lifecycle

Including loyalty in your beyond-RFM segmentation

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Since Sandy first donated to your organization in 1992, she’s given over 100 gifts.  Nothing exorbitant – she’s now giving $30 every three or four months – but she also has volunteered, come to three walks, signed up for emails, and taken almost every advocacy action you offer.

On the other hand, you acquired Miriam from an outside list in 2012.  She gave $25, but nothing since then.  You don’t have her email or phone number, but a last chance lapsed package piqued her interest four months ago and she gave another $25.

What do these two have in common?

They look the same on a traditional RFM analysis: they are both 4-6 month $25-49.99 multis.

And if you use only a traditional RFM analysis, you will treat them the same.

That’s silly.  If you were looking only at these paragraphs to judge, Sandy would seem to be a good candidate for monthly giving, upgrade strategies, and/or planned giving.  Miriam probably has a 50-50 chance (or worse, given industry averages of lapsed reactivated retention rates) of never giving you another gift.

It’s easy to criticize this, but harder to do this analysis writ large, when you are doing five-to-seven-figure list selects.  So how do you draw these lines?  Here are a few ideas:

Lifecycle analysis.  Way back when (November 2015 – ah, those were the days), we talked about how there isn’t just one retention rate – there are several, based on where a person is in their donor journey.

This lifecycle analysis can layer on to your segmentation analysis and on to your messaging.  Some sample categories:

  • New.  What it says on the tin.
  • 1st year.  They have given a second gift, but it’s been less than 12 months since their first gift.
  • 2nd year.  Gifts in their first two years.
  • Core: Donors who have given in each of the past three 12-month periods
  • Lapsed: A gift 13-24 months ago.
  • Deep lapsed: A gift 25+ months ago.
  • Lapsed reactivated: Someone who has given a gift in the past 12 months after a gap of at least a 12-month period

Your mileage and organization may vary – it’s more important to look at this analysis than it is to have the same precise categories.

So you may not have a separate piece for Sandy, but you might want to make sure there is language like “As one of our most loyal donors” or “You’ve stood with us for more than 20 years.” or the like in the existing piece.

As for Miriam, as a lapsed reactivated donor, you are still worried that you might lose her again.  Perhaps you want to stay close to the tactics that recruited her (or won her back or both).  She might also be worth an e-append or phone append to see if you can find a channel that further engages her.  Or maybe you want to use a less aggressive ask string – your goal for a lapsed reactivated donor is to make donating a habit again, rather than to increase their giving just yet.

Gift density.  Take a look at the number of gifts someone has made, then divide by the number of years since a person’s first gift.  This is how many gifts you will get from them in an average year (or at least what you have received).

Sandy’s number is above four.  Four is a bit of a magic number (some would say three or even two– again, having a number is more important than what the number actually is) to indicate strong likelihood of monthly giving.  When someone has a pattern of giving frequently, this ask isn’t nearly the heavy lift it is trying to get someone to go from one gift per year to twelve.

Miriam is below one.  One is a separate magic number, as below one indicates a likelihood to lapse (by definition, they’ve done it at least once)  That should trigger some of the anti-lapse efforts discussed above.

One is also a magic number in that if someone gives you exactly one gift per year (and they’ve been with you a few years), that’s the bucket they see you in.  So, if they look unlikely to upgrade and they look unlikely to increase the frequency of gifts, the only other way to increase their lifetime value (other than increasing their retention rate) is to decrease costs.  Let’s say you send an average of 14 mail pieces per year and do two telemarketing cycles.  This person probably can decrease this substantially and save costs.

Longevity.  Length of donation is something that should be honored.  Not only are milestone anniversary notes and certificates and the like a good thing to do from a moral and ethos perspective, but they will also make sure that your most loyal donors know that you know they are important to you.

Channel responsiveness.  Change your tactics to suit the terrain.

All of these are even more important when looking at borderline segments.  Should you mail the 13-18 $15-$19.99 multis?  Maybe just those that have been with you five years or more?  Or with previous high gift densities?  Or just mail responsive?

But there’s more to it than even that; tomorrow, we’ll talking about using other interactions with your organization to define and customize.

