Useful Truths: Apply With Care

If you’re of a certain age, you might remember a film they showed us in school called “Our Friend the Atom.” A piece of pure propaganda — we were suckers for that stuff back then. Its message (as I remember it) was: Sure, nuclear holocaust is a scary possibility, but Our Friend the Atom can do lots of good, too!

Apparently, everything has an upside and a downside. Including useful fundraising truths. Here, I’m going to show you how even a great idea can knock you for a loop when you don’t apply it right.

The useful truth
Here it is: The higher a donor’s first gift to an organization, the higher her lifetime value. You might be saying, “Duh,” but what makes this truth so useful is the strength of the correlation. The lifetime value of a donor who gives a first gift of $10 will be a fraction of the value of a donor who gives $50 the first time around. The difference between the two typically plays out like this:

* Total lifetime value of the $10 donor will be about one-fifth as high.
* The lower donor will lapse sooner.
* Chance of upgrading (to a significantly higher level of giving) will be about half as high for the lower donor.

And here’s where it gets cool: It’s easy to calculate. A donor’s lifetime value to an organization is about 10 times the amount of her first gift. (Your actual figure might vary, but not by much.) Once you get that first gift, you have a very accurate picture of what you have coming to you in the long term.

This truth pretty much demolishes the long-revered “donor pyramid” — the belief that it’s normal for a donor to come on board with a small gift and then keep upgrading until she’s a major donor. Turns out that’s more a statistical anomaly than a behavioral road map. Of course, it does happen — but only in a tiny number of donors.

What you can do with this useful truth
First, you can improve the overall value of your donor file by seeking a higher average gift at acquisition. This probably means trading a higher volume of donors for fewer, more valuable ones. But done right, you can come out way ahead. You do this with a combination of higher-value lists, higher ask amounts and higher-value fundraising offers.

Second, you can spend less cultivating your lower-value donors, which frees up dollars to spend on your higher donors. This can bring significant improvements in net revenue and ROI.

How this useful truth can go wrong
This is a true story: A nonprofit I once worked with (I’ll call it “Sweetness & Light”) discovered this useful truth. Sweetness & Light was a smart organization. It believed in the numbers and was always eager to act on knowledge. So it was all over this truth like kids on monkey bars. It took Sweetness & Light about three meetings to begin viewing low-dollar donors as drooling barbarians — who possibly carry a nasty virus that can spread through the mail.

“We will no longer seek donors who give under $20,” was its strategic battle cry. “From this day forward, we’ll allow no low-dollar riffraff onto our donor file.” (That’s not exactly how they put it, but you get the picture.) Here’s what Sweetness & Light did:

* It stopped renting lists that returned average gifts below $20, no matter how high the response had been.
* It ramped up the amount it was asking for.
* It virtually stopped cultivating its $20-or-less donors.

At first, it worked like magic. Average gift skyrocketed. Campaign performance broke records right and left. Continuation and upgrade rates were off
the charts.

It was like that for a few months. Then Sweetness & Light’s revenue went into sudden decline. The decline came from two sources:

* The total number of donors had plummeted. Between the lower number of new donors and the wholesale shedding of $20-or-less donors (which happened because the organization stopped talking to them), the donor file was decimated. This drop in volume more than offset the increase in value.
* More surprisingly, the pool of major donors was drying up. This seems to fly in the face of knowledge and common sense, but here’s how it happened: As the file shrank, the number of potential upgraders became much too small. (Remember that tiny percentage of low-end donors who actually follow the donor pyramid?) While the percentage of donors who upgraded was superb, it was a percentage of a smaller number — leading to an overall drop in major donors.

Add to this the fact that a smaller donor file drove up the cost of fundraising (on a per-piece basis), which slashed fundraising efficiency.

Sweetness & Light eventually became aware of the disaster that was happening under its feet and returned its fundraising program to normal. But it took more than two years to recover from the damage and return the file to its previous state of health. The overall impact was devastating to the mission.

What went wrong?
Sweetness & Light took a useful piece of knowledge and applied it without balance. Its avoidance of low-end donors was too extreme. And it set the bar too high for its definition of desirable donors. Things would have been better if it had defined its “riffraff” as donors of less than $10 or $5.

Shifting from a volume orientation to a value one is something most nonprofits would be wise to do. Just don’t do it with a chain saw, the way Sweetness & Light did it. Take it slowly. Replace lower-value donors with higher-value ones. Then you’ll get the improved performance you want — and the overall revenue you need.

So learn useful truths. Climb mountains, swim rivers, cross deserts (and read magazines) to find them. Then, apply them in a balanced way, with your eyes open. That way, you can have the upside of powerful ideas without the downside. FS