Lifetime Value Starts With the Second Gift

The motivation that gets someone to take the first step to support an organization (donating or volunteering) is quite different from their motivation to continue to be engaged. We do not need any further proof of this than the lousy retention rates that nonprofit organizations suffer year after year.

According to the latest Fundraising Effectiveness Survey results, on average, U.S. nonprofits retain only 43% of their donors year over year. Research on donor retention conducted by Dr. Adrian Sargeant reveals that the first-time donor retention rate is only 19%. Both of these numbers are disastrous; Sargeant’s research shows that a modest 10% increase in retention can increase the lifetime value (LTV) of donors by 200%. And as we have said many times, LTV is the holy grail, seeking anything else is seeking a mirage.

Fixing this problem requires that we look at the differing motivations of first-time supporters and those who stay around. At the University of Chicago, economist John List studied individuals’ initial motivation for charitable giving. List ran a study where experimenters knocked on the doors of 8,000 homes in the Chicago area to raise money for a children's hospital.

List explained that if people told the solicitor, “no,” they experienced “very negative disutility” from letting someone down. In other words, they feel bad. So, they are weighing that against just giving the solicitor $20 and having them go on their way.

There was a twist to the study. Some people were told ahead of time that a fundraising volunteer would come and knock on their door. Others just received an unexpected knock.

List found that when warned, many people never answered the door. The people who did answer the door after being warned tended to give money, and much was because of altruistic reasons. But the people who were not warned ended up answering the door more often, and they gave more.

Here is what is interesting — List was able to conclude that about 75% of the dollars given were due to social pressure, (a live person in their face asking) while a quarter of the dollars given was due to altruism. So, a fraction of what we observe in our door-to-door fundraising drives is due to altruism; we can safely extrapolate this situation to social fundraising asks by volunteer fundraisers. That is part of the explanation why first-time donor retention rates is only 19%, and social fundraising acquired retention rates are around 30%.

Depressing? No — understanding this dynamic is the first step in motivating someone to make a second gift, and even toward changing our collective negative attitude about donors acquired via social fundraising.

For example, a couple of years ago, a friend approached Otis in a cigar bar to donate to Movember, the organization that funds men’s health projects. He immediately agreed and, in less than a minute, had donated $123 to his friend’s fundraising account. It was an odd amount to help his buddy reach his goal. Thanks, completion bias!

Let us put ourselves in the shoes of this friend soliciting a donation. If Otis agrees to donate to Movember because of social pressure — because he feels like he cannot say, “no” —then do you really want to ask him to donate? He had heard of Movember, sure, but probably wouldn’t have donated $10, let alone $123, without being asked.

He will answer for a friend — an unqualified yes, you want him to donate. Here is why.

People are good at justifying their behaviors in ways that make them feel good about themselves. Psychologists have aptly named this the “self-justification bias.” He may have agreed to help a friend because he felt like he could not say “no,” but quickly after that, he started to convince himself that he helped because he is a terrific person. And so, they both walked out of the cigar bar that day feeling good about the interaction. The friend got the help he wanted, and Otis got to feel like a good person.

Later that same day Otis received an email from Movember telling him he was, indeed, the great person he knew himself to be.

In her classic book, "Donor Centered Fundraising," Penelope Burk found that the first thing that donors want is prompt and personal gift acknowledgement. Further, her research found that first-time donors who received a personal thank you within 48 hours were four times more likely to give again.

Movember then did everything right to move Otis along. The organization sent a receipt with a thank you that did not include a solicitation for another donation. Its next email communication was a request to fill out a survey (which he did). We use surveys a lot with clients to “prime” a donor’s identity as someone who supports the mission. Interestingly, even though Otis was aware of the purpose for sending the survey, it worked its magic and got him to engage and see himself as someone who supports men’s health concerns.

Later communications featured testimonials and stories about and by men in his age demographic (He had given Movember his age when he donated). Fast forward to today, he is a regular Movember donor, giving $300 to $500 a year.

You might even say he is a loyal supporter. His lifetime value to the organization is not great but is nevertheless nontrivial. And he is the kind of supporter that Movember has an opportunity to move up into a more lucrative giving tier.

Just because all this worked on Otis does not mean that there is a foolproof playbook for converting first-time supporters. As they say, the things that Movember did are “necessary but not sufficient” to convert most first-time donors.

But here is the point: The 75% of people who give for non-altruistic reasons is where the real work is. Your job is to convince them they gave for a reason that is different from why they really gave. This is bait and switch, in the best way. You get to help them exchange a feeling of avoidance with a feeling of self-worth. People engaged in social good are happier and healthier. It is like they ordered a hamburger and you served up filet mignon, if you work hard and think expansively.

There is no secret formula for converting first-time donors to a second gift, let alone sustaining givers. But it is really important for nonprofits to focus on how they go about making it happen. The psychology of it is complex. It requires an equally sophisticated strategy for nonprofits to become more successful. The resources and positioning of your particular organization makes a difference. What is happening in the world makes a difference. How a donor comes into the conversation makes a difference.

What supporters experience between the first and second donation is critical. It is like the chasm over the canyon of lifetime value. Invest your money, your energy and your time in figuring out how to get as many donors as you can on the other side — making a second donation.