FOCUS ON AUDITS Don't Be Afraid of the A-wordUnlike the tax v

Unlike the tax v

By MAURA SZENDEY and BRYAN TERPSTRA

For most of us, when we hear the word "audit," our gut instinct is to run and hide. We've been trained to think an audit means a review of our finances, and sometimes that can be downright scary!

But there are other types of audits that can be a lot less stressful and have a big impact on your bottom line. There are two common, basic audits, for example, to help evaluate the annual performance of a direct marketing program: a creative audit and a file audit.

For nonprofits with mail programs that raise more than $1 million or so, these types of audits are well known. These organizations need a systematic approach to assessing mail programs each year, and both of these audits fit the bill. In most cases, however, with a modest investment of time and money, almost all nonprofits can work with their direct marketing agencies to conduct these types of audits.

CREATIVE AUDITS

Great direct mail fundraising campaigns usually are the marriage of sound strategic thinking and good creative execution. You need both to be successful. A well-run creative audit should help uncover new approaches that ultimately can lead to improvements in both donor acquisition and retention.

In a creative audit, staff at the nonprofit and its agency partner work together closely. In general, the process involves three steps: the exploratory phase, brainstorm phase and judgment phase.

Exploratory phaseIn this step, the agency working with the nonprofit gathers and

displays all of the organization's direct mail packages for the year in a conference room. Results of each campaign accompany the samples.

Over the course of several days, everyone at the agency involved in the audit (typically key senior creative, client service and production staff) review each direct mail campaign carefully. They read through the letters and take note of how the donors responded to each appeal.

Test and control packages that are working well for the organization are analyzed, as well as those packages that are not performing well. Audit participants scrutinize everything from the look and feel of each package, to the production quality, to the overall effectiveness of the writing and design.

Brainstorm phase

In this phase, key nonprofit and agency staff members get together for several hours in one room for what should be a fun, freewheeling exchange of ideas, recommendations and commentary. Each campaign is reviewed one at a time, with a designated facilitator to help move the process along. Audit participants are handed 10 to 20 sheets of paper each and encouraged to write down any test ideas or new campaign concepts that come to mind. The objective at this point is to draw out as many ideas as possible.

Judgment phase

Once the brainstorming session is over, a master list of ideas is developed that can be reviewed with the nonprofit and agency staff and used throughout the year as strategies are planned.

Since creative audits can generate a hefty amount of ideas, a system usually is put in place to prioritize. Typically, nonprofit and agency staff use rating scores (low, medium, high) to rank the idea along several parameters: revenue potential, costs and degree of difficulty to implement. This rating method can help develop a short list of high-priority ideas that should be implemented quickly, as well as point out the strong ideas that may take several months or more to implement.

Points to ponder

When conducting a creative audit, it is important that those involved consider some funda-mental questions as they go through the process:

1 Is the organization's "brand" prominent in the packages? How is the brand used — or not used — graphically in packages? Is the brand consistently portrayed in terms of size, color and tag line?

2 Is the main message or theme for a particular mailing clearly

presented? Is it clear what you want the donor/member to do?

3 In new-donor acquisition, does the copy "grab" the reader, or does it meander? Is the message consistent? Does it include the right emotion, passion and supporting data to inspire a contribution?

4 Do the graphics fit the organization and the appeal theme? Or is something missing?

5 What are the elements of each test package? Are they "actionable"? What were the results from previous test packages versus the control package?

6 What postage tests have been done?

7 Have inserts been used? If so, in what segments and at what time of the year?

8 Is there an acquisition test package that would warrant use in the donor renewal program? Same for the opposite approach — a donor renewal package that, with slight modification, can be used in new-donor acquisition?

9 Have there been any premium tests conducted?

10 Is the organization donor focused? Is there a basis for a relationship, or does the conversation seem one-sided?

Creative audits can establish a baseline with which nonprofits can audit their competitors, too. Once a creative audit is complete, sample packages of organizations with a similar target audience can be obtained and then assessed. Even without results, a competitor's branding, copy, graphics, use of premiums, positioning strategy, thematic emphasis and other key elements within the program can be benchmarked.

FILE AUDITS

Another audit that should be done every year for a mail program is a file audit. Even the best creative might not be very successful if it's targeted to the wrong segments of the file. Crunching the numbers and having the ability to look at the underlying patterns in the data can help nonprofits create more strategic (and effective) mail packages.

A file audit will provide an in-depth analysis of an organization's donor/member base and develop benchmarks the nonprofit can use each year to assess its mail program.

Most agencies that work with nonprofits can provide a basic file audit or can help find the right company to provide this service for its client.

A file audit should provide the basic statistics regarding how donors/members historically have responded to various solicitations and communications. This information then can be used to validate the current program and help develop enhancements to improve the program's performance.

