The Curse of Fundraising Innumeracy
Lots of good stuff apparently came out of last week’s International Fundraising Conference and we’ll be reporting on some of that in the near future.
But … mixed in with the emails and phone calls reporting the ‘good’ came one message that deserves immediate attention because I suspect it’s far from a lone example.
“Roger,
“You’ve written this post many times but may be worth writing another version of it. I spoke to a Head of Fundraising (who shall remain nameless) who is revered in the sector and thought to be a big brain and big thinker. Any maybe he is. But, he is also completely innumerate.
“He told me that his retention rate is 95%. No chuckle afterwards on his part, no sense at all of the near impossibility of such a statement. He is being told this, he is believing it and he is repeating it, in public…
“To illustrate how ridiculous the statement is, consider the example below where I have first year retention at 90% (unheard of except in a pure monopoly situations) and then 99% retention thereafter. The blended retention rate in this absurd, impossible to achieve scenario is 87% retention.
“And yet here is this big name, big brand, big thinker believing his retention rate is 95%, saying it publicly and more importantly, deciding it isn’t a priority for his organization because it is so high.”
| “Donors Acquired | Donors Retained | Retention Rate | Year | |
| 100 | 90 | 90% | year 1 | |
| 89.1 | 99% | year 2 | ||
| 88.2 | 99% | year 3 | ||
| 87.3 | 99% | year 4 | ||
| 87% Blended 4-year retention rate” | ||||
The Agitator reader who sent me that message is absolutely right. Not only is such a statement embarrassing and ridiculous, it’s dangerous. Failure to truly understand your organization’s retention rates leads to poor — sometimes disastrous — decision making.
So, for the umpteenth time a few here’s why knowing your (accurate) retention rate is so important and how to calculate it.
Here, from Chapter 20 of my book Retention Fundraising: The Art and Science of Keeping Your Donors for Life are the following observations and recommendations:
- Unfortunately, many CEOs and boards are either unaware of the importance of retention or they persist in measuring success by the somewhat meaningless metric of how many new donors are brought in each year.
- Of course it’s essential to continue acquiring new donors. But too great a focus on acquisition can be a warning sign of eventual failure. That’s because it can blind you to the importance of the process that must occur immediately following acquisition. Namely focusing on donor commitment, increasing donor value, and ensuring a high retention rate.
- In turn, this obsession with acquiring donors usually means, somewhat ironically, that new supporters won’t be treated as the long-term asset they represent and thus will be lost to attrition. Money wasted, the organization’s future compromised.
What’s Your Retention Rate?
Just as most of us are aware of our vital signs, such as blood pressure, cholesterol, and heart rate, every nonprofit executive should know his or her organization’s donor retention rate. (If for no other reason that you not embarrass yourself at IFC or other conferences.)
It’s easy to calculate.
Step #1: Count the total number of donors who gave in your most recent calendar or fiscal year.
Step #2: Divide the number of donors who made a donation in year 2 by the total in Step #1.
Step#3: Multiply the result from Step #2 by 100 to obtain your retention rate as a percentage.
For example, if 100 donors gave last year, and only 50 of the same donors made a gift this year, your overall retention rate would be 50 percent.
In addition to calculating the number or percentage of donors retained, you can also calculate your revenue retention rate. This metric is particularly helpful in spotting retention problems in the critical first two years of a donor’s life with your organization.
For example, if 100 new donors gave you $50 each, you received $5,000 from the acquisition campaign. If in the following year 25 of those 100 donors upgraded a bit and each gave an additional $60, you received another $1,500. Your donor retention rate was 25% (25 divided by 100) and your revenue retention rate was 30% ($1500 divided by $5,000).
Viewed simply in dollar terms it is clear that organizations with low rates of retention are throwing away thousands or even millions of dollars.
What is not so obvious is that those who are unaware of their true retention rates may be living in a blissful and delusional world totally unaware that the ship may be sinking beneath them.
