there are few short cuts in the business of philanthropy. We dove into this article because it called for the need to measure donor retention rates. Donor retention seems to be getting a great deal of attention in our industry today, and for good reason. Considering that the philanthropic sector has debated how to “count” gifts, or contributed income for decades without truly establishing a universal method — everyone can count donors.
We also love this recent focus on donor retention rates because it leads an organization’s administration and governance to zoom in on donor relationships; and, not just on an over-simplified total of dollars received. We’d be remiss if we didn’t also acknowledge the AFP’s Fundraising Effectiveness Project, and the many companies and professional volunteers that lead our industry’s focus on donor relationships.
Kudo’s to Ms. Yandow for highlighting the fact that our goal is not to create better measurements, but to instead create better plans. There are neither short-cuts, nor quick fixes in the business of fundraising- it’s a complicated process with lots of moving parts and a process which looks elegantly simple and logical when it’s working well. The best way to get to this happy place is to have a Specific, Measurable, Achievable, Reasonable and Timely PLAN. And the best plan will focus on your organization’s relationships with its donors.
Benchmarking Individual Donors
Why small nonprofits need to measure donor retention rates and build a strong fundraising plan.
I was on a call with two nonprofit leaders last week to discuss their fundraising plans for the coming year. They’d recently hit their goal of attracting 1,000 members to support their work, but the conversation quickly turned to the challenge of keeping these and other individual donors engaged. Their organization’s retention rate—the rate at which donors who gave last year give again—would be considered high by most standards. Yet they still needed to find 365 new donors in the coming year—a donor a day—just to keep their donor base the same size.
Data on retention is critical to understanding an organization’s fundraising program. When leaders know how many of their donors renew their giving each year and how many drop off, they can more reliably forecast income, measure the success of their donor cultivation activities, and anticipate their need for new donors.
Given this, I decided to dig into donor retention rates and how it factors into fundraising planning in my fifth-annual Individual Donor Benchmark Report, which compiles data from 119 nonprofits with revenues of under $2 million.
There are many reasons for donor loss, including poor communications and cultivation strategies, changing donor priorities, and an increasingly oversaturated mail and email atmosphere. But unless an organization analyzes what works and what doesn’t, it can’t improve donor engagement or formulate effective goals for new donor recruitment.
Thanks in part to increasing use of donor databases and the growing sophistication of those systems, I found that 83 percent of small nonprofits could report their retention rate and that the average retention rate is about 60 percent—6 out of 10 donors who gave last year will give again this year. Interestingly, while many of the other data points I gathered—such as average gift size—vary depending on the size of an organization, donor number, or whether or not there is a membership program, donor retention stayed around 60 percent regardless of these factors.
Organizations looking to increase retention rates may look to improving donor communications, investing in more in-person visits, or better reporting results—all potentially worth doing—but it’s important to note that most will inevitably need to find more and more new donors—certainly to grow, but at minimum to keep up with donor loss. That means focusing on finding new contacts and developing strategies to convert them to donors. Organizations should think through how they are opening the door to new potential donors—whether through community events, a website, staff contacts, or other avenues—and, of course, how they are asking these potential first-time donors to engage in their work. In our experience, the best way to ensure that your organization is effective in this area is to involve everyone—board, staff, and volunteers—to identify, cultivate, and ask for support.
A Fundraising Plan
Leaders that keep a focus on their organization’s donor retention rate have a good chance of succeeding at fundraising, but the real secret to fundraising success is not a secret at all. This year’s report confirmed that if you want to raise money from individuals, you need a fundraising plan. The term fundraising plan can be ambiguous, but in my research a majority of organizations that have one include a list of overall fundraising strategies and goals, as well as a calendar of activities. About half of these organizations also include a more detailed breakdown of their activities in their plan, and about half include an assessment of previous years fundraising results.
For the first time, we found that organizations that have a fundraising plan raise one-third more money from individuals, have almost double the number of donors, and garner significantly larger average gifts.
In addition, we found that if you have a plan, and you invest more time or money in fundraising—for example, paying your fundraiser more, hiring additional staff, or actively engaging your board members—it will generate more revenue. In fact, for every additional board member that plays a significant role in fundraising, organizations raised an additional $11,686 in individual donor revenue.
The report provides some guidance for those looking to create a fundraising plan, or improve the one they have, but the exact format of an organization’s fundraising plan will depend on its personal and organizational habits and the plan’s purpose. For example, if you are coordinating fundraising activities with a large group of staff and board members, you may want to create a detailed plan with specific deadlines and named responsible parties. If your goal is to simply make sure you stay on track, a strong sense of overall goals and quarterly benchmarks may suffice.
Whatever format the plan takes, the three most critical pieces are:
- Reflection on past performance. Use questions like: How did you do last year? Where did you succeed? Why? Where did you stumble? Why? What does this tell you about what the year’s work should entail?
- Your big picture goals for the year—beyond just dollars raised. You may want to include goals for new donors, donor visits, or your monthly giving program. Also consider including goals for board involvement and goals around strengthening your fundraising infrastructure (database, payment processing, thank you notes, and so on).
- An outline of the year. Mapping out your goals to a calendar, whether by weeks, months, or even quarters, will help ground your plans, and can keep you stay on track when other activities begin to crowd your calendar.
Other findings from the study that may help inform smaller organizations’ fundraising plans include:
- Organizations raise an average of 34 percent of their revenue from individuals.
- About half of individual donor revenue comes from donors giving less than $1,000.
- One out of every five individual donor dollars is raised online.
- Four out of 10 board members are active in fundraising, in a significant way.
My hope is that this data can help nonprofit leaders strengthen their fundraising programs, generate more revenue, and engage more donors.