Key questions that should be answered with a file audit include:

1 When will donors/members break even?

2 What does my core donor group look like this year, and what did it look like last year?

3 What trends are present — are donors/members upgrading or downgrading this year?

4 Has my acknowledgment helped in getting a second gift?

5 Which prospect lists are yielding $100-plus donors?

6 How long does it take to get a second gift from a donor?

7 What is the time frame for donor lapsing: 13, 15, 18, 24 or 30 months?

8 What is the difference, if any, between premium-acquired donors and mission-acquired donors?

9 At which segments of the file should we aim most of our testing?

10 How do first-year and multi-year renewal rates compare to last year's rates?

A good file audit needs to focus in on four key areas: new-donor acquisition, first-year renewal, multi-year renewal and lapsed recapture.

New donor acquisition

Nonprofits need more new donors every year in order to grow their mail programs, and they need to replace those donors who have lapsed. A file audit will quantify the number of new donors entering the program each year and, as appropriate, the different types of donors that are coming in (for example, premium-acquired versus mission-acquired donors).

A file audit also tracks the donor's annual giving patterns (number of gifts, average gift, yearly worth) in both the first year and over the course of many years. Since very few organizations generate a profit "out of the gate," it is critical for nonprofits to understand how valuable new donors are and how long it will take to recoup the initial investment.

Long-term value for new donors will vary depending on the organization. Different organizations have different benchmarks for the recovery of their initial investment, but typically the goal is to break even within 12 to 18 months.

The critical first year

Tracking how many donors gave again the year after they were acquired is a key indicator of the health of a direct mail program. A file audit tracks this first-year renewal rate and shows the giving patterns that have been established year over year for each group of first-year renewers.

At best, about 40 percent of the donors acquired in one year will contribute again the next year. Organizations with a first-year renewal rate of less than 30 percent are getting minimal benefits from their acquisition efforts.

The key to maximizing first-year renewal is to increase giving

frequency of newly acquired donors. Donors who give a second gift within a 12-month period usually are 40 percent more likely to renew the following year. The sooner the donor gives that second gift, the more likely he or she will be to continue supporting the organization.

Strategies to improve or maintain a strong first-year renewal rate typically are centered around the treatment of new donors. Some positive ideas:

1 Develop a welcome package.

2 Implement a conversion series — or a group of one to three mailings that are targeted toward maximizing the response rate of new donors.

3 Implement pre-lapse strategies such as sending a response-enhancing offer or a series of response-enhancing offers as a new donor is about to lapse.

Multi-year renewals

A good file audit also tracks the giving patterns of multi-year donors. Multi-year donors are a nonprofit's core donors — people who have been contributing for more than two years. Once a donor makes it past that crucial second year, he is more likely to give in subsequent years.

Usually the renewal rate of multi-year donors ranges from 55 percent to 80 percent (the high end of this range typically is seen in organizations with a strong spiritual or membership component). Donors who fall into this group represent about 20 percent of the donor base but are responsible for about 80 percent of the revenue.

In addition to a higher renewal rate than the newer donors, multi-year donors tend to have a higher giving frequency — they are more committed. To maximize the revenue stream in this group, it's important to vary the offers. Give donors multiple reasons to give and con-tinue to show them how much you appreciate them by building a dialogue.

Additionally, this is a segment that you want to learn more about in terms of motivators — why does it support your organization? This also is the group of donors to introduce to planned giving opportunities, monthly giving programs and major-donor gift programs.

Lapsed recapture

Tracking lapsed donors also is an important part of a file audit. As you know, not all donors give every year. Those that don't give fall into the lapsed-donor pool.

The size and quality of the lapsed-donor pool is directly related to the success of first and multi-year renewal efforts. Organizations that have a low giving frequency of new donors, and subsequently a low first-year renewal rate (less than 30 percent), will see a very high percentage of lapsed donors with just one gift. Within the lapsed-donor pool, the challenge is to determine which donors are the most likely to be recaptured and to focus energies on those segments.

Typically, donors with high loyalty — as defined by a combination of annual giving frequency and years of giving — and more recent donations are easier to capture — and more valuable once recaptured — than the donors with lower loyalty and a longer period of lapsing.

Lapsed donors are an extremely valuable source of support for an organization, and therefore it is important to analyze this group thoroughly. Typically, it's more cost effective to recapture a lapsed donor than it is to acquire a new one. More importantly, a recaptured donor is more likely to renew her support the following year than a new donor. The renewal rate of recaptured donors typically is 45 percent to 50 percent, compared to 30 percent to 40 percent for newly acquired donors.

Bryan Terpstra and Maura Szendey are account directors at L.W. Robbins Associates, a direct response fundraising agency located in Holliston, Mass. Contact them at 800.229.5972.