What Can Fundraisers Learn From the Taxi Industry?

It’s no secret that the taxi industry has been disrupted by Uber and a growing range of other services. The taxi companies remained largely unchanged for decades, mistakenly assuming that the status quo met their customers’ needs. The same can be said for the movie rental business disrupted by Netflix. In both cases, customers’ expectations became more sophisticated over time, leaving the traditional business operators vulnerable.

How does this relate to fundraising? I see the warning signs all the time when I hear people refer to a direct-mail fundraising appeal as “junk mail” or to appeal emails as “spam.” Donors, like taxi-users and movie-watchers, are unhappy because their expectations are not being met.

And they’re expressing their feelings through lower response rates, reduced interest in the programs, declining gift amounts and high-attrition rates. We’re losing them, because we haven’t been paying close enough attention. Like the taxi industry, the basic concepts of most fundraising campaigns are several decades old. RFM (recency, frequency, monetary) methodology has been around since the 1960s, but we all know that donors’ expectations have changed since then. It is no longer enough to target and communicate with donors based on how recently, how much and/or how often they gave. Or for that matter, where they live.

When charities communicate with donors in a way that shows they know who the donors are and how donors interact with them, they are providing a superior donor experience. To do this, fundraisers should know if the donor’s last gift increased or decreased; current position in the donor life-cycle; whether recently re-activated or at-risk of leaving. Better yet, are they ready to be upgraded?

Imagine the impact this kind of knowledge has on the quality of your stewardship program and your other donor communications. When you respond appropriately to the actions of the individual donor, communications really become donor-centered. Successful businesses are continually investing time and resources in “business intelligence”—learning what their customers’ current and past behavior is telling them about how to get more business from them. This principle also applies to fundraising—if you "listen" carefully, donors’ behaviors can tell you how you can gain more support from them.

Nonprofits need to look beyond traditional RFM segmentation—especially as most are experiencing tighter budgets and a growing demand for higher return on investment from their direct-mail program.

Where can you start?

1. Look under the lid of your fundraising toolbox. (For example: the structure of your CRM report generation, fundraising agency or consulting activities, campaign targeting, ask amount strategies.) My guess is that most are dominated and limited, by the traditional reliance on RFM segmentation methodology.

2. But there’s no need to “throw the baby out with the bath water” no need to change your database or buy more data. The data that can reveal donor behavior is already in your CRM! Segment your donors by increasing or decreasing giving; by skipped gifts and other pre-churn indicators; by loyalty that could indicate they are ready to move to monthly giving; etc. Incorporate donor life cycle and behavior into all aspects of your fundraising program. Start slowly by picking one donor group and develop target groups based on life cycle and some key donor behaviors. Then measure your results each month and adjust things as you build.

3. If your team is limited, there are resources out there that can simplify this process for you. Ask your direct-mail department or consultant to draw on this information to make your programs more cost-effective.

Don’t get “Uber-ed”! Leave traditional RFM behind and meet your donors’ expectations by communicating with them based on their behavior and life-cycle position.