Many fundraisers tell me that donor acquisition is one of their biggest problems.

If that is truly the case then why in the world are they attempting to solve such a big problem with cookie-cutter strategies and woefully incomplete plans and procedures?

Part of the answer may lie in the silos that exist separating ‘acquisition’ from ‘donor development’ functions in many shops. That’s certainly the case in all too many organizations.

But I suspect there are two, far larger reasons:

• Failure to understand and plan for the true, detailed complexities of acquisition;

• Unwillingness to invest the time and money needed to effectively complete the execution required for a first rate acquisition program.

I’m not singling out the hundreds of hours and countless millions of dollars our sector puts into picking lists, perfecting copy, testing incremental changes that usually lead nowhere. That’s simply the necessary first — albeit expensive — step in the process of attracting new donors.

What concerns me is that most organizations and their consultants stop right there. Response rates are cheered or condemned. The campaign is pronounced a success, failure, or about the same as others, and the numbers are entered into spreadsheets.

From there the Excel jockeys take over, calculating the average retention rates, the average gifts and the average amount of time it will take to pay back the investment. Done!

Wrong! Not done!

In fact … this is the point where the hard work should begin.

Let me suggest a look at just two of the conventional ways most fundraisers — especially direct response fundraisers — view and measure donor acquisition. Then let me suggest a reformulation.

Incomplete Acquisition Metrics

Let’s start with ‘cost to acquire a donor’. In reality this is nothing more than an efficiency metric measuring one list/package/message/technique against another. It tells you nothing about the work left to do.

‘Months to break even’ is another of those oft-used metrics that can cause you to miss the point. Why? Because it unintentionally creates both a floor and a ceiling on expectations. Using this blunt instrument almost pre-ordains a ‘planning’ schedule driven by the mentality that as much stuff as possible will be cranked out between now and break even date to meet the goal of recovering cost. The result? Inefficient underperformance on the acquisition investment, some frustrated/angry donors and wasted money. [See The Agitator series Raise More, Ask Less]

Reformulating the Approach to Measuring and Planning

Here are some basic direct response acquisition figures as background for facilitating a different mindset.

In the example , you’ll see we’ve spent $100,000 to acquire 2,000 donors for a cost to acquire of $50 each or $50,000 in net up-front investment

And, let’s assume a first year retention rate of 30%. This will leave us with 600 out of the original 2000 donors going into the second year.

Now, instead of thinking about ‘averages’ and ‘frequency of giving’ to determine how long it will take to break even on the acquisition spend, let’s focus instead on the amount of money each donor needs to contribute beyond the point of acquisition to reach the break even point on that initial acquisition investment.

In this illustration (and remember these numbers aren’t fully loaded with maintenance and overhead costs) the amount of money each donor who gives again beyond the point of acquisition, 600 in this example, needs to donate just to break even on acquisition spend is $83.33.

This is a somewhat oversimplified starting point aimed at adjusting your mindset. For example, in addition to overhead costs it ignores additional donor attrition in Year Two. All of which means we’ll likely need $100 from each of these 600 new donors to breakeven. And probably well north of that to have net income left over for program.

So, with this reformulating of mindset your question should be: What is my plan to get $100 (or better yet, $150 to make a profit) from each of these donors?

If you apply only the conventional planning process indicating it should take X months to achieve break even or profitability based on using historical realities (i.e. certain attrition each year, certain gift frequency, certain average gifts) you’ve virtually pre-ordained a ‘no change, no growth’ result going into the future.

Instead, why not think about how you can raise $150 from each of these donors in the next 6 or 12 months? And, of course, not every donor can be expected to give $150.

And that brings us to the essential metric of Lifetime Value. If we know the potential/historical value of a similar type of donor (in mass acquisition programs identification comes generally because of the size of the initial gift) we can then build a far more sophisticated plan. A plan based on the predicted annual value of different types of incoming new donors.

And once we know Lifetime Value we can determine just how much — or how little — we should spend on those new donors going forward. For example we might be willing to spend $20 over the next year on a $40 donor knowing we can retain/upgrade her/him substantially based on Lifetime Values of similar donors.

For those ‘higher value’ donors we might employ a more intense welcome and onboard process, more phone calls, different packaging, etc. — more time, more money.

On the other hand, on an incoming $12 donor with ‘lower value’ potential we may decide that our spend should be substantially less.

(By now the ‘paralysis-by-analysis’ crowd will be wanting to import all kinds of external data and dice and slice these new donors into a complex mail plan. Not necessary, this is one place where focusing on likely Lifetime value is ‘good enough’ — all that’s truly needed.)

My point is this. Take the time to understand the potential Life Time Value of different types of new donors (‘high value’ and ‘lower value’). Then tailor your thank you, welcome, second gift and other onboarding plans to make the most out of those differences.

With a bit more effort you’ll more quickly and efficiently realize the greatest return on your acquisition investment.

Roger

P.S. Part 1 of this series deals with the Investment Mindset. Part 2 covers the importance of the Life Time Value Metric