Donor Retention is (probably) Not Your Biggest Problem.

2015-03-05 10.57.21

We talk a great deal about donor retention in our fundraising programs, and with good reason. Acquisition is an expensive and time consuming endeavor, and donors who don’t return bum everyone out. But let me throw a Hot Take: we are worried too much about donor retention, and for the wrong reasons.

Our friends at Bloomerang recently published a major study of donor retention trends, and it is a fascinating summary. The key takeaway? “Donors are up. Retention is down.”  Much angst and hand-wringing is taking place about these trends, including from my sober minded colleague Michael Rosen, who is deeply frustrated with retention rates and wonders if anything at all can be done.

To all of this I say, let’s examine our specific data and segmentation before we declare a national crisis. For most of us, the sky is not falling, and in fact, lowered retention rates for certain segments are inevitable by-product of growth, and should be expected, planned for, and embraced. Why?

Innovation, mostly via technology, is driving first time giving, and is today changing the very nature of philanthropy. This means we are attracting first-time donors in new and creative ways. Social media is only about ten years old in the world, not yet a teenager. Online fundraising is even younger.

Philanthropy and technology together is still a baby, and yet still producing amazing results. Online giving, peer to peer fundraising Facebook campaigns, text to give, Day of Giving programs, and the rest are rapidly emerging as brilliant ways to attract first time donors in ways we could not have imagined back in the days when broad base fundraising was limited to direct mail, telephone solicitation and event attendance.

These are exciting times. Donor growth is very real. But a low likelihood of a renewal is the reality of a first time donor, most of the time, since fundraising began:

  1. First time givers tend to give smaller gifts. Why? Sometimes they are responding to a critical issue or trend (see the ACLU’s rapid growth these past weeks). Other times donors want to kick the tires and try something new. Whatever.
  2. Smaller gifts make up the majority of donor pools, for most organizations. That means a broad percentage of your donors are less likely to renew support. Why? Maybe the urgency is there, or priorities change, or something else comes along.
  3. A lot of the first time smaller donors will not return, and so will need to be replaced. Is this good or bad? Neither. It is a byproduct of marketing reality, and not an existential crisis to our industry.
  4. We are attracting new donors to our causes in new ways. Good for us! Some will return, lots will not. That’s a reality of any marketing effort. We accept this reality in other sorts of business. Coca-Cola introduces some new sugar free soda via a splashy Super Bowl ad. We try it. We don’t buy it again. First rule of sales: some will, some won’t. That doesn’t mean we did anything wrong.

However. Good Stewardship (and the lack thereof) does impact retention. And this is because donors are more savvy than ever before at about how they should be treated (a rapid and accurate written thank you, for example), how often they should be solicited, and how they want to be communicated with going forward. That donors are becoming more sophisticated and demanding about their philanthropy is a good thing for our sector. My pal The Whiny Donor reminds me of this weekly.

So, what should we really worry about when it comes to donor retention? Renewing mid-size and major donors through individual cultivation and stewardship should be your chief concern, and if you aren’t retaining 70%+ or so of our $1,000 (or whatever your leadership annual giving level happens to be) you have a real problem.

Instead of worrying so much about overall retention, let us focus upon retaining and growing our mid-sized donors. Why mid-size donors? Because they are much more likely to renew.

Instead of wave after wave of direct mail do every donor from last year, at every level, how about a laser focus on incentivizing upgrades. I am not a fan of stickers or tote bags as incentive to increase my giving, but I am responsive to experiences: backstage tours, special previews, and the opportunity to learn more about an organization up close and in a special way.

So, what if my local public radio station made some effort to increase my giving (every year, the same $100, for the past ten years) with an idea above, instead of sending me at least twenty direct mail solicitations every year?

How many of your $100+ donors do you talk with regularly? Try this test. Run a report of donors who’ve made consecutive $100+ donors for two or three straight years. These are real people who’ve made a real investment in you. How many names do you recognize? How many how you connected with? Why not?

Instead of all the hand wringing, let’s get to work on upgrading our entry level donors to higher levels and developing stronger relationships. Some smaller donors (maybe the majority of initial givers) will fall away after making that first gift. That’s okay.  Not everyone is going to drink the new Coke.

About jeremymhatch

If I could, I'd write about nothing but tacos. Alas, I am fundraising and leadership consultant in the arts, focusing on contributed revenue growth for organizations. Send me a compliment or complaint. And the location for the good tacos in your town.
This entry was posted in Fundraising, Philanthropy and tagged . Bookmark the permalink.

