Major Gift Relationship Doesn’t Count

A meeting started out negatively with the finance person saying that a personal relationship with a donor doesn’t really count – it doesn’t positively affect the retention or contribution of that donor.

Now, to be fair, he didn’t exactly say it that way. What he said is that the investment in a major gifts officer (MGO) was not worth the result in revenue in the first two years of the MGOs tenure — and that those donors were better off just being communicated with by direct mail.

Here’s the logic of this finance person’s argument:

1. The group of qualified donors on the new MGO’s caseload are giving, let’s say, $300,000.
2. The current cost to service those donors, via direct marketing with all costs included, is $75,000 or an ROI of 1:4. And I am being generous with that ROI. It is likely 1:3. But let’s leave it at the higher return.
3. Now we add in the MGO’s costs: salary, benefits and operating costs. Let’s put the yearly cost of this MGO at $100,000 and let’s leave the donors in the direct marketing communication because we do not want to change any current communication strategy until we have a for-certain replacement.
4. Now the total cost against these donors is $175,000, which, from the finance person’s point of view, just worsened the ROI to less than 1:2. $175,000 to secure $300,000.

This is what is in the finance person’s head. No wonder he is negative. This is not good.

But here are the facts.

That $300,000 from the group of qualified donors last year will only be $150,000 this year if left in the direct marketing program. Value attrition will take that big a bite out of the revenue. It could be less than that but, believe me, it will be substantial.

But with the MGO in place, personally relating to these donors, that $300,000 from last year will likely only drop to $270,000 at worst case. This means that the MGO retained a value of  $120,000, which is $20,000 more than the first-year cost of the MGO. But even if the value attrition is not as high as what I am stating, the value of the MGO relating to the donors, and actually positively affecting donor and value retention is worth the expense of the MGO.

The interplay of fact versus fiction in this area is widespread in the nonprofit community, which is why Jeff and I write and speak about this often.

The fact is that relationships do matter in fundraising, which is why major gift programs that are run well are economically profitable.

Here are the facts as relates major gift fundraising:

• Donor attrition and value attrition from the same donors is at an all-time high. All the research points to this fact. Value attrition, for most nonprofits, is usually in the range of 40% to 60%. This means that $100,000 a group of donors gave last year will turn into $40,000 to $60,000 this year from those same donors.
• Qualified donors on MGO caseloads have value attrition, if any, between 6% and 11%.
• As donors on MGO caseloads mature, they upgrade their giving, contributing more net value than they would have if they stayed in direct marketing programs only.
• A few donors in every MGO caseload will give transformational gifts if the MGO and the organization properly align that donor’s interests and passions to a need the organization is addressing. These transformational gifts will begin to happen in year three and onward in the life of the donor with the MGO.

All this good news happens because the MGO is relating personally to the donors and helping them express their philanthropic objectives. ROI increases substantially as the MGOs caseload donors mature in their relationship to the MGO and the organization. This is the bottom line – the net result of a good major gift program.

Relationships do matter.