Direct Mail Isn’t Dead, But Volume As A Strategy Is.
There’s an excellent post by Erica Waasdorp on CharityHowTo detailing how mail is still working for organizations. She highlights how digital is still a small-ish minority of all gifts (we’ve estimated it will hit 25% of gifts by 2084) and how there’s still a high return on direct mail investment for many organizations. We totally agree.
She also talks about how one homeless shelter was able to increase their revenues by 32% by going from two mail appeals to four. Before we go into the details on this, it’s important to note why we argue against volume as a strategy. Research shows that 63% of the “new” revenues from a new mail piece are cannibalized from those that surround it. (There’s a summary here). Thus, only 37% of a new mail piece’s revenues are new to the organization. This means that at a tipping point, which is different for each organization and program, adding communications will no longer add net revenue. (It’s also why we don’t think of fewer mail pieces as a strategy – neither more nor fewer is a solution. Only better and more donor-focused is a solution.)
But, you say, that’s just one study from Europe. Do we see it in the real world and in the United States? And this is why I introduce the topic before going to the test results – working with this homeless shelter, Erica tested what happens when you add volume.
Here were the results:
Great results – additional quantity brought in 32% additional net. Yay volume!
But there was clearly cannibalization. If there weren’t, going from a quantity of 10,438 to 23,230 – a 122% increase – should have had a 122% increase in revenues. Instead, there was a 45% increase in revenues.
So, let’s divide 45% (the increase they got) by 122% (the increase they would have expected if there’s no cannibalization). It turns out to be 36%. That’s how much new revenue was left over after you account for the revenues taken from the surrounding pieces.
Remember, the cannibalization study predicted this number would be 37%. It was 36%. I don’t think it could have come any closer without making up the numbers.
In short, this is additional experimental proof that communications take revenues from each other – that 63%ish of revenues were going to come in whether you sent two pieces or four (or 20). (It also means you can look at your own quantity with a rule of thumb – if 37%ish of a mail piece’s revenues from active donors are not paying for the cost of soliciting, consider replacing that piece, perhaps with nothing.)
Yes, people give because we ask them. But the ask is a necessary, not a sufficient, condition. If someone gives once a year because you ask 12 times per year, that person will not usually give twice a year if you suddenly ask 24 times.
Let’s now take this homeless shelter example to the logical endpoint. What would happen if we increased volume further? To make the math easy, let’s assume that this homeless shelter has cannibalization at the same rate as it did when it went from two pieces to four pieces. This is a charitable assumption, given that pieces are more likely to cannibalize when there are more pieces from which to cannibalize.
Here’s what that looks like:
It looks like this homeless shelter may be able to experiment with increasing their volume even further. But a funny thing happens after 12 communications per year – net starts decreasing. There’s so much cannibalization that the additional gifts don’t pay for the additional costs. And that’s in the most charitable scenario.
But wait, I hear you cry through the Internet. This shelter could conceivably get another $14K per year if they got to their maximum efficient number of communications. Why isn’t this a strategy?
Because a strategy is something that continues.
Southwest Airlines’ strategy is to be the low-cost airline. There are always some things they can do to lower their costs and pass that on to customers. Google’s strategy is to organize all the world’s information with maximal efficiency. There will never be a point where they weep like Alexander the Great with no more worlds to conquer.
“Learn about our donors to customize their experience, thus increasing their satisfaction and their giving” is a strategy because it’s a journey, not a destination. You can always get better and more customized. “Cram every manner of premium into envelopes to engage donors’ guilt and hard-wired tendency toward reciprocity” is a strategy. It’s not a particularly strong strategy because it is replicable by every Thomasina, Dina, and Harriett, but it is something that can be continually refined and honed. “Expand giving opportunities to donors” is a strategy because there are always new channels and new ways to give (how about recurring memorial giving? A donor-advised fund that donates every time a hurricane hits Category 3? Biweekly recurring giving for those who wish to tithe? Etc.)
“Mail more” has an end point of profitability, as does “call more,” “email more,” “run more ads,” “hire more F2F fundraisers,” etc.
More runs out. Maybe you can run out before more runs out, getting out of town before the people realize there aren’t going to be 76 trombones leading the big parade. But if you are in it for the long, or even medium, haul, there are actual strategies that are worth your time and attention.
