The New Formula: R + M = IR2

Let's face it. We are an industry that is built upon our metrics and best practices. We like to talk about winning strategies. We like to compare ourselves to benchmarks and indices. But what happens when the way "we've always done it" doesn't work anymore? What happens when the game changes? Guess what — all those "best practices" are maybe looking to a time that is not as relevant anymore. The metrics and benchmarks we use to measure our performance all of a sudden don't tell us if we are successful today — they just tell us where we are compared to yesterday.

This is uncomfortable. In fact, being uncomfortable is not something our industry enjoys.

We all know change happens, and we all know change is inevitable. The challenge is when change is perceived as voluntary. Across multiple blog posts, articles and conference sessions, the conversations around "relationship marketing" and "integrated marketing" often involve whether the juice is worth the squeeze. We've come through the recession, right? We've reset many of our metrics and benchmarks to align with the "new norm," right? Things are feeling better, right?

But — what if the new norm is a slippery slope? What if it's not a question of "juice and squeeze" but of "succeed or fail"? I'm not sure this change is really voluntary.

The concept of relationship marketing seems right to many of us — at least on paper. In fact, if you have worked in the commercial sector, you know that integrated relationship marketing is not a new idea, and for many CEOs and CMOs it is certainly not perceived as voluntary. With that said, our commercial partners will also be the first to say it is not easy, and for many of them changing the way things have been done in the past can be like moving a barge. For many, that change is still occurring. But, let's be clear: It's not voluntary. It is viewed as the only way to stay competitive, to keep their customers from defecting — it's necessary to succeed.

Perhaps the biggest challenge for the nonprofit industry is the complexity of the issue — what is it? And, even once everyone understands what relationship marketing and fundraising is for a particular organization, what it means for that organization and how to accomplish it can become even more complex.

So, let's demystify this thing and then get busy changing our industry and advancing our missions.

Breaking it down

Relationship marketing and fundraising is about taking the best of what we know from the years and years of transactional marketing and then saying, "but there is more to the picture." For the majority of us, we have a foundation in direct-marketing technique and strategy that is predominantly focused on the giving transaction. RFM has driven segmentation for many, many years, and even our modeling to find a better segmentation strategy has used transactions as the primary driver and input.

Relationship marketing is about looking at behavior/transactions as a critical part of the formula, but it actually puts a higher value on constituent retention and long-term value. And it doesn't just stop at a retention rate or a financial value for long-term relationships. Retention and "value" are not simply defined and understood through the lens of how donors behave — they're viewed through the lens of how someone feels about the brand.

In other words, the level of commitment someone has to the organization and its mission is what influences his or her behavior. Yet, for years we've been simply trying to "create behavior" without understanding why someone actually "behaves."

Relationship marketing pays homage to the behavior and transactions, but only because they reflect the outcome we want. But behavior is driven by the level of commitment a donor has and the satisfaction of the experience with the brand. It's about using our marketing, offers, messaging, channels, donor service and much more to create commitment because once strong commitment is attained, the best behavior is the natural outcome.

Show me the money

Right about now, people are wondering whether they should keep reading this article. Someone else is saying, "Sure, but it feels very new, and even worse, it sounds very vague."

Or, how about this: "My direct-marketing strategy is a machine built upon success and performance, and my CEO has low tolerance for fluff or failure due to testing."

Here's a reason to keep reading: Millions of dollars in revenue are lost every year and in some cases simply left on the table because we're focused on the wrong end of the marketing formula.

Using statistics from a national commitment study across 50 brands in the nonprofit industry, the difference in giving from a low-commitment donor to a high-commitment donor was 130 percent. Based on these national statistics, the lowest-level committed donor had a three-year value of $85 compared to the highest level of commitment with $349. And with more than 50 percent of the donors surveyed falling below "high commitment" into the other three categories, it's easy to run the numbers on any size file to draw the conclusion that understanding the attitudes of your donors is the difference between losing money and raising money.

Now ask yourself, in your direct-marketing program what part of your segmentation, creative or messaging strategy is informed by or trying to affect and improve how people feel about the brand? How about the experience they have with the brand? Allow yourself to put aside all of the joint cost allocation arguments for a minute — what part of the communication your donors receive feels like more than just getting the next gift out of them?

If you're like the majority of people I've interviewed over the last 90 to 120 days, the answer is "very little to none" because everyone is trying to achieve the transaction instead of actually understanding why people transact. Why do your donors make those donations, come back every year, increase their investment in your mission?

Just in case you are still questioning this: Simply put, the reason to keep reading is money, because the revenue will come if you are focused on the relationship!

Sure, but what's involved?

Once there is agreement within an organization about the need for a relationship-marketing focus (and that it really is not voluntary), the next stumbling block is how to do it. Below are the key areas an organization of any size must focus on to begin its evolution from the "way we've always done it" to a "we don't want to leave money on the table" strategy.

