Why Chuck Longfield Is Worried
When Chuck Longfield is worried, it’s time for fundraisers to wake up, pay attention, and begin making some serious changes.
Chuck is the Founder of Target Analytics and Chief Scientist at Blackbaud. For purposes of this post, he’s a first-rate innovator who is more intimately familiar with direct response fundraising trends than anyone I know.
So, when Chuck sounds the alert it’s time to take note. And he did just that at the Direct Marketing Association’s Washington Conference last week in a fact-packed session on Acquisition and Retention Trends.
You can download Chuck’s presentation here.
In a nutshell here are the disturbing trends Chuck highlighted:
- For the past 10 years — before and after the Great Recession — donor acquisition has grown increasingly expensive.
- During the same period, first-year retention rates have significantly declined to the point where, on average, nearly 3 out of 4 newly-acquired donors leave by the end of the first year.
- As a result, for many organizations the return on new donor acquisition is so poor that it has become too costly to acquire new donors to replace the flood of lapsing donors.
With his gentle wit and insight Chuck drew an apt analogy to what the sector is facing. “It’s like the CFO coming to the board and reporting, ‘I lost 70% on our portfolio investment this year, so please give me the same amount to invest next year and I’ll get the same result.’ You can imagine how long that CFO would last.”
Yet year after year that’s exactly what’s happening in donor acquisition and retention. The reasons:
- “Over fishing” – highly sophisticated and efficient techniques scooping up a limited pool of donors.
- Changing demographics — Gen X and the Millennials less loyal than the World War II and Boomer generations.
- Failure to recognize and treat new donors as the valuable asset they represent.
Reminding the session participants of Prof. Adrian Sargeant’s dictum — “even a 10% increase in donor retention can increase the lifetime value of the donor database by 200%” — here are some of Chuck’s recommendations for dealing with the problem.
EMPHASIZE DONOR RETENTION OVER ACQUISITION
- View new donors as valuable assets
- When acquiring new donors, factor in whether you will retain the donor and at what dollar level
FOCUS ON LIFE-TIME VALUE, NOT RESPONSE RATES
- Plug the leaky bucket of attrition
- Be willing to invest in your new donors (a simple, inexpensive ‘thank you’ call will produce a 30% ROI according to Chuck)
FOCUS ON RESULTS NOT EFFORTS
- Focus early in the relationship on those donors with greatest potential and allocate resources accordingly
- Adopt a donor-centric, not campaign-centric focus
INVEST IN YOUR MOST PASSIONATE SUPPORTERS
- Organize yourself to recognize a donor’s passion for your mission (willingness to take surveys, attend events, etc.)
- In fact, put some hurdles (survey, invitations, etc) in front of donors early on to determine the most passionate.
Although The Agitator has ridden the Retention Horse long and hard, Chuck reminds us all that this subject deserves even more attention. So, we’ll have more to say on the many facets of retention — from mindset, to methods, to metrics. Just as we’ve done on Acquisition, we’ll launch a more formal series on Retention.
What’s your experience with retention? What aspects concern you the most? We’d sure like to hear from you.
Meanwhile, Chuck, thanks for once again sounding the alarm. You deserve an Agitator raise.
Roger
P.S. Download Chuck’s presentation here. There are some great charts on acquisition and retention rates by sector.
6 responses to “Why Chuck Longfield Is Worried”
Behavioral Science Q & A
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How to get 80% retention: in the UK, and starting in the mid 1990s, British charities (excluding universities) began to focus on the small monthly direct debit approach. In those wonderful days new donor acquisition for mail campaigns had not tanked but the pioneers of the £2 a month ask did well. They blazed the trail (Oxfam comes to mind but there were others). Today, some large UK NFPs have literally millions of such donors. Early liftime attrition can be high for street-acquired supporters, but my analyses show 80-90% retention rates in years 2+. Yes 80-90%, not a misprint. Direct mail as such is either dead in the UK or confined to organisations with an old consituency. In the US where I’ve talked to fundraising professionals there is open-mouthed surprise that batallion-strength quantities of donors can be acquired and who LET the charity TAKE MONEY OUT OF THEIR BANK ACCOUNTS. But it works, and not just in the UK for Europe is well into the monthly DD. It means a change in approach of course and the few Americans I have talked to tell me ‘never happen here.’ So the Longfield numbers will continue. But it will likely never come to pass in the USA that the direct debit mass markets will be developed. And as for street fundraising, well, given the US’s gun carrying rights I wouldn’t want to be a Face To Face fundraiser in Tampa (given Florida’s legislstaion on self defence) or anywhere else.
