For those new to fundraising, here are a few basics that can be helpful:
1. Fundraising is a process
The overriding challenge in fundraising is to identify potential donors… inspire them to engage with the nonprofit’s cause… encourage them to donate… and motivate them to become loyal contributors. The “donor pyramid” below illustrates the process.
The pyramid shows that nonprofits lose prospects and donors along the path of making them highly valuable donors. Donors at the top of the pyramid usually start at the bottom.
• At the bottom is the biggest pool: acquisition targets
• Those who donate are on the next level up: first-time donors
• Then you have multi-donors: those who give more than once
• The next up are the major donors: those who give the most
• The top of the pyramid are planned givers: those who pledge donations, usually through a will or trust
2. Fundraising has to balance today’s dollars with future donations
Moving donors up the pyramid takes time. In fact, it’s rare that the first solicitation or communication to a set of prospects will yield more revenue than the cost of the campaign. Therefore, successful fundraising is a combination of acquisition campaigns (that are an investment for the future) and retention activities (that yield positive income today). A key priority in fundraising is balancing the investment in acquisition and spending on retention so that the nonprofit derives appropriate income each year to accomplish its mission.
There are many factors that go into assessing the success of a fundraising program, but the basics are:
• How much money is the program making now?
• Is the donor database file growing or shrinking?
• What is the retention rate of the donor file?
If you can answer all three of those questions, then you have a basic understanding of how well a nonprofit organization is doing with its fundraising efforts.
If the nonprofit is making a lot now and not investing in acquisition, then its revenue will probably shrink going forward. If the nonprofit is spending a lot on acquisition and has little revenue, it might be struggling this year, but if its acquisition campaigns are well targeted and smart follow-up communications are in place, the nonprofit’s future should be brighter. If its retention is bad (read less than 60%), then program adjustments should be made.
3. Fundraising cost shouldn’t be the only consideration
How much to invest in a fundraising campaign is an important question, but the more important question is: how much net revenue is raised? To illustrate this point, look at the chart below for a direct mail acquisition campaign. (Note: for most major nonprofits, direct mail is an essential fundraising channel, if not the most important.)
In the example below, direct mail package 2 costs twice as much as package 1, but nets far more money. These results are not uncommon, so cost shouldn’t be the only consideration in a particular campaign.
Successful fundraising takes time and knowledge. Hopefully, these few basics can be helpful for anyone trying to serve an important cause today and in the future.
Grant Novins is a Marketing Data Analyst at Innovairre Communications, which supports more than 500 nonprofit organizations around the world. Contact us at Answers@Innovairre.com; and follow us on LinkedIn and Twitter.