Charities Show Strides in Keeping Loyal Donors But Are Too Focused on Short-Term Results, Scholars Say
Charities made strides in the past year as they sought to persuade new donors to give again and to increase the amount such supporters contribute for second or third gifts, a study has found.
But nonprofit organizations are wasting money by putting too much effort into constantly replacing large numbers of donors who never make a repeat gift when they should be making investments that would provide significantly more fundraising return in the long term, the researchers said.
For every $100 in new donations the 3,576 groups in the survey received in 2013, they lost an average $92 from supporters who failed to give again and others who contributed less than they had previously. That was an improvement over 2012, when charities in the study lost $96 in donations, on average, for every $100 they received, and much better than in 2008 and 2009, when charities in the study lost $119 for every $100 they received in new contributions,
Promoting loyalty among donors is a struggle for groups, but failing to do so is hurting their bottom lines, the researchers said. Only 43 percent of donors who made a gift in 2012 did so again in 2013, the study found.
“As a general rule, retaining and motivating existing donors costs less than acquiring new donors,” wrote Wilson Levis of the Urban Institute and researcher Cathlene Williams, the two lead authors of the study. “For most organizations, pursuing strategies for reducing donor and dollar losses is the least expensive strategy for increasing net fundraising gains—especially for nonprofits that are sustaining losses or achieving only modest net gains in gifts and donors.”
While charities of all kinds face challenges in maintaining loyalty, those that raise the most are faring much better than those that raise less money. Organizations that raise $500,000 a year or more increased donations by an average 10.5 percent last year, after accounting for the loss of previous donors who didn’t give and those who reduced their contributions.
That compares with a 1.9-percent average increase among organizations raising $100,000 to $500,000, and an average loss of 2.4 percent among charities raising less than $100,000.
Researchers said that as charities face pressure to keep their fundraising costs low, they are wary of spending the kind of money it takes to spur repeat donations. Many charities try to limit their fundraising costs to 5 percent or less of every dollar raised, they noted, even though keeping donors involved and expanding donations probably requires spending 30 cents or more of every dollar raised on staff members and other expenses involved in soliciting gifts and maintaining close relations with donors afterward.
They noted, for example, that a charity that lost 55 percent of its donors could double its net fundraising gains at year’s end if it simply found a way to keep the losses to just 45 percent of donors.
It’s not just the intense focus on fundraising costs that trouble Mr. Levis and Ms. Williams. They worry that as nonprofits celebrate every dollar gain in annual giving, they ignore what their organizations could achieve by inspiring donor loyalty over the long term.
“Taking positive steps to reduce gift and donor losses is the least expensive strategy for increasing net fundraising gains,” the researchers wrote.
Not all fundraising approaches are equally efficient, however, the researchers noted. They urged charities to measure gains and losses for each type of fundraising they do, such as direct marketing or special events, and then see what happens each time they make small changes to increase donor loyalty, to learn what works best.
To help charities monitor their results, the researchers offered templates for collecting data and an article about how that information can be used to convince nonprofit executives and trustees to invest more money in fundraising.
In addition, the researchers said they have created “fitness tests” that allow charities to evaluate their fundraising efforts using performance measures appropriate for attracting donors who make gifts in sizes from small to large. More information, including two versions of the test, are available free from the Association of Fundraising Professionals.