Fundraisers have lived the economic fallout from COVID in real-time for nearly three years. Although they have adapted to this “new normal,” the underlying challenges and uncertainty have not fundamentally changed in 2023.
The already difficult task of understanding factors affecting donor behavior has been made harder during this time. Projecting what to expect from future donor behavior has been harder still.
Times have been especially tough in new donor acquisition, as the growth in acquisition that many organizations experienced in 2020 has significantly dropped off. But does this decline show a failure of the fundraisers or simply acquisition performance reverting to its historical mean? Certainly, 2020 was an outlier in many ways and fundraisers have much to learn from that year, and some different lessons to learn from the past two years.
Before looking at emerging opportunities for acquisition in 2023, it is important to separate the factors fundraisers can control from those they can’t control but need to account for anyway. Many factors play into your chances of success, and here are two factors you can’t control, plus three that you can that will help navigate acquisition challenges and find new opportunities for 2023.
You can’t control economic externalities like inflation and stock market volatility.
COVID reshaped the economy like nothing else since the Great Recession of late 2007 and 2008. Those effects were not evenly distributed. Donor uncertainty about if or when the economy would return to normal as the world adjusted to living with COVID depressed low-dollar fundraising results for many organizations.
Giving changed during 2020 largely in response to the pandemic. Philanthropic priorities switched to heavily favor local, community-focused organizations. Existing donors gave generously. New donors pitched in to help locals in need in unprecedented numbers. But serious questions remain about the long-term effects of those short-term changes in giving patterns.
By the numbers, unemployment, inflation, and the stock market are all in healthy condition. So why does consumer sentiment remain mired at a level on par with the depths of the 2008 recession? Fundraisers cannot control macroeconomic trends, nor can they talk skittish donors into feeling confident about their economic standing. Doubling down on your organization’s case for support in tough times might help to some degree, but the pressures facing donors won’t disappear overnight.
Evaluate donors acquired during COVID as a unique cohort, specifically measuring the difference in their retention and long-term value compared to your organization’s typical newly-acquired donor. Maintain disciplined spending on retaining those donors but fully embrace those who show you they want to stick around.
You can’t control rising costs in paper and postage.
It isn’t news that paper and postage costs are rising faster than budgets can be adjusted. Before despairing in the face of rising costs and before determining that those costs make fundraising success unreachable, it’s important to understand historical cost trends in real dollars and what you can do to offset spiking costs. (See the accompanying chart.)
Adjusting for inflation, the cost of first-class postage is virtually identical to what it was in 1971 — and it hasn’t varied meaningfully at any point in more than 50 years. So, while everyone is paying more for postage now than last year, that tends to be true for almost any point in time in recent memory. The now twice-yearly boost in nominal postage cost will sting every time but it should never be a surprise and should remain roughly on pace with inflation.
What about paper costs? These costs and production lead time are less predictable and make whatever efficiencies fundraisers can inject into their program particularly valuable.
Paper and envelopes are unlikely to get cheaper especially as more paper mills are being converted from graphic paper used for marketing purposes in favor of paper board for boxes and shipping purposes. Budget accordingly and find ways to lower costs through bulk buying of common components and by testing and monitoring campaign performance per piece.
You can control maximizing performance through cross-channel touches.
Successful marketers understand how to build multi-channel campaigns that outperform the sum of their parts. This is relatively easy for talking to current donors, but it’s a different story for new donor acquisition.
Cross-channel marketing is possible for donor acquisition, though, and fundraisers that co-target direct mail audiences with digital channels can expect to spend as little as five cents to deliver 15 to 20 display ad impressions reinforcing direct mail messaging, easily paying for itself in campaign lift.
What are you doing to coordinate marketing across channels and then measure cross-channel attribution? Plan across all channels at the earliest stage to protect against missed operational details. Don’t get distracted trying to create perfect multi-channel campaign attribution, when best-guess attribution will often give you the “good enough” answer. Make the most of your partner relationships to pursue co-targeting between online and offline channels.
You can control optimizing acquisition investment by focusing on your “worst” dollar spent.
Improving acquisition performance is not limited to finding better models or lists, or to perfecting creative and offer. Too often, marketers make big strategic fundraising decisions using full-file metrics like Cost Per Acquisition, Average Gift, and Response Rate for a full campaign. Subsequent decisions, then, focus overwhelmingly on lifting those key performance indicators (KPIs) for the entire campaign. Eliminating low-performing names or segments from your campaign can be every bit as effective at improving fundraising efficiency.
The high cost of donor acquisition makes it an obvious place to start your quest for efficiency. Optimizing from the bottom-up instead of only from the top-down can yield a big boost in efficiency and cut the cost of acquisition substantially. There is no right or wrong way to do this, but nonprofit mailers, brokers, agencies, and data providers all benefit when low-performing names are eliminated from campaigns and should work together to create solutions.
Ask your vendor partners to propose an optimization strategy with measurable targets. Consider cutting overall volume by, say, 10% through modeling and suppressing the lowest-performing names in an acquisition campaign. If done correctly, it’s likely that reducing 10% of volume and cost will result in only a 2% or 3% loss in donors and revenue, and those incremental names would have been unlikely to ever break even due to the huge cost of acquisition at that margin.
You can control how to tell your success story as a balance of long and short-term strategy.
Nonprofit boards and executives are understandably nervous about donor acquisition declines since 2020. The easiest metrics for these audiences to understand are usually number of donors acquired and dollars raised, which are simple to count and easy to understand when charted over time.
Unfortunately, the “bodies in the door” mentality can mean trading long-term opportunity for short-term wins. Pressure to meet short-term goals through raising response rate can depress the long-term health of an organization by undercutting donor long-term value (LTV).
Focusing on short-term wins is understandable as a path of least resistance. But remember, those same executives and board members are likely to ask different questions downstream of this fiscal year’s acquisition numbers. A file bulked up with high-response, low-dollar donors is likely to see donor attrition rise, and LTV drop as early as year two, which will likely raise even more difficult questions for fundraisers to answer down the road.
Managing to the long-term is always the responsibility of a good fundraiser even if it does not feel like the most urgent priority right now. Ultimately, your KPIs must align with short-term goals and protect the long-term health of your organization. For new donor acquisition, measuring campaigns on a net per donor basis will always skew quickly in favor of response rate and short-term success. That’s not to say net per donor should be ignored. Use it as one data point among many to understand the full picture of your acquisition performance. Work with your analytics team to understand long-term value (LTV) for all your sources of acquisition. Understand how your KPIs align with your goals and the long-term picture of your mission.
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Cameron Popp is director, solutions & innovation at Wiland. His email is [email protected]
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