Do you — and your CEO and board — know your true retention rates?
Roger
P.S. A couple of motivational goodies regarding retention rates:
- As Adrian Sargeant points out in his classic Building Donor Loyalty, “Even a 19% increase in donor retention can increase the lifetime value of the donor database by 200%.”
- And view this primer on retention from the good folks at Bloomerang who, with Adrian Sargeant’s help, have built the retention process into their fundraising software.
8 responses to “The Curse of Fundraising Innumeracy”
Behavioral Science Q & A
Integrating an individual giving appeal with other communications from a charity can have both positive and negative effects, and the outcome largely depends on how it’s executed. Advantages of Integration Brand Consistency: Maintaining a consistent appearance and messaging across all communications can reinforce the org’s brand identity and strengthen brand recognition and trust among your […]
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I’m not aware of any in-market tests specifically comparing recurring vs. gift frequency language. I suspect the answer might not be the same with all gift frequencies, nor with all people. It sounds like a great opportunity for you to test and find out what works for your audience. Based on the literature, here’s a couple […]
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Based on what we know from existing data, those renewal notices can actually be pretty effective in getting people to donate. They tap into our psychology – creating a sense of urgency, reminding us of past support, and using personalization to make the message hit home. They’re playing on our natural tendencies to feel obligated […]
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Interesting question. I had a quick look at the testing done on this topic. On the positive side, in all cases, over half of donors decide to cover the fee. In some cases, it goes as high as 65%. Not a negligible percentage at all. Here’s another test from iRaiser showing consistent results (see point […]
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There’s just one thing to consider when designing a supporter journey: the supporter. More specifically, you need to take into account: Who the supporter is i.e. their identity, which is the reason they support this cause, and their personality, which describes the way they “see” and process the world. These will determine the kind of […]
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I’m not an expert in this but a quick search surfaced this article on the effect of tax reforms on 2019’s charitable giving. The researchers didn’t find a reduction. Actually, they observed an “increase in charitable contributions in 2019, even with the lower tax rates and the dramatically smaller number of taxpayers who itemize their […]
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Roger – Thanks for sharing that email and your words of wisdom about it.
I was attending a session recently where Lynne Wester was presenting on donor relations and she asked the participants if they knew their retention rates. Someone said they had 87% retention rate, and her response was, “I’m going to have to Fact Check” that one”. It was perfect.
I love how you break down retention rates into a simple, three step calculation. It’s simple math, yet so many nonprofit professionals don’t seem to have the ability or willingness to figure it out.
Thank you for brining this important issue to the front of the fundraising agenda.
The easiest way to determine your retention rate and about 100 other stats is to use the Fundraising Report Card. It’s free at http://www.fundraisingreportcard.com
(Full disclosure: I invented it with help from my staff)
Also, many CRM are already linked to it so you can see all of your metrics in a couple of seconds. If your CRM isn’t signed up yet, tell ’em to get with the program!
“Your brain has expectations, and it doesn’t want to be wrong. So when it’s wrong, it just makes up the difference.” – Erik Vance
Agitators – I love the title. Thank you for the post.
Innumeracy in this example is a strong word. … misinformed [fooled / lied to] may be more accurate.
However, the allegation is founded that incompetence with numbers plagues our industry.
My hope is that we’ve moved beyond incorrect calculations. You’ve given the formula at least 17 times, hosted multiple webinars, even wrote a book. @GregoryWarner offers a reportcard. DonorTrends has a self-serve platform to easily calculate metrics in minutes. http://datadriven.donortrends.com/donorlytics-fundraising-analytics-in-minutes/. Many consultants /CRMs can calculate retention.
The knowledge HAS to move beyond the simple arithmetic. Yes, the calculation is important [clearly the examples that you and @AmyEinstein provided underscore the need for someone to divide accurately.]
