Focus On: Data Mining: Hope is Not A Strategy

Donor and member attrition is an eternal challenge in fundraising. But in the past three years, the problem has magnified to the point that it’s causing hardships for some of even the largest nonprofit organizations.

It didn’t take long for development directors and direct mail fundraisers to realize they were facing a crisis, yet very few had the knowledge, tools and applications to make difficult strategic decisions that were in the best interest of their organizations. Many rushed to implement strategies, only to find they raced to the wrong place; others decided to wait and hope things would return to normal.

Both camps are waking up to a rude reality: New-donor prospecting response rates are declining, and attrition rates among active and lapsed donors are increasing. The result is that organizations have fewer active donors today than they did in 2000 — in some instances 20 percent to 25 percent fewer.

Fortunately, it’s not too late to react. Armed with the right tools and a desire to improve results, development directors and direct mail fundraisers can take steps now to begin to solve their attrition problem. There is no one solution, but fundraisers need to take notice of one important, yet frequently overlooked, source of “new” donors: lapsed-donor files.

To achieve and improve results, fundraising organizations must develop new database-driven strategies that involve winning back a larger percentage of this group. The key is to know who to try to win back and when, and there are several steps to consider in your donor-reactivation strategy.

Listen to donors
To most nonprofits, the lapsed-donor strategy is creative; they hope the design and message of a new “win-back” package will yield more reactivated donors. It might, but it’s not enough.

You must listen to what donors are telling you and then capture that in your database, much as you capture a special moment with your camera. By listening to your donors, you’re better able to pinpoint specific reasons that motivated the initial or last gift. And through your database you can create improved solutions that yield higher rates of success. The key is to ensure that you have the right database tools and solutions — that is, the data infrastructure and the expertise and capabilities to use the data effectively — to predict the future migration of your donors. By monitoring specific donor behavior, you can develop immediate reactivation strategies and increase the likelihood of a response.

Chart migration
New prospects and lapsed donors serve the same purpose — they replace those you lose through attrition. A lapsed donor to your organization is far more likely to give than an active donor from another organization. For many organizations, one reactivated lapsed donor is worth more than two new donors. And a new active donor — one who gave an initial gift in the past 12 months — is no better than a qualified prospect. Not until someone demonstrates a behavior of year-over-year giving is he or she considered a valuable donor.

When developing lapsed-donor strategies and determining the value proposition of a lapsed donor verses a prospect, organizations must manage to the true ROI. Donors are not equal, and therefore they require different levels of investment. A critical error that most organizations commit is not spending enough on reactivating targeted lapsed segments and/or overspending on active segments.

Many times, lapsed donors are not receiving effective mailings. Recognizing this, one national nonprofit followed up its regular appeal two weeks later with one created specifically to increase reactivation rates. The tactic doubled the percentage of reactivated donors, from 7 percent to 15 percent.

Each donor is part of a cycle of giving — whether he is new, joined in the previous year or has lapsed, etc. By understanding the likely migration of each subset of donors and their response behavior, you can better calculate which are worth investing in and which are best left alone.

The objectives are simple: Offset the attrition of your most valuable donors — those who have given for two or more consecutive years — by acquiring new prospects, reactivating lapsed donors and renewing new or reactivated donors for two consecutive years. If you gain more multiyear active donors than you lose to attrition, your direct mail program should begin to grow again.

ID ‘downgraders’
A donor doesn’t have to be inactive to be considered lapsed. A donor who downgraded the frequency of gifts from three gifts last year to only one gift this year is a lapsed donor. Rather than waiting and hoping for the situation to improve, one effective approach is to target donors when they begin to show signs of lapsing.

Donors who give three or more gifts annually generally renew at a rate two-to-three times that of those who give only a single gift. Without intervention, nearly 50 percent of those who give multiple gifts one year will downgrade frequency the next and eventually downgrade to no gifts.

The best offense is a good defense. Since donors often forget which organizations they support or how many gifts they give, it’s good to remind them of the needs and expectations of the organization. By examining specific donor behavior contained in your database, you can target donors who are at risk of downgrading or lapsing.