• Insight

Nonprofit organizations have a wealth of transactional information available to them — especially in the fundraising areas. But relationship insight is different than tracking response rates, giving timelines, revenue sources and average giving amounts. Organizations need to know what motivates their donors to engage with them. Who is highly committed and who is not — and how are they different? What actually drives commitment to an organization? Insight becomes a critical asset in succeeding. As with any relationship, understanding the person is critical, and insight becomes multidimensional if an organization becomes a relationship marketer and fundraiser.

• Communication strategy

For most nonprofits, their mass-market communication programs are the primary method of reaching donors and providing information about the organization, the mission and opportunities to engage. However, due to the silo-based structure of most charities, there is very little integration and collaboration across the various programs. It is imperative to understand the organization's "story" that is being told — and each program, each touch represents a fraction of the full story. Organizations need to know what the overall communication experience is with their donors. Is there visibility into all of the communication constituents receive? Are messages across channels complimentary or competitive? Are relationships being enhanced with one touch and degraded with another touch? How much is "too much" communication, but more importantly, is the communication really resonating with donors and driving maximum commitment?

The focus in this area is often eye-opening and can set the stage for organization executives to come together on a common agreement of making sure the brand story is the best it can be and driving great metrics — be they financial, volunteer-based, mission-based, etc.

• Integrated planning

Integration is one of the scariest words today. Why? Because some marketers relish in total autonomy, believe their marketing programs should be the primary program and they don't need to be viewed along the same lines of any other communication or program. To these people, integration can mean the loss of power. It can mean the inclusion of other opinions at the table, and it can mean making decisions based on what the constituents want rather than just what the financial reports show works. But while integration is primarily about how staff works together and makes decisions together, it is also about data and bringing all of the transactions together to drive the best marketing strategies. And of course, integration between constituent transactions and constituent attitudes data is critical. It's about creating a way of grouping your constituents that creates a common language (segmentation) across key departments. It's about making decisions across programs and channels relative to segmentation over and above every program's individual RFM approach. And it is about channels and messaging — how an organization is working together to make sure that brand story mentioned above is told the best way across the various channels. Organizations of all sizes can become integrated planners and marketers with the right road map, solid commitment from staff and executives, and the vision that it will make the organization better.

• Feedback and tracking

Last but not least, your organization needs to realize that understanding the attitudes of your constituents and, perhaps more importantly, how those attitudes affect behavior, giving and engagement is not a "project." Relationship marketing and fundraising is a way of doing business. It is a strategy that is focused on building and securing the strongest and longest-running relationships possible with your various constituent groups. It drives change within the organization — processes, strategies, messaging, channel usage and more. Therefore, it takes more than a financial report to measure the success of relationship marketing. Your organization needs to be in touch with your constituents to understand how they feel about your brand and whether the changes you make to drive greater commitment are working. In the commercial world, continuous feedback loops are talked about in the break rooms because they are simply a part of running the business. Nonprofits need to realize that every engagement with a constituent is an opportunity to listen to how he or she feels and get a report card on how things are going.

At this point, you realize there is a lot involved in relationship marketing and fundraising. Management consultants at McKinsey & Co. summed it up in a recent quote: "We're all marketers now. Engaging customers today requires commitment from the entire company — and a redefined marketing organization." But let's be clear, there has been enough work in this area in the nonprofit industry to know it is the right direction. Not a believer? Keep reading …

Sound good only on paper?

Fundamentally, coming to an agreement that doing things differently is better for your donors and for your revenue is critical, but trying to boil the ocean is just not going to work. As stated earlier, this change cannot be considered voluntary. It is the single most important thing you can do for your mission going forward. But as reality sets in, we must all admit that some change is better than no change. Organizations of all sizes around the country are starting to transform and doing it quite successfully.

Need some more proof this is something every organization needs to be thinking about and moving toward? See what several organizations have done and learned already.

Operation Smile is an international children's medical charity with global headquarters in Virginia. With the help of generous supporters and more than 5,000 medical volunteers in more than 80 countries, Operation Smile provides free, safe reconstructive surgery for children around the world born with facial deformities such as cleft lip and cleft palate.

In an effort to nurture and build long-lasting relationships with constituents who financially support, volunteer or advocate for Operation Smile, the organization drove a stake in the ground and launched its donor-first philosophy. Jann Schultz, director of donor relations for Operation Smile, explains, "We are committed to serving our donors with the same exceptional care Operation Smile provides to children and their families around the world."

This commitment involved understanding what was driving donor satisfaction, what experiences in donor services were strengthening the bonds with the charity and which ones needed improvement.

Upon learning about some of its processes that didn't consider the impact on the donor, the organization replaced or enhanced those processes. Due to feedback from constituents about expectations, Operation Smile now exceeds industry standards for timeliness of gift deposits, receipting and acknowledgments.

