In the midst of the economic uncertainty around the pandemic my guess is there will more than the usual furor over “high costs of fundraising” and spending money on acquisition on the part of boards, CFOs and CEOs.  One thing won’t change: the discussion and debate will stem mostly from ignorance

Ignorance about what “acquisition” is, how it should be measured, and when or whether its costs should be considered acceptable.

Because the acquisition of new donors is essential to maintaining and growing virtually every organization—especially in these times of pandemic when donors are growing more scarce by the week– we all need to get much better at both understanding and explaining this essential process to the leadership and financial decision-makers in our organizations.

Understand What “Acquisition” Really Means

The alternative to being able to fully explain the long-term value of acquisition is worry and finger pointing in the boardroom and front office, frustrated fundraisers, and an organization deprived of a more robust future at a time when your mission is probably more necessary than ever.

Too few fundraisers really understand what’s behind the term “acquisition”.  Most think it means the number of new donors added to a file and the cost incurred in making that addition.  Both are short-term and almost entirely useless metrics.

The standard practice for most organizations is to acquire a batch of new donors, hopefully thank those donors and then toss that bundle of newbies into the regular appeals stream while hoping for the best.

A Critical Question About Your Acquisition Budget

Too few organizations concentrate time or additional resources on that critical first year – special onboarding, special efforts to get a second gift, seek a monthly gift, or pay appropriate attention to the experiences they offer those first-year donors.

Even fewer ask the question “how much should we send on donor retention?” at the time the acquisition budget is drawn up.  Failure to take this critical first step –including additional money and plans for first year retention – is one of the principal reasons for our sector’s pitiful first-year retention rates.

As a result of this neglect and failure plan for and closely monitor new donors throughout the year the organization end up with the usual 23-28% retention rate. Meaning that somewhere around 75% of all the money spent on acquisition went down the first-year drain.

Any direct response fundraiser worth their salt knows that first-year donors are invariably unprofitable as a group. And, when treated as an amorphous bundle and dropped into the rest of the file they become even more unprofitable.

Consequently, I always recommend breaking out the “new” from the “non-new” donors and keeping a close eye on both.    The sooner you spot and the performers from the non-performers –and take appropriate action – the sooner those new donors will begin yielding a return on the acquisition investment.

Suggestions for Helping Your Board See the Light

Which brings me back to why it’s so important to be able to explain to a board, CFO or CEO that the acquisition process is not an immediate or short-term answer to the putting money in the bank this year –or even next year.

I grew up in Adams County, Pennsylvania, a major apple producing area.  So, I liken donor acquisition to producing apples.  It takes between 3 and 6 years for a new/young apple tree to produce fruit.  So, when the orchard owners plant new trees they know that they’re making an investment not only in a sapling, but also in the years of cultivation, fertilizing, pruning and labor it will take before they recover their investment.  Donor acquisition should be viewed the same way.

For the less agriculturally inclined boards and CEOs I often resort to this example.

First, let’s take a coffee break.

What if I told you Starbucks spends $1,400 to acquire a customer who starts off by spending $4.25 for a Caramel Frappacino®.

Most boards, CEOs and even a lot of fundraisers would say Starbucks is foolish — until they learned that the 20-year Lifetime Value of a Starbucks customer is $14,099.

That’s why, for the same reason, Amazon spends $240 to acquire a customer for its $79 Kindle … why insurance companies pay more than 100% of the first year’s premium to acquire a policy holder … and on and on.

If consumer companies didn’t invest this way — plus make the additional investment required to hold on to these new customers and convert them to long-term, committed customers — they’d be out of business.

The same holds true for virtually all charitable and advocacy organizations. Failure to invest substantially in the acquisition of new donors and new members required to replace attrition and/or ensure growth is a certain prescription for decline or extinction.

After all, donor acquisition is the well-spring, the feeder track, the seed corn (call it what you will) of a long-term financial development process that, if properly measured and executed, leads to highly profitable monthly giving (somewhat akin to 5 Frappacinos® a week?) … mid-level giving … upgrading to major gifts … and eventually sizeable bequests and other planned gifts.

Each of these programs adds to the Lifetime Value of a donor base. In short, it is the profitable returns from these post-acquisition programs that provide the funds needed to move the mission forward.

Put another way, an organization might ‘lose’ $50 over and above the amount of a newly acquired donor’s first gift, but in subsequent years that $50 investment produces a mighty substantial return. In most cases a return far, far greater than any returns produced by the organization’s certificates of deposit or endowment. (See Agitator’s The Investment Paradox)

Of course, most organizations for reasons of cost-cutting, compartmentalization in siloes, inexperience, you name it, pretty much consider the “acquisition phase” finished when that initial check or bank transfer hits their account.  And that’s exactly where the disease of attrition/donor loss begins.  (The apple orchard equivalent to Donor Attrition is named Black Rot.)

The New Donor’s First Transaction Only a Down Payment

A truly effective acquisition program is built on an understanding that the cost of getting that first transaction from the new donor is only a down payment, a partial investment that needs to be followed by additional investment of $10, $15 or $20 in onboarding and determining the donor’s identity and preferences.  Failure to complete a multi-step acquisition process by simply depositing the check and sending out a thank you is a sure prescription for mediocre future performance.

I believe most experienced fundraisers understand this. Yet, when I look at acquisition budgets I seldom (and I mean “almost never”) see additional costs/investment allocated for steps that should follow the initial transaction.  Imagine if Starbucks were content with hustling only that first Caramel Frappacino®: no wi fi, no seating, no restrooms, no loyalty programs.  You get my drift.

Frankly, I suspect the reason many fundraisers –particularly direct response fundraisers—aren’t diligently dealing with this problem is that they know that conventional, business-as-usual acquisition is a lot easier than what taking all the up-front steps that lead to greater donor commitment and retention.

In short, they don’t buy the adage that it’s easier to keep a donor than to find a new one.  And, in truth, the kind of donor acquisition as generally practiced is easier.  Not less expensive, not more valuable, but easier.

An acquisition program that focuses on building in the essential first steps that should immediately follow the new donor’s first check will indeed boost long-term retention and value.  BUT…doing this requires time to analyze and measure.  Time to improve donor experiences.  Time to test and evaluate improvements.  A lot more time compared to the very short-term tactics and measurements involved in most of today’s acquisition efforts.  And yes, a bit more money.

Of course, persuading a CEO and board to add more cost to the acquisition budget may be doubly difficult in these times of pandemic and economic uncertainty.  But I’ve found the difficulty diminishes when they’re shown the Lifetime Value of an organization’s donors and how just a 1% or 2% change in retention can dramatically increase that value.  When those figures are presented and explained only a dolt or the self-destructive would deny the small additional investment.

Perhaps your own organization’s illustration of Lifetime Value isn’t as pronounced as Starbuck’s, but when you do the numbers I’ll bet you they’re pretty dramatic.

What will lead us to a brighter and more productive future with our acquisition efforts and with our new donors is not repetition of the same tactics or recycling the same thinking again and again. We need to get beyond emotion and hunch and become far more grounded in both the theory and math of donor acquisition.

Roger

P.S.  The issue of “value”, especially long-term value, in fundraising is grossly neglected. In my experience, many bad decisions and missed opportunities could be avoided if only fundraisers would explain and regularly review basic metrics like Lifetime Value and Retention Rates to the leaders of their organizations.     (See Forget Success. Focus on Value.)