Choose Your Budget-Cut Battles Wisely

By Jeff Brooks

If you haven’t gotten it yet, the memo is probably on its way. It says, with a great many words: You must cut your fundraising budget!

You might be tempted to take a hard line on such cuts, proclaiming that fundraising is the lifeblood of the organization. But you know no one will be listening, and you’ll end up making cuts anyway.

So choose your battles. The truth is, not all cuts are going to kill you. Today, I’m going to propose one battle you should fight and another you can afford to give up.

The one to fight
You’d be crazy to cut donor acquisition. This will be a tough battle, but you should fight it like a rabid weasel.

I’m pretty sure the knife-wielders have their eyes on your donor-acquisition program. They imagine it’s a big, juicy, painless cut. Because it is, indeed, big, and — chances are — it’s a net cost to the organization. That means every dollar you cut from acquisition improves your bottom line. Today. While everyone is feeling the pressure.

But here’s the problem: Cutting donor acquisition is going to hurt in the future. It’s going to hurt a lot, and not just people’s feelings. Abandoning acquisition can create catastrophic and lasting financial impacts in the form of depressed fundraising for years to come.

In fact, cuts to donor acquisition are why this recession is going to go on hurting many nonprofits for several years after the economy has recovered and giving is back on a growth path. Don’t be one of those organizations that scrapes by and survives the recession, only to go under a year or two afterward because it made destructive cuts to its acquisition lifeline.

The hard-to-see truth is that donors grow more valuable to the organization every year they’re with you. Their responsiveness, retention, even their likelihood of upgrading their giving amounts — they all increase every year. Here’s how it plays out:

At the point of acquisition, you’re losing money.
By the end of the first year, you’re breaking even among those new donors.
The following year — your second with that group — you’re earning a 2-to-1 return from them.
In the third year, your return rises to around 3-to-1. Starting to look good.
The real payoff comes in the fourth and following years, when those established donors are returning $10 (or more) for every dollar you spend.

If you don’t get new donors this year, you won’t have second-year donors next year. More seriously, you won’t have fourth-year donors in four years. It’s as if those cuts leave a black hole in the middle of your donor base — a vacuum where there should have been responsive, committed donors.

Every fundraising campaign you launch will do worse than it should because you’re missing those donors. It’s not just fewer bodies. It’s fewer committed supporters. And that empty donor class continues to echo through your fundraising. The pain tends to peak three to four years after the cuts, but it will be meaningful and measurable for seven to 10 years.

Do your budget-cutters know this? Would they still make the “easy” cuts to donor acquisition if they did? They might think that cutting acquisition is no worse than getting a bad haircut. But it’s actually more like amputating your legs.

The one to let go
You might do better in the critical battle to protect donor acquisition if you’re willing to give the knife guys something they can slash without a huge fight.

This is going to make me spectacularly unpopular in some quarters, but I’m putting the whole class of branding and awareness activities in the go-ahead-and-cut category. That’s because there’s no direct, measurable connection between those expenses and any meaningful impact on your bottom line.

Spending on advertising is largely an act of faith. Faith can be a beautiful thing, but it’s not the best basis for business decisions. In hard times, you’ve got to put your dollars into measurable activities.

Some brand advocates will tell you their work is measurable. They’ll cite a metric like “unaided recall” — meaning that when surveyed, more people mention your organization’s name than did before — or “aided recall,” where people claim to have heard your name when they hear it.

Pardon me, but do you mind if I roll my eyes? Measuring “recall” and things like it is almost completely bogus.

It’s possibly true (though it can’t be proven) that someone who’s heard of you is a bit more likely to give a gift than someone who hasn’t heard of you. But that’s not a fact you can take to the bank. For one thing, nobody writes a check when she tells you she’s heard of you — it’s just a thought, an idea. For another thing, as all direct marketers know, the divide between what people say and what they actually do is wide. Since we’re talking budgets here, stuff you can take to the bank is pretty much the whole thing.

Think of it this way: Would you rather move 100 people 10 percent of the way toward giving or move 10 people 100 percent of the way toward giving?

In the first scenario — which is a branding or awareness campaign — your revenue is zero, no matter how much you spent. In the second scenario — a classic direct-response fundraising campaign — you end up with revenue. The only question is whether it came at an acceptable cost.

In flush, easy, noncutting times, you might be able to spend money on speculative ventures like branding and awareness and be OK with the nonmeasurable benefits that could come as a result.

But not these days. So hand it over to the knifers. You’ll make almost everyone happy.

Bonus recession-time savings
Slicing away programs isn’t the only thing you can offer the knife boys. During a recession some significant savings are possible — savings you can’t make at other times.

Most printers, broadcast media and print advertising outlets are suffering serious losses to their businesses right now. There are deals to be made — if you’re willing to look for them. Don’t be evil. But negotiate. The savings can be significant. FS

Jeff Brooks is creative director at Merkle and keeper of the Donor Power Blog. Reach him at jbrooks@merkleinc.com