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Donor Retention and Development

 

Donor retention and loyalty

In this chapter we examined the critical topics of donor loyalty and retention. We outlined the scale of the current problem facing the sector, defined loyalty and introduced each of the major determinants of donor loyalty in turn. We also introduced the topics of relationship fundraising and loyalty metrics and examined how different categories of donor might best be developed.

 

The Loyalty Problem

Sargeant and Jay (2004) conclude that a typical nonprofit will lose 50% of its cash (i.e. annual) donors between the first and second donation and up to 30% year on year thereafter. In respect of regular or sustained giving, attrition rates of 20-30%, year on year are common. Recent data collected by the Association of Fundraising Professionals suggests that the pattern of retention in the U.S. may be even lower than that in the U.K., with attrition rates in initial cash giving being reported at a mean of 74% (Levis 2008).

These appalling statistics matter because even small improvements in donor loyalty can have a huge impact on the returns an organisation is able to generate from its fundraising. In other words we are wasting potentially enormous sums of money by failing to address the issue. To illustrate, over the years we have been involved with the analysis of many different nonprofit databases and have been able to model the impact of different levels of donor loyalty on the future value of an organisation’s relationships with its donors. Typically a 10% improvement in the level of loyalty now increases the lifetime value of the fundraising database by around 50%. This happens because the effect compounds over time.

Impressive though this may be it is certainly not the end of the story. If one were to put a cash value on all the other benefits of enhancing loyalty we listed above, the effect of increasing donor loyalty by 10% today would be to enhance the lifetime value of the fundraising database by up to 200% (Sargeant and Jay 2004).

In reality though the exact percentages are unimportant. It doesn’t matter whether on average a 10% increase in loyalty leads to a 50%, 100% or 150% increase in lifetime value. The point is that organisations need to know in their specific case what a difference it would make. Smart organisations make sure that all their fundraisers are aware of these figures too so that they can allocate their budgets accordingly. They also make sure that every donor facing member of staff (or volunteer) is aware of these numbers, so that the next time anyone is tempted to be short with a caller, or fails to make that little extra effort to provide a requested piece of information, they know what an impact this could have on the future of their organization.

Organizations looking to compare the performance of their organization against others in the sector should participate in the AFP’s Fundraising Effectiveness Project.  It remains free to join and the data gained can be invaluable.

 

Major Drivers of Donor Loyalty

1. Donor Satisfaction

Donor satisfaction with the quality of service provided by the fundraising team is the single biggest driver of loyalty toward the organization. There are close parallels here with the commercial sector where similar findings have been discovered (Jones and Sasser 1995). It is for this reason that surveys of customer satisfaction are now so ubiquitous.

2. Donor Commitment

More recent work by Sargeant and Woodliffe (2007) has looked at the role of donor commitment in driving loyalty. Another piece of learning from the commercial word is that sometimes even very satisfied customers will quit. One day they will just decide to do business with someone else. What this tells us is that satisfaction, while important, is not the only underlying factor at work. Some customers will quit because while they are satisfied they lack commitment to the organization.

Commitment is defined as a genuine desire to maintain a relationship into the future. In the giving context it is a genuine passion for, or belief in what the organisation is trying to achieve. ‘I really care about the future work of this organisation.’ It differs from satisfaction because satisfaction is an amalgam of past experience while commitment is a forward looking construct.

It turns out that in the nonprofit context there are actually two types of commitment (Sargeant and Woodliffe 2005), passive commitment and active commitment. Active commitment is the enduring passion for the organisation just described. The second category is passive commitment. This refers to individuals who continue their support not because they feel strongly about the work of the organisation but because they feel it is the ‘right thing to do.’  The work doesn’t excite them, but they know it’s important..

So what drives commitment? In a large scale empirical study, Sargeant and Woodliffe (2007) identified the drivers of commitment as:

  1. Service Quality – provided by the fundraising team to donors
  2. Risk – individuals who perceive someone will suffer harm as a consequence of them cancelling their donation are significantly more likely to give again.
  3. Shared Beliefs – not only buying into the mission, but buying into how the mission will be achieved – the manner or style of the service delivery
  4. Learning – the extent to which a donor feels that they have deepened their understanding of the oranization’s work over time.
  5. Personal Link – to the cause
  6. Multiple Engagements  – donors who are also volunteers and campaigners and service users are significantly more loyal. Each time a category of involvement is added, the level of loyalty is enhanced.

3. Trust

Donor trust in the organization to do what is says it will do with donated monies is a further big driver of loyalty. We discuss how organizations can develop donor trust in a later chapter.

Adrian Sargeant recently provided a summary paper of the existing research on donor loyalty. It can be downloaded free of charge below.

Additionally, Rupert Tappin and Morag Fleming in the UK have conducted research into the retention of face-to-face and door-to-door recruits for the Public Fundraising Regulatory Association. Their findings are well worth the time to read as this remains the largest and most comprehensive study of its kind.

 

Relationship Fundraising

Fundraising practice has undergone rapid change since the early 1980s and the dominant paradigm has shifted away from transactions to relationships. At the core of relationship fundraising is the development and maintenance of long-term relationships with donors, rather than simply a series of discrete transactions (Ahern and Joyaux 2007). Such a change in emphasis more accurately reflects real market behaviour, where few donation decisions are taken on a “once only” basis. Real market behaviour consists of a series of exchanges rather than purely one-off transactions.