But it has not just focused on processes. It turned its attention to its marketing and communication strategies with the same philosophy. An example of building a stronger relationship through communication is how the organization transformed part of the way it thanked donors for giving. Donors respond to specific appeals — ideas or opportunities that resonate with them personally and make them want to be a part of making a difference. However, once they make gifts, many organizations use standard copy to thank these same individuals. At Operation Smile, staffers created a process where they ensured specific aspects of their acknowledgment program were tied to the actual stories and reasons for giving. In fact, as a part of its donor-first philosophy, Operation Smile ensures that custom acknowledgment copy is written at the same time as the copy for each appeal to ensure consistency in the giving experience.

Its efforts to evolve from being a traditional marketer to becoming a relationship marketer are paying off. The organization has seen a 25 percent improvement in retention of new donors and a 24 percent increase in revenue from those donors.

Schultz says, "Our efforts are constantly evolving. Our entire team and agency partners are always thinking like a donor and therefore always looking for additional improvements in our strategy and operations."

United Way improves lives by mobilizing communities around the world to advance the common good. Its goal is to create long-term change in the areas of education, income and health. With more than $5 billion raised annually, United Way is the type of organization where almost any change may feel like boiling the ocean due to the organization's size and complexity. When it began focusing on relationship management and marketing, it attacked the issue from every angle — culture, data, technology, operations and engagement. Through the last several years, United Way has worked in all of these areas to become more constituent-centric and build stronger individual relationships. However, its business model of workplace giving created a way of operating that was very successful but also limiting to a direct-to-constituent approach.

The organization previously identified women as a priority segment for furthering its mission, and work across the local offices was already in place. Yet from an integrated engagement perspective, the organization's priority around this segment of donors and volunteers created the perfect opportunity to work across the organization, channels and strategies. Ann Fox, senior vice president of individual engagement at United Way, spoke of the organization's transformation at the Direct Marketing Association Nonprofit Federation's New York Nonprofit Conference in July.

"Our organization already knew population was critical for success, and it was that agreed upon prioritization that enabled us to truly become integrated across our organization for the women's initiative," she said. "Women across the country are focused in their local communities to drive improvement in key areas of our mission."

Through this transformation, the United Way changed aspects of its culture, improved insight into this constituent segment and created a prioritization within the organization that ensures this strategy is successful.

Now, I know what some of you are thinking as you read this. So let's go ahead and get the unspoken question on the table: "That's great — but are they making any more money?" Well, the story just gets better and better. Through a fully integrated approach to engaging women in specific areas across the country and cultivating those relationships, United Way has not just moved one marble but moved three marbles. Revenue from these individuals has increased, which is always a key indicator of improvement. Second area of improvement — the organization has improved its "trust" metric among this constituency. Third area of improvement — it has been able to document results on the mission side of its improved engagement in this area. It has seen marked improvement in communities where the engagement strategies are strongest in social reading levels.

As marketers and fundraisers, we demand proof. Here you have it.

Still not convinced?

Not that it needs to be said again, but I will say it again: Change is hard. Sometimes organizations can work on multiple things at one time, and other times change requires a laser focus on one aspect to bring about the movement in a new direction.

ChildFund International works in 31 countries, assisting approximately 13.5 million children and their family members. Its mission is to work with children throughout their journeys from birth to young adulthood, as well as with families, local organizations and communities globally to create the environments children need to thrive.

Through its child-sponsorship programs, it has been able to make life-changing and life-saving differences in the lives of the children it helps. Its need to understand the strength of the relationship it has with donors — the sponsors — is critical to its success for today and tomorrow. Additionally, ChildFund has three specific goals for its focus on relationship marketing: 1) improve retention to the organization, 2) increase NET value of all constituents and 3) create a value-based investment strategy.

Its focus was to review its communications and strategies through a new lens. ChildFund now focuses on understanding the attitudes and expectations of its sponsors and gaining insight into their commitment level and what impacts that commitment. Its attention then turns to using this new insight to make changes in current strategies to optimize the donor experience and relationship. Cheri Dahl, vice president of sponsorship/donor experience, explains, "While this evolution in relationship marketing is currently in progress, [we] are already using the insights to make changes that will positively impact retention."

Change is here

The industry is starting to change and move from transactional marketing to relationship marketing. If an organization is not making strides to move in this direction, there is no doubt that money is being lost as donor relationships don't reach their full extent. In the past, strategies around integration, using attitudes in marketing and long-term relationships were often considered "immeasurable," and for that reason alone it was easy for our industry to put them aside and not prioritize them. Now, not only is all of this measurable, but it is critical for success. And our constituents, donors, volunteers and members are demanding a change in how we communicate and work with them.

We've spent years working with the wrong formula — it's time to start using the new formula: Relationship + Marketing = Increased Retention + Increased Revenue.

Angie Moore is partner at DonorVoice. Reach her at amoore@thedonorvoice.com