What’s your strategy.
Nick
12 responses to “Direct Mail Isn’t Dead, But Volume As A Strategy Is.”
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If we were economists, we would call this the law of diminishing returns or principle of diminishing marginal productivity.
For clients, it’s a bummer. For agencies whose profits go up every time another mailing is added to the schedule, it’s business as usual.
Diminishing returns also brings up another challenge for a volume strategy: if you are sending 24 mail pieces per year, one of those will be your 24th best idea for a mail piece. Even if there were no cannibalization, that 24th piece won’t return as much as your best idea for a mail piece.
That seems like a rather long arc- digital giving at 25% by 2084. Is that a misprint?
Nope. From 2012 to 2018, online giving went from 7% to 8.5% of individual giving. That’s an increase of .25% every year, which means 66 years to go from 8.5% to 25%. This assumes nothing will change over the ensuing 66 years, which is of course wrong, and that a proportion of giving would go up linearly, which is of course also wrong (it’s not as if online will become more than 100% of all giving in 367 years). But it illustrates the point that online is both important and not the totality of giving.
About 20% of our direct mail response is received online. Is this type of mail-prompted online behavior accounted for in the online giving growth?
It is. That’s an astute point and it’s one of the perils of talking about things by channels. There are some organizations that cut from one channel (e.g., mail acquisition, co-targeted ads) then are surprised when another channel (e.g., online donations, mail donations) experiences a decline. Conversely, over half of the gifts stimulated by DRTV (for example) end up in other channels; face-to-face also tends to be the rising tide that raises other boats. When we say “online giving is up”, we mean “gifts given online are up.” not necessarily “gifts given because of online interactions are up.”
hi Nick, thanks so much for the post. Here’s the reality. There are only three ways an organization can grow, no matter how you slice or dice it.
1. You have to bring in new donors (to replace those who pass away/move away or simply just stop giving).
2. You have to reactivate your lapsed donors (I see too many organizations who think donors are lapsed after one year and they stop communicating).
3. You have to bring in more money from existing donors, more often, at higher levels, and ongoing (ideally monthly of course).
This is the strategy we’re discussing here.
There’s a huge difference between going from 2 to 4 to 12 to 24 appeals a year. The average small to mid size organization will never be able to ever do that nor would I want them to do so.
But, trust me, there are still organizations who only communicate with their donors once or twice a year and then they’re surprised they’re not getting that all important second gift and third etc. They’re surprised their donor retention rates are going down down down simply because they’re afraid to ask more than once or maybe twice a year. That’s the group we’re looking at.
That’s also the group of organizations that will never be able to afford to do DRTV (although they may talk to their local cable access channel and see if they can do a PSA). They’ll never have the funds or infrastructure to support canvassing nor do they have large digital budgets, or staff to do a lot of digital engagement.
How else are you going to able to keep your donors in the loop? How else are you going to give your donors the opportunity to make a difference to your organization.
As you know boards and bosses always want to grow, preferably with a very unrealistic number, so how else are you at least going to see some type of an increase?
If you have the magic bullet, I’d love to see it, I’ve been doing this for decades and the above strategies are really it.
So, be careful generalizing the volume issue as that is not an issue for many many organizations at all by a long shot. Is there a moment of diminishing returns, yes, of course, but let’s look at the picture for each individual organization first. I still see organizations who have a cost to raise a dollar of $0.05 and definitely below the industry average of $0.20.
That’s the group who most likely has more potential by scaling up their volume and add one or perhaps more appeals.
And one more thing: in everything I’m seeing in my daily work with small, mid size and even large organizations, let’s make sure you go back to basics first. That’s where it starts.
Make an inventory. What are you doing now? How often are you communicating with your donors? How are you thanking them? How often are you asking? What are the results? How many donors are giving once a year, twice a year, how many monthly donors do you have? What are the numbers and your donors telling you?
If it means going from 1 to 2 or from 2 to 3 appeals or perhaps even from 3 to 4 appeals and you’ll be able to raise more money, wouldn’t you take it? If it means adding a small acquisition group every time and you’ll feed in some new donors, wouldn’t you take it?
