Donor Insight. Fundraising Action.

What To Expect When You're Investing

Posted by Ben Miller on 06/2018
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On average, half of a donor file is made up of new and reactivated donors. [the other half from existing donors that renew their support].

If you think about it, that’s a pretty alarming stat!  50% of your file size depends on your ability to acquire new donors and reactivate those that have lapsed. What’s more as we discussed several weeks ago, this part of your fundraising program will cost your organization money. That is why we proposed to manage it as a separate cost center.

donorgap

Calling it a different name will only get you so far though. Let's take a closer look at how to manage these investment opportunities within the cost center. For our purposes, let's assume the objective of this fictitious organization is to maintain the file size. In other words, we would like to have the same number of donors donating this year that donated last year.  In order to set our target we need to first calculate our Donor Gap.

What is my Donor Gap?

Your Donor Gap is the number of last year’s donors that are not going to give again this year.

Example:  An organization had 10,000 active donors in FY17. They have a 46% overall retention rate.   In FY18 they can estimate that 4,600 donors will give a gift.  To maintain file size, they need to generate 5,400 more donor responses. 

This free tool will calculate your Donor Gap (FYI - This free tool also calculates the optimal number of contacts and spend per donor.)

New versus Reactivated Donors

Reactivating a lapsed donor will have a higher ROI than acquiring a new donor.   Setting a plan that balances the costs of reactivation with the cost of acquisition is critical in achieving a balanced investment. While the lapsed donors have a higher response rate and lower cost to reactivate, the available pool is much smaller than the new prospect pool. Conversely the new prospect universe is much larger, but the response rates and costs to acquire are lower.

Many organizations will include lapsed donors into their acquisition efforts, but will fail to balance the investment between these groups. As many fall prospect lists plans are already under way, one question every organization should ask, is if their list plan is balanced. As a rule of thumb, the sector average is 4 to 1, that is 4 new donors are needed for every 1 reactivated donor to maintain file size. If you don't know what your ratio should be, this free report can help you find out. 

Once you have the proper ratio of new to reactivated donors to combat your Donor Gap, we can then use the terms we defined two weeks ago to set your investment levels. To get you started we have calculated an average across the sector.

Sector Average Cost to Acquire

The cost to acquire a donor is measured by (Total Donations – Total Costs) / Number of Donors Acquired.

Organizations almost always lose money when acquiring new donors.  It is very, very rare for an organization to make an immediate return on acquisition.  Over the past two decades, I’ve only come across 5 of these unicorns. 

For the rest, how much should be invested to acquire a new donor? 

ROIRatiosNew

The sector range is between -$100 to -$20 for the cost to acquire a new donor.

This translates into an ROI of $0.50 to $0.75.  An organization can spend $1 and generate between $0.50 and $0.75 in return.

Sector Average Cost to Reactivate a Lapsed Donor

The cost to reactivate a lapsed donor* is measured by (Total Donations – Total Costs) / Number of Donors Reactivate.

Unwisely, many organizations expect a positive ROI from their lapsed donors.  If you’re willing to lose $30 to acquire a new donor, why not be willing to risk that much to reactivate a lapsed one?   

This is another segment [like new donors] that we have to reset our investment expectation and be willing to lose some money.  How much should be invested to reactivate a lapsed donor?ROIRatiosLapsed

The sector range is between -$10 to $25 for the cost / net per reactivated donor. This translates into a Revenue/Expense of $0.95 to $4.  An organization can spend $1 and generate between $0.95 to $4 in return.

* lapsed donor = a donor who has not given in two or more years. This recency may vary for your organization.

Topics: Action Strategies, Lapsed Donors, Lapsed, Reactivation, Budgeting, Fundraising Strategies, New Donor Acquistion

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