May we please focus our collective talent on how to ACT on the information? How do you turn ‘Donor Insight into Fundraising Action? Insight to Action is our passion at DonorTrends and we know it’s the only way to Move the Metrics.
Start by answering these questions tied to retention. With this intelligence we can build effective fundraising strategies that offset attrition to reach file growth goals.
➥ What is the lifetime value of my donor? Why is this metric so important?
➥ How many new donors will give a second gift? How do I know if that is good or bad?
➥ How many donors are NOT going to renew?
➥ How do I replace the donors I lost this year? What do I need to do?
➥ How many lapsed donors do I have? How often should I contact them?
➥ Dashboards – what are 6 metrics that I can use so everyone understands where the program stands but is not overwhelmed.
Watch the answers to Top 10 questions every Fundraiser Should answer: http://datadriven.donortrends.com/webinar-fundraising-analytics-in-minutes/
Thanks Roger for keeping this vital topic in the frontal lobe of our brains. (In case you are interested the section of the brain associated with behavior, learning, personality and voluntary movement…)
Not sure we can have the focus on donor retention become a voluntary movement like walking but we can try!
Still less then 1/3 of all fundraisers I meet through speaking and attending conferences know their current retention rate. Sort of like knowing one’s cholesterol level 20 years ago…
Roger, you rule: I JUST heard a similar (also C-suite) story last week. If you don’t know your numbers, how do you know if/when something’s hinky?
Taking Jay’s analogy on an extreme tangent, it’s like going in for major surgery and your anesthesiologist doesn’t know the difference between a respiratory rate of 60 and a respiratory rate of 220. (“Wait. Higher isn’t better? The patient’s in trouble? Dang… my bad, boys, my bad.”)
Nightmarish thought: what if that head of fundraising went into consulting? What if this was the madness he then charged clients for?
Falling for fantasy advice… lulling yourself (and your good cause) into apathy and complacency… squandering donors’ generosity in the wrong places…
… This isn’t just about numbers. It’s a call to arms.
Thank you for this.
I’d like to dog-pile onto this and say that another common illiteracy in our industry is testing illiteracy. A lack of discipline in conducting accurate A/B split testing, truly ensuring randomized segments, making sure your test segments are large enough to ensure to statistical significance, only testing one element at a time (unless you’re intentionally testing a completely different offer), holding all other factors constant, only calling a test after it’s achieved statistical significance and only extrapolating the conclusions that were proven by the test. We have to “bootstrap” a lot in our industry to meet our budgets and grow our programs, but if I hear one more time about some amazing test results, only to see later that the test was fatally flawed and the results are unreliable…
Was traveling yesterday and missed this. I feel very strongly about this topic. I think it is borderline negligence to run or advise an organization where supporters have donated their money to further your cause, if you or someone you employ is not able to calculate retention. However numeracy is an ability that is scarce in the non-profit industry. That is why one of the primary focuses at http://www.DonorTrends.com is to close that gap.
A lot of great resources are included above, but I wanted add one more. Over the last year a group of 18 of us from the AFP/FEP formed a group led by Jim Greenfield to establish a glossary of terms. It can be found here. http://www.afpnet.org/files/ContentDocuments/AFPFEPGlossaryTermsAppendix.pdf
While it is important to know what your first year retention rate is, it is also equally important that we are all calculating it the same way. Obviously in your example above that was a problem. This free resource provides both a definition of these terms and a formula so anyone can calculate them.
I hope that one day it will be commonplace to talk about Net Present Value or Internal Rate of Return in a fundraising meeting. One can hope.
Roger,
I wonder if some of these organizations that incorrectly report such high rates are membership organizations that consider memberships a part of their donations.
Our 28,000+ membership program has a 97% retention rate and has floated around 95% most years.
I’m in the midst of calculating our retention rates (using your method of course), but if I were to count all gifts in the database (including concert tickets, membership dues, Annual Fund, Special Events, etc.), then I would expect our rate to be quite high as well.