What say you?
Agree. As your smart original post showed, some organizations, especially small- or medium-sized organizations, can benefit from additional communications. Further, focus on ROI at the expense of net revenue (a favorite of overhead-mythers) deprives organizations of money for their missions. What I aim to critique are three arguments I see all too frequently (none from you or your article, to be clear):
1. “Volume always increases net revenue.” It doesn’t. Cannibalization and diminishing returns mean that there is always a point at which net revenues go down. There are some who claim they’ve never seen any organization hit that point. I have (done it personally in my salad days) and there are plenty of case studies where fewer communications have greater result. To your point, I haven’t seen those studies among organizations that are mailing 1-3 times, though, and if you are doing that and have a high ROI, absolutely try another communication.
2. “Volume is a strategy.” At best, it is a tactic and a temporary one at that until you get to the efficient frontier. Moreover, most of the more profitable efforts aren’t in asking more (for most organization); they are in asking better — creating more value in the donor’s mind for your organization by knowing more about why they give and feeding that. Increasing retention and lifetime value are the gifts that keep giving.
3. “Volume works because net revenue goes up.” On this piece. This year. When people A/B something versus nothing, something often wins. But when you look over a longer term, you can see cannibalization and loss in revenue (again, mostly among organizations that are mailing and communicating more than the 2-4 times per year you are talking about). And even if you don’t, you can still sometimes see suppression in lifetime value, as people more because you ask… then are turned off and stop giving.
So I agree with your comment and with your original piece – organizations can and should work to see what an optimal frequency and cadence is for communications (just because there are 12 months in a year doesn’t mean if you have 12 communications, they need be one per month). It’s a strong tool in the toolbox to maximize revenues and lifetime value for our organizations. I simply want folks to see that the tool is a tool, not the tool, and that it adjusts both ways.
wonderful, thanks for your fast reply and clarification, cheers, Erica
This is a very useful discussion. I thought I’d point out a couple of things I’ve observed about frequency of DM:
– Quality matters a lot. If you add high-quality, tested pieces to the calendar, the return diminishes less. And if you are constantly testing, you can replace lower-performing impacts with stronger ones. If you have more frequency, you can learn more, faster — and that can make a HUGE difference.
– Content matters too. If you don’t have a variety of interesting topics, offers, and stories, I suspect diminishing returns will hit harder, sooner.
– Smart segmentation helps. I hope if you’re increasing frequency you’re not doing it equally to all donors. A smart ramp-up should not end up with everything going to everybody. Trimming out low-likely names is a must and further improves growth of net revenue. The bigger your list, the more targeting tools you can use.
– In my experience, a sudden and large increase in frequency diminishes returns considerably more than a gradual build.
FWIW, I’ve never seen net revenue go into negative territory as frequency increases, and I’ve seen frequency go north of 20 per year. (At that level, net increases are quite small.) My guess: We were taking advantage of the factors I’ve outlined above.
But for the large majority of nonprofits, it’s quite simple: They are mailing once or twice per year. It’s almost guaranteed that those orgs are under-communicating and could raise more (net) and improve retention by mailing more.
Totally agree that quality content to the right audience is key. More than anything, volume is going to be a sideshow to getting the message right for your donor identities.
I’m perhaps biased because I’ve personally taken the volume road to where a donor communication had negative net revenue because of the cannibalization effect. That is a rare anti-accomplishment. More common are the organizations like Union of Concerned Scientists and Catholic Relief Services who find that more > fewer in gross revenue but that more < fewer in net revenue and long-term value (see https://agitator.thedonorvoice.com/volume-has-been-tested-the-results-are-in/ for these and other examples).
Would also encourage folks to look at ways to test outside volume and frequency, although those certainly help. We talk about this a little bit at http://agitator.thedonorvoice.com/testing-testing-a-b-c/ and are doing a webinar on it at https://zoom.us/webinar/register/WN_AZHIxVjOSK6X6TlJ7yAPmA .
We in the nonprofit sector so rarely get to do things easily, inexpensively, and accurately, so we want to grab those opportunities when they happen.
And, yes, shops that are doing 1-2 mail pieces should test 2-4 — as Erica’s data show, cannibalization won’t likely take all your net.