Many have already blogged on a recent report from Adrian Sargeant (produced as part of a recent Blackbaud Summit). The report, a series of recommendations based on input from a wide variety of sources, is worthy of repeated reference. At DonorVoice, there is one recommendation worthy of reprinting in full along with some color commentary.

http://www.blackbaud.com/files/resources/downloads/WhitePaper_GrowingPhilanthropyReport.pdf

Recommendation #3: Enhance focus on retention and building supporter loyalty.

• In a large-scale analysis of database records, Sargeant (2001) identified that even small improvements in the level of attrition can generate significantly larger improvements in the lifetime value of the fundraising database. A 10 percent improvement in attrition can yield up to a 200 percent increase in projected value, as significantly more donors upgrade their giving, give in multiple ways, volunteer, recommend others, and ultimately, perhaps, pledge a planned gift to the organization. In this sense the behavior of supporters and the value they generate appears to mirror that reported in the for-profit consumer sector where similar patterns of value and behavior are exhibited (See for example Reichheld and Sasser 1990).

Our take: This sort of statistic is pervasive in the commercial world and non-profit conferences. Just as real as gravity is the fact that keeping an existing donor is less expensive than acquiring a new one. So, why in the name of all that is holy and less so is the industry so obsessed with acquisition? Why is there such lip service to relationship building and stewardship and so little substance and focus? Clearly something is missing, something is not connecting. This report cites several “somethings”, all probably legitimate but rather daunting, such as convincing Boards to focus on longer term metrics.

• Despite all the potential advantages that enhancing donor retention could convey, the scale of the opportunity remains as sizeable as ever. Sargeant and Jay (2004) examine the retention of both cash and regular (i.e., monthly) donors, concluding that a typical charity will lose 50 percent of its cash (i.e., annual) donors between the first and second donation and up to 30 percent year over year thereafter. In respect of regular or sustained giving, attrition rates of 20 to 30 percent, year over year are common. Recent data collected by the Association of Fundraising Professionals suggests that the pattern of retention for cash giving in the U.S. has worsened, with some organizations experiencing upwards of 70 percent attrition between the first and second gift.(Levis 2008).A substantive opportunity for improvement remains.

Our take: Hate to say we told you, but see, we told you. The sector is doing NOTHING different on retention unless doing worse counts, which of course it does.

• In our view, the sector remains too focused on donor acquisition, content simply to refill an increasingly leaky bucket and ignoring opportunities to build meaningful relationships with supporters over time. Summit participants felt that this is due, in part, to a failure to understand what is meant by “relationship building”, but it is also due to an underlying (and seriously flawed) business model. The following quotations from Summit participants are illustrative:

• “We need to build loyalty through understanding the why of loyalty and donor psychology and then apply that to relationship building. Relationship building is a donor-centered activity that includes two core elements: donor-centered communications and donor-centered engagement activities.”

• “Most of the fundraising industry operates on a business model that pays by volumes of pieces mailed, phone calls made, and online impressions garnered. So agencies are compensated by quantities of solicitation and not by the quality of donor base that results. It’s a business model that affects donor file churn. This will not change until buyers’ minds are informed and changed.”

Our take: Wow. Somebody is reading our mail. Incentives – real or psychic – matter. They dictate most of what we do as human beings. The incentives for consultants are ALL wrong. Delivering a ‘positive’ net on a renewal mailing – a hallmark of success for any consultant – is a bit like saying you landed a marlin after hooking it. There is a ton of work left to do to get the marlin on the boat, just like there is a ton of work left to do to make sure each donor who renews actually delivers a positive lifetime value to the file. But don’t blame the consultants, they are merely marching to the beat set in motion by non-profits who manage to a weekly or quarterly number instead of focusing on longer-term metrics that are equally rigorous, empirical and defensible. In this way, non-profits are no different than their corporate, publicly traded brethren.

On the relationship front it is equally true, as the Summit attendee notes, that very, very few non-profits have any sense of how to measure and manage donor relationships. If you can’t measure it, you can’t manage it. And measuring something requires defining it. This work has been done. By us, by Adrian and others in the commercial space. The “relationship” term needn’t be a soft, fuzzy, lip-service term. It can and should be an empirical system that produces measurable financial projections.