Whilst the move from a transaction to a relationship approach to donor development fundraising may seem little more than a play on words, the differences in terms of the impact on strategy and performance are profound. In a transaction-based approach, development activity is driven by the need to maximize the returns generated by each individual campaign (except perhaps where a campaign has been jointly designed to achieve other goals such as awareness, participation or education). Strategy is based on achieving the highest possible Return On Investment (ROI) when the costs and revenues of a campaign are calculated.

Fundraisers following such a strategy tend to offer donors little choice. They can’t afford to – to do so would merely add to the cost. Little segmentation takes place and donors typically receive standard communications. The emphasis of the content is usually on the immediacy of each appeal and donors are exalted to give “now” because of the urgency of a given situation. They may then be approached in a few weeks or months time with a further seemingly urgent issue the nonprofit feels they should support. The donor thus receives a series of very similar communications each designed with an eye to achieving the maximum possible ROI.

A relationship approach by contrast recognizes that it is not essential to break even on every communication with a donor. The relationship approach recognizes that if treated with respect donors will want to give again, and fundraisers are therefore content to live with somewhat lower rates of return in the early stages. They recognize that they will achieve a respectable ROI over the full duration of the relationship. At the heart of this approach is the concept of ‘lifetime value’ (LTV). Once fundraisers understand how much a given donor might be worth to the organization over time, they can tailor the offering to that donor according to the individual’s needs/requirements, and yet still ensure an adequate lifetime ROI.

Ken Burnett and Judith Nichols are the sector’s leading proponents of a relationship approach for articles published online.

The websites of the following consultancy firms also contain a wealth of useful material on retention and loyalty. Ahern and Joyaux has also published a key text on loyalty (see below)

 

Loyalty Metrics

Key metrics are summarized below:

Donor loyalty metricsAttrition rate – the percentage of donors lost over a given period – usually a year. We made the point earlier that it is important to look at rates of attrition for specific categories of donors or appeals rather than across the database as a whole

Gains/Losses – the number of new donors recruited and the number of those now considered lapsed will also be of interest. Organizations participating in the Fundraising Effectiveness project can now benchmark their performance against other organizations.

Donor Lifetime Value – Lifetime value can be used to shape the development program, but it can also be used to measure its success. As we noted in an earlier section it is now possible to measure the success of a campaign or program by its impact on longer term value.

Transaction Frequency – organizations can also measure loyalty by the frequency with which annual fund or ‘cash’ donors engage with the organization.

Donor Satisfaction/Commitment and Trust – These are the three big drivers of loyalty, satisfaction being the most significant. At a minimum a development program should therefoe monitor its progress in this area.

Exit Polling – In seeking to maximize retention nonprofits should also engage in regular exit polling of their lapsed supporters. Common problems can be identified and remedial action taken as appropriate.

Number (and category) of Complaints – Organizations may also monitor the number of problems that donors experience with their programs. Indeed, donors should be actively encouraged to complain where the organization has failed to meet their expectations. Research indicates that donors who complain and have their problems corrected are subsequently more loyal than those that never encountered a problem in the first place (Sargeant and Jay 2004)


 

File Downloads


 

Recommended Reading

Books

Articles

  • Sargeant A (1999) ‘Why Do Donors Stop Giving?, Professional Fundraising, September, pp12-14.
  • Sargeant A (2000) ‘Donor Overboard’, Philanthropy Matters, 10(1), pp6-7.
  • Sargeant A (2001) ‘Donor Motivations’, Giving USA 2001, AAFRC Trust for Philanthropy, pp54-7.
  • Sargeant A and Jay E (2002) ‘Steward Little’ Professional Fundraising, October, pp16-19.
  • Sargeant A (2005) ‘New Research Could Change How Committed Giving Is Viewed Forever’, Professional Fundraising, Feb, p14-15.
  • Sargeant A and Farthing P (2005) ‘Donor Commitment: What Is It? What Drives It and Why Does It Matter?’ Charity Times, March,  pp20-24.
  • Sargeant A (2005) ‘Now We Know Commitment Does Drive Loyalty’, Professional Fundraising, October, p16.
  • Sargeant A (2001) ‘Using Donor Lifetime Value to Inform Fundraising Strategy’, Nonprofit Management and Leadership, 12(1), pp25-38.
  • Sargeant A (2001) ‘Relationship Fundraising: How To Keep Donors Loyal’, Nonprofit Management and Leadership, 12(2), pp177-192.
  • Sargeant A (2002) ‘Managing Donor Defection: Why Should Donors Stop Giving?’, New Directions For Philanthropic Fundraising, 32 (Summer), pp59-74.
  • Sargeant A and Jay E (2004) ‘Reasons For Lapse: The Case of Face-To-Face Donors’ International Journal of Nonprofit and Voluntary Sector Marketing, 9(2), pp171-182.
  • Sargeant A and Woodliffe L (2005) ‘The Antecedents of Donor Commitment to Voluntary Organizations’ Nonprofit Management and Leadership, 16(1) pp61-78.
  • Sargeant A, Jay E and Lee S (2006) ‘Benchmarking Charity Performance: Returns From Direct Marketing In Fundraising,’ International Journal of Nonprofit and Public Sector Marketing, 16 (1/2), pp77-94.
  • Sargeant A and Woodliffe L (2007) ‘Building Donor Loyalty: The Antecedents and Role of Commitment in the Context of Charity Giving,’ International Journal of Nonprofit and Public Sector Marketing, 18(2), 47-68.

Test your knowledge with our Quiz: Donor Retention and Loyalty

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Maya Angelou