Rule Brittanica
With no little sadness and a dash of nostalgia I read yesterday’s announcement that the print edition of the Encyclopedia Britannica is going out of business.
The 244 year-old, 120 pound paper behemoth that adorned bookshelves by the yard and sold for around $1250 will now be replaced by a $70 a year online edition that will yield a greater profit for the publisher. And so the digital world turns.
I partly paid my way through college selling Britannica and just the fleeting memory of those days triggered a realization why the print edition not only lasted, but thrived for years and years before digital age and Wikipedia overtook it.
Behold: A lesson for today’s nonprofits!
As a salesperson for Britannica I received, if memory serves, $250 for each sale PLUS an additional $30 each time the subscriber bought the Annual Supplements or new volumes. In 1959 that was BIG money and a proven financial model that most nonprofits would do well to follow.
Just like Britannica nonprofits can readily measure how much they do, can and should spend on new donor acquisition. Yet, unlike Britannica, few nonprofits devote any meaningful attention to how much they should be spending to hold on to and upsell their customers/donors.
Britannica paid me $30 each year to keep my customers happy, committed and coming back for more. And that was 50+ years ago. Today I’ll bet my diminished 401-K that less than 1% of the nonprofits who have donors and customers even bother to think about how much to spend on donor or customer retention.
Fundraisers whine and whine about the poor state of donor acquisition and retention. Yet, the sector continues to spend literally billions a year on acquisition, much of it foolish, without devoting more than a dime’s worth of attention or investment to retention. As if the two are somehow on different planets. As if there is no connection between low retention rates and ever-increasing acquisition costs.
No wonder the nonprofit sector spends proportionately more on raising money than any sector on Earth. That’s not because our sector’s acquisition techniques are dumber than the others, it’s because we pay almost no attention to keeping the water from pouring out the bottom of the bucket once we’ve paid top dollar to dump it in at the top.
The FY13 budget season is upon us. The consultants, printers, premium manufacturers and everyone with a paw in the game are focused on advising clients on how much to spend on acquisition. (“More is better”.)
But, who among them is asking to actually be paid on the number of new donors they help you hold on to for two, three or four years. The answer of course is none. There’s no quick and easy money in that kind of proposition.
Ask yourself: if your CFO stopped by today and asked what was the best way you could spend $1million to make the highest return? Would you even think of an investment in retention? Probably not, but that’s where you’ll get the highest yield year over year.
As you work on next year’s budget ask yourself, “If I spent $20 to acquire a new donor how much should I spend to hang on to that donor beyond the cost required to milk them with appeals? If you’re losing a lot of new donors – and chances are you’re bleeding badly – this question deserves some serious attention, thought and planning.
By way of illustration, if your organization receives $50 million in net income a year from individual donors, and you’re not investing at least $5 to $10 million in retention, you’re leaving tens of millions more on the table and dooming your organization’s future to boot.
What’s in your Retention Wallet?
Roger
Tom: I can distinctly remember sitting in the room when my parents received the pitch from the Britannica salesman. After all, I was the customer in their eyes (and shrewdly, his). And I can remember my Dad asking about it getting out of date (change was perceived even in the late 50s). So the clincher for him was the annual refresh (‘we’ bought) … and indeed those volumes were always popular in our household when they arrived. Roger, was that you in Wharton, New Jersey?
7 responses to “Rule Brittanica”
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Bravo, Roger. A wonderful little essay — only you could link door-to-door encyclopedia sales with smart spending on donor retention.
Why am I not surprised of your past life in sales, Roger? 🙂 I spent a few years in sales myself, peddling newspaper advertising. And it paid off to bring in advertisers on long-term contracts, rather than one-shot deals.
Sad to say, I could tell you more than one story about how my attempts to improve stewardship at several organizations fell on deaf ears – or were quite literally mocked by the CEO as “quaint” or “charming.” “Donors are lucky to get a postcard” was one response.
Of all the organizations I’ve worked with, only one took my advice to not spend a dime on acquisition until supporter retention was optimized.
It’s heart-breaking to watch a client spend hundreds of thousands on acquisition (often going deep in debt to “friendly” printers and other suppliers), seemingly oblivious to the fact that the expenditure will never recover the investment. It’s a decision that robs current supporters, and diminishes–even cripples–the organization’s capacity to address issues.
I think the reason organizations pursue this disastrous course is that acquisition is easier than donor retention: hire a DM company and pay the bill. Easy, anyone can do it. Donor retention often requires changes in internal procedures (always difficult) and culture (almost impossible). It’s easier to cut a check for XYZ Fundraising than change Mary’s job description and duties. Also, many “consultants” do better financially when clients spend more on marketing services and products. Acquisition tends to demand large investments in money, while supporter retention requires investment in manager and staff time and expertise. Guess what consultants tend to encourage clients to do, at least implicitly?
Cassandra-like, let me echo Roger’s advise, “Don’t spend a dime on acquisition, until donor retention is optimized.”
Keeping old customers and historical donors is critical to the success of any business. On the other hand, if my donors thought I was spending 10% to 20% of their gifts to “retain” them I would be run out of town on the provebial rail.
In fact, Roger, not only do we pride ourselves on re-acquisition and retention, we know after 10 years of study that we are able to recapture >9% of donors lost to a charity for 3 years or more. After all, is there a more logical pool that is more carefully screened, than lapsed donors? In our world, if you reduce donor churn (loss of current donors) and run a recapture rate of 9% or greater…all while filling the pipeline with new donors and passionate opinion leaders…the yield is exponential growth at far below national cost per prospect expenses on acquisition.
It was nearly 25 years ago to the day that we had one of their salesmen in our home. I had just been using an on-line Internet account at a nearby college doing look-ups of information for an MBA class project. I recall the utter surprise on the salesman face when I asked him why would anyone want a set of heavy books when all of thew information is going to be on-line and updated daily. Sadly he said not in his lifetime . . .
I do hope he found another good job!
Love the post here and I would also say one of the largest challenges the industry has is the lack of insight on WHY people don’t retain. Not only do we spend a lot of time and energy on re-aquisition but we also spend the unfortunately small market research budgets on talking to the most loyal of donors who are retained when the majority of the people are not retaining. The industry must do MORE to understand the donors, their expectations and perhaps most importantly where we are falling short on their expectations which causes a break in the relationship with the charity.