You may feel the need to cut costs, but don’t be caught up into thinking that donor acquisition is the place to cut back.
Donor acquisition is essential. That doesn’t change before, during, or after a recession. It doesn’t matter if your nonprofit is large or small, young or old. Unless your plan is to wither away slowly—or quickly—donor acquisition has to be a priority.
It’s also hard, and it only gets harder when people are concerned about the economy. Americans have a commendable habit of staying generous during economic downturns, but most of us aren’t looking for new nonprofits to support when we are worried about a recession. And yet, difficult as it may be to find new donors, Jeremy Beer put the question well in Fundraising When Times Are Bad: “What choice do you have?”
What choice, indeed. No matter how good your donor retention is, it won’t be 100%. Every year you are losing donors . . . some lose interest, some have fewer resources (especially during a recession), and some pass away. A few might leave you a legacy gift—but that’s a one-time windfall; those folks aren’t on the donor rolls long-term.
So every year, you need to replace the donors you lose—and if you don’t replace them, you’ll simply watch your revenue shrink, unless you make up for it by increasing the average donation amount. Overall revenue is “total number of donors” X “average giving per donor.” If the first number goes down, the second number needs to go up simply to maintain your budget.
You may be able to pull that off for a year—especially if you have a few devoted donors who are willing and able to step up when times are tough. But if you want to grow your organization over the long haul, you’ll need to grow your donor base—while still maintaining, or ideally increasing, average giving per donor.
THE COST TO ACQUIRE
If we are agreed that donor acquisition is essential, next we face a pressing question: how do we acquire donors?
There are countless ways to acquire new donors . . . direct mail, digital marketing, word of mouth, individual research and outreach, events, and so on. Whatever you choose—whatever makes sense for your organization—this fact is inevitable: it costs money to acquire a donor.
Oftentimes “business-savvy” board members will balk at that fact: why are you losing money on acquiring donors?
Ironically, that very same board member will likely be familiar with “losing money” to acquire a customer, but for some reason, he thinks different rules apply for nonprofits. They don’t. Just as it costs money for Chik-Fil-A to make you a customer and for the New York Times to make you a reader, it costs your nonprofit money to make Mr. Smith a donor.
That can be a difficult reality when times are tough.
If money is tight and your mission matters, you might reasonably think that the “loss leader”—acquiring donors—is the place to cut back, to save some money.
In some cases, that makes sense in the short term. You might cut back on this or that acquisition effort for a fiscal quarter or two . . . but you can’t cut back for long, and even cutting back for a short time may have significant consequences.
WEIGHING YOUR OPTIONS
In our free ebook, Fundraising When Times Are Bad, we walk through this problem in more detail. What’s the actual impact of failing to acquire donors for a year? Well, the impact is really felt later, when the donors you would have acquired in 2023 and should be maturing as donors in 2027 are missing. You can download a free copy of the ebook to see how the math works out and the sort of long-term growth you’re losing by cutting back on acquisition.
But the fact of the matter is that, if expenses are going up and some donors are tightening their belts, you may need to find a way to cut costs. How can you do that with donor acquisition without shooting yourself in the foot?
First of all, make sure you understand the importance of acquiring donors, and make sure you can communicate that to your board. To keep the math simple, suppose you have 100 donors, and they give $500 on average. Suppose your retention rate is 70%.
If you fail to acquire any donors, you’ll be left with 70 donors; if their average giving stays the same, your budget just shrank by $15,000, or 30%. In reality, your donors are at a variety of giving levels and, again, that loss will be felt more over time (and more from the larger donors you lose). If you aren’t replacing the donors lost, you’ll see your annual budget shrink every year—and whatever money you saved on acquisition costs has only meant smaller budgets in the future.
Next, try to find the most valuable acquisition streams for your organization. A key indicator of the lifetime value of a donor is the size of their first gift. In American Philanthropic’s proprietary data, a donor whose first gift is less than $50 is worth, on average, $600 over six years. In contrast, a donor whose first gift is between $100 and $500 is worth, on average, $2,696 over six years. And it only goes up from there (a first-time $1,000+ donor is worth a whopping $125,068 over six years!).
So what acquisition efforts are successfully bringing in larger donors? Lean into those and cut back on lower-dollar donors, if necessary. In direct mail, for instance, you might mail fewer overall units but focus on higher-value lists. The key here is to prepare for how that decision will affect your results. If your response rate takes a hit while the cost to acquire a donor goes up, don’t be surprised—and don’t pull back. That will happen when you’re acquiring more valuable donors.
Finally, consider where you acquire a large number of donors. As a rule of thumb, your acquisition efforts will either bring in a few valuable donors, at a greater cost, or many lower-dollar donors, at a lesser cost. Don’t be hasty in dismissing the latter effort. You may want to pull back on, say, digital donor acquisition if those donors have a low average gift and a lower retention rate—but you also don’t want to lose the momentum you’re building. Budgetary constraints may make it inevitable, but be sure to be thoughtful about balancing the pros and cons of different acquisition streams.
Donor acquisition is all about the long term. The biggest mistake you can make in a recession or uncertain economy is putting on blinders and only looking at the immediate.
Yes, there may be immediate changes to make, but make sure you think of the long-term implications of those changes. Every donor that you fail to acquire right now introduces a hole in your multi-year budget.
Want to learn more about fundraising when times are bad? Download a free copy of Jeremy Beer's ebook, Fundraising When Times Are Bad, and stay tuned in here for future advice! Drop your comments, questions, and ideas below.