Chuck’s numbers are focused on the US and these are primarily cash donors not monthly donors. The monthly donor issue is a cultural one since it is not a normal business practice for Americans to let anyone take money directly out of their bank account. There are very few cities in the US which are pedestrian orientated so F2F is infeasible in all but a few major cities. Very challenging, but recruitment of monthly donors needs to grow in the US.
However, the assertion that direct mail is dead is laughable, John. Legacy giving accounts for up to 30% of some charitiy budgets in the UK. These are older donors primarily responding to direct mail communications. The focus on one segment of the population to the exclusion of all others is a mistake commonly made by agencies who specialise in one method or another. We will see our donor bases shifting to digital but we are not there yet and need to be able to utilise all the channels the various donor segments utilise.
Donor retention is a big issue on both sides of the pond for both monthly and cash donors. Turning our focus to LTV and donor satisfaction is the key to sustainable fundraising. Thanks to the Agitators and Adrian Sargeant for turning our focus on donor retention. My organisation is already reaping the benefits.
Thank you, Denisa, for your response to John’s post. There is a “can’t we all just get along?” feeling when European and US direct response fundraisers get in a room together to discuss monthly giving.
Europeans see scads of “cash gift” donors ripe for conversion to “regular” giving and don’t get why these crazy Americans aren’t jumping to it.
In addition to the short-term hit to cash flow that’s not easily swallowed by executive teams, what they don’t see, as Denisa points out, is the relative prevalence of legacy gifts for which a direct mail program serves as a pipeline. In addition, as many as 20% of a charity’s major donors give their first gifts through direct mail and, over time, are stewarded up the giving pyramid.
Charities in Europe, Canada and Australia don’t boast the legacy and major gifts of their US counterparts. And that’s not because one model is right or wrong. It’s because of inherent cultural differences and, in the case of monthly giving, banking regulations.
That all being said, we have much to learn from each other. US fundraisers should consider viewing monthly giving conversion as an investment, as we do direct mail acquisition, not an upfront money-maker. Our counterparts can teach us a thing or 2 about retention and stewardship of this distinct donor group. European, Canadian and Australian fundraisers should consider breaking out of their comfort zones, too. They can benefit from their US colleagues’ decades of experience in cultivating donors for legacy and major gifts, as well as grants from foundations.
Again, can’t we just all get along?
Chuck’s advice to be donor-centric rather than campaign-centric is right on.
However, the problem I’ve observed in small to mid-size nonprofits is their lack of focus on either. Rather, their limited human and financial resources are still heavily focused on special events or seeking highly competitive private grants with annual fundraising only as an afterthought.
I wonder how many organizations are not even paying attention to questions of acquisition and attrition. I suspect this number is quite high. I’ve been shocked at the number of well-respected, not-so-small organizations in my community that do not yet track retention rates. Perhaps it is time for smaller nonprofits to elevate the level of importance placed on annual fundraising and to develop the technical skills of our fundraisers to support it.
To John and Denisa, a couple of points of fact based on experience, since you perpetuate assumptions that aren’t true I’m afraid. I’m a British fundraiser, and was Fundraising Director for Greenpeace USA from 2003-7, a period when we bottomed out a decade of decline and got our mojo back on a growth trajectory. I learnt a lot while there. Bonnie rightly mentions what the US excels at. I’d add digital. But we did prove a thing or two at Greenpeace.
1. Americans are quite happy paying utility bills and other things by regular payment, either bank or credit card (CC is more common). If you think automatic payment rather than bank debit, you’ll get further. At Greenpeace we were the leader in automatic payment at the time, over 70% of our income coming that way. Others like ASPCA followed and now lead, using DRTV to great effect.
2. Face to Face in the US is not for the faint-hearted. But if you don’t get monthly giving in the first place, you’re not going to get F2F and how to manage the back-end retention either. There are ample places where F2F works – 50 cities with populations over 1 million! At Greenpeace we build an in-house F2F operation that reached 8 cities within 18 months, 16 cities within 3 years, motivated staff, 1,000 new monthly donors a week. It was, still is, pretty unique.
I’ve got thoughts on why the acquisition hasn’t taken off in direct mail, which I’ll add to the “Where’s the Breakdown” blog. Nothing to do with the banking system.
John’s comments are spot in and do account for a lot of the differences, I believe, between the UK and US. However even in the UK retention continues to be a vital issue not least because so many charities have piled into face to face canvassing which leads directly (if successful) to direct debits. However attrition is rising and giving real concern to those attempting to manage it.