3 Responses to Donor Retention is (probably) Not Your Biggest Problem.

  1. Jeremy, thank you for referencing my post and for sharing your own provocative perspective. While there is much you say with which I can agree, there are some points I’d like to address:

    First, in spots, you seem to be comparing apples and oranges. You’re right when you suggest that the nonprofit sector in general is doing fine with attracting and retaining donors. Unfortunately, that’s not the issue. The problem is that a great many individual charities are having a massive problem as defecting donors take their support elsewhere. These folks are still donors, just not to the original charity they supported; therein lies the problem for that particular charity though not the sector.

    Second, you’ve established an arbitrary (though not unreasonable) benchmark of 70 percent retention for donors of $1,000 or more. Sadly, among new donors of $1,000 or more, the donor retention has been well below 60 percent. While the new $5,000+ donor retention rate has bounced around the 50 percent retention mark, the new $1,000 donor retention rate is below 50 percent having experienced a steady slide since 2012.

    Third, among renewing $1,000+ donors, the retention rates have neared 80 percent although 2015 experienced a significant downturn.

    Fourth, focusing more energy on acquiring and retaining $1,000+ makes sense for any number of reasons. However, where do these donors come from? An analysis I did for one of my clients found that one-third of donors of $1,000+ started out as donors of under $100. In other words, the better job the organization did at retaining and upgrading small donors, the more likely it was to grow its roster of $1,000+ donors. It’s all interrelated. Furthermore, while large donors are important to the annual fund, regular small and mid-sized donors are critically important for planned giving. A high low and mid-level donor churn rate robs an organization of prime planned giving prospects.

    Fifth, the new fundraising techniques or tools you’ve described (e.g., social media, etc.) can reduce the philanthropic process to a transactional relationship between the donor and the organization. That’s not good for charities. As fundraising evolves, so must stewardship for reasons I’ve already stated and more.

    I apologize for my lengthy post. However, you’ve presented an interesting perspective that deserves to be explored. Thank you for including me in the conversation.

    • jeremymhatch says:

      Michael:
      Thanks for your thoughtful response. My (perhaps oversimplified) analysis is all based on the Bloomerang infographic, which reports a 76% retention rate for donors at $250+, if I read it correctly. Based on that overall rate, I’d assume $1,000 is doing even better percentage wise for most organizations and my 70% is on the mark. Similarly, small gifts/donors are up in this report, which I also see as a major trend in the field. So you aren’t seeing either trend in your organizations? If so, I am surprised.

      As you know, I work in the Arts (mostly) and our retention is better than most, based on the relationship to the mission of ticket buyers, members, subscribers and so on. Let’s make sure we are talking about the same dataset, as perhaps I am not reading the number on that chart correctly.

      As for the notion of transactional giving, we might be in disagreement. Donors give gifts all number of reasons, some of which are extremely transactional (running the 5k to get the t-shirt or wanting to get the “LIKE” on Facebook, texting the $10 for hurricane relief because George Clooney is asking for it on the television). I’ve made all of those kinds of gifts. So what of it? Some will develop deep relationships over time, with cultivation, and others will not. We can do fine stewardship, and still the donor loses interest. Somehow our marketing departments accept that paying patrons, customers, etc. try us out and move on without it become quite so tragic.

      Michael, the churn is here to stay. We need to make the most of it by engaging the larger donors (say $100?) for upgrades while keeping new donors constantly coming into the program. That’s 2017. I’d enjoy going back and forth on this if you would like, via our respective blogs, just want to make sure we are talking about apples and apples. It would be fun to talk/debate or whatever about this idea of transactional donors, which I think we should embrace as inevitable and figure out how to maximize and engage. Transactions are good and healthy. We’ve made it a bad word in fundraising.

  2. insrevenue says:

    As long as donor retention is defined as renewal rates, a one year metric, it is rather meaningless. The short term definition is one of the reasons there has been zero improvement in over a decade. However to suggest not to worry it is just natural is illogical for any organization that, as example, not studied the impact of their onboarding strategy for new donors for at least decade.

    I’d be happy to go back and forth on this topic. Suggesting that the “current” state of churn is here to stay is a case for maintaining the current level of mediocrity. The failure of best practices and the unchanged metrics in board rooms for 4-5 decades is killing the roi on fundraising investment.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s