One nonproft, for example, introduced a reacquisition strategy that included a special campaign targeted to downgraders. The campaign complemented, but did not replace, what the organization was already doing with its retention programs. By creating a special package to target those donors, the organization effectively beat the control packages and renewed the downgrading donors, retained more gifts and increased the average size of gifts.

The key to renewing these donors is to re-create the environment in which they gave their first and subsequent gifts. Deviate from “control” strategies and develop specific frequency-upgrade strategies. Depending on the breadth and depth of your existing data files, your organization already might have the information needed to address the reasons why donors have reduced their frequency. Extensive, accurate information is essential because by targeting donors as they begin to downgrade their frequency, you can better offset the chances that they will lapse completely. Through data, you not only can identify who is lapsing, but also why. This information will help you create new approaches that are customizable to fit all types of donors.

Customize
While member attrition can continue to get worse before it gets better, it is imperative that you acquire the tools, infrastructure, partnerships and mindset to begin reclaiming ground lost in recent years. Two simple, yet very effective, solutions include:

• Monitor what you are mailing: Your data must include what you mailed and when you mailed it, from the initial acquisition through the entire giving cycle. With this information, you can understand motivations of giving, response trigger points, ROI and Lifetime Value. You can develop new marketing tactics and messages that personally reach the donor. You also will know when to cut your losses and move on.

• Determine the type of appeal: People give either through their hearts or through their heads. Those who give through their hearts respond to more emotional appeals, and those who give through their heads respond to more intellectual appeals. Your data gives you the opportunity to understand the type of message that would resonate with individual donors so you can more effectively target each one.

If you’re using a stale premium that isn’t presenting your organization’s mission to donors in a clear, compelling way, look into highlighting a specific program or timely topic that is pressing to your giving community.

Keep current
This sounds simple — it’s the basic rule of direct mail — but if it were, we wouldn’t be having so many problems with donor attrition. The industry is changing, and most direct mail fundraisers don’t recognize that things have changed or they haven’t adapted to the changes. Donors are different, and they are behaving differently. They are more skeptical and less likely to forge a bond with an organization. The ones that do are valuable indeed.

Two key changes are having an impact on attrition:

1. Age of donors: Direct mail donors today are younger than before. They appear to have less loyalty to an organization and are more likely to become inactive. In a recent study of a large, national health organization, nearly one third of newly acquired donors were under the age of 54 and renewed at a rate that was 50 percent less than of those over 55.

The challenge we face is developing strategies and messages that target younger donors. It’s possible that one database could contain information on three generations of a single family, but the appeals target only the eldest generation. Armed with actionable data, nonprofits can better target donors through more age-appropriate appeals and begin to see immediate improvement in acquisitions and retention rates.

2. Gender of donors: Men are giving just as much as women. So why do many organizations continue to market only to women? The most common answer is that it works. Indeed, it does work, but data suggest that it would work better if organizations targeted donors more effectively through gender-appropriate strategies. Better gender marketing will yield higher response rates and increased retention.

It’s important to note that men and women, on the whole, have different motivations for giving. A woman might give to a health charity to help herself, her spouse or a friend, while a man may respond to help save his wife. There is an important message distinction in that women are concerned with themselves and families, whereas men are less likely to give to a cause that affects them than they are to one that could help their spouses and families.

Conclusion
While the idea of recapturing lapsed donors isn’t new, the approaches, available tools and the strategic thinking are much improved. The most successful nonprofits haven’t waited for things to get better; they already have embraced this new thinking and are developing strategies.

It’s important to remember that your data files are essential tools. The data, by itself, will not give you all of the answers. It simply provides a framework that can help guide intuitive marketing strategies that can be applied to specific areas of need. By examining your data, you can stop hoping and start implementing effective database-driven strategies that will ensure not only the growth of your direct mail program, but also an increase in donors.

Greg Fox is the senior vice president of strategic marketing at Merkle Direct Marketing, a database marketing services company. He has experience working with both nonprofit and for-profit companies. E-mail Greg at gfox@merklenet.com