Including loyalty in your beyond-RFM segmentation

5 simple rules of thanking donors

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Your acknowledgment/thank you’s should be:

For everyone.  E-very-one.  I once worked with a nonprofit that thanked everyone who gave $250+ on letterhead, $10-249 on copy paper, and under $10 not at all.  My first step was to thank everyone.  I know that the love discussion from yesterday can come under pressure when finances are tight.  But as an exercise, go back and look at the first donors of your last ten large bequests.  My guess is that the majority were under $20 and some under $10.  Thanking everyone is not only right and polite; it is a great investment in your long term.

That doesn’t mean that you have to ask for a $2 gift again, or in the same way.  You still have a responsibility to maximize your contribution toward your cause. But you do have to be grateful that they gave a gift.

mayathanks2

That doesn’t all mean that you shouldn’t differentiate your thank you’s.

Differentiated by reason for giving. Part of making people feel special is to treat them specially.*

Your different types of donors are supporting different types of things for different reasons.  Your monthly sustaining donors are giving, presumably, because of appeals you have make about the need for steady, predictable income.  Your advocacy donors – those who donated in conjunction with an urgent appeal for change – are going to be the exact opposite.  They will be looking to support the urgent rather than the constant need.  Thus, the messaging should be dissimilar for these.

Differentiated by lifecycle.  If someone is a lapsed donor who is reactivating, remember the prodigal son.  Now is the time to kill the metaphorical fatted calf and welcome them back and letting them know you appreciate that they are coming back, especially if you had been using lapsed-type “why has thou forsaken us?” language to get them back.

Similarly, new donors should have a whole new set of acknowledgment and onboarding messages.  I won’t repeat my blog post on onboarding for new donors and supporters, except to commend that piece to you.

Differentiated by amount given/quality of supporter.  This in part pragmatic – you want to invest more in keeping your better donors.  But it is oft said that smaller gifts are given from the heart and major gifts are given from the brain.  This is partly misleading, in that you have to engage the heart of your major donors first, but the pitch that you make to a major donor is more about the long-term impact that they are going to make with their investment.  Similar language just isn’t appropriate for a $10 donor, who is helping your mission, but not because of a transformative legacy they are looking to leave.  There too is a difference in messaging necessitated by a difference in reasoning.

And then there’s the obvious part – your largest donors should have higher touch acknowledgments.  That includes handwritten notes, personal phone calls, cards for special occasions like birthdays or holidays.  The key that many, many organizations forget is not to let high touch get in the way of a timely thank you.  If you normally send out thank you letters every day, but your high dollar donors get a letter from your ED that s/he sends out every 1-2 weeks, you are falling into this trap.  You are essentially differentiating backwards – your best donors are receiving the worst donor service.

The way to avoid this is to get the standard receipt and thank you immediately as you normally would do, then to follow up with your high-touch thank yous.  Few will mind if you say “I know you got our standard thank you last week, but I wanted to personally reach out to tell you how much your gift meant to me.”  Rather the opposite in most case.

This is imperative because one of the best predictors of whether someone will give again is how quickly and well they are thanked.  So, the final rule is:

Timely.  Get your receipts out as soon as you can, because of the impact on the next gift.  If it’s for a high-dollar donor, consider differentiating even on timeliness, with first-class postage on those thank yous.  Take a look at Blackbaud’s mystery shopper experience here.  Your donors are used to get receipts in week one (for the above average) or week two (for the just average).  You want to be above average to get those additional donations.

Thank you for reading.  Tomorrow, we’ll talk about different ways to thank your donors: some that are a bit nonstandard, all of which help express your gratitude.

* It’s statements like that that are the reason I make the big bucks.

5 simple rules of thanking donors

How to measure retention

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Often, you will see people ask “what’s your retention rate” and get answers like 50% or 60% or whatever.  But there are different types of retention that add up to that overall retention rate.

Yesterday, I said that your direct marketing program was like a bucket with a hole in it.  We’re going to change this a bit today to say that your program is like a pipeline with a bunch of holes in it.  This is the lifecycle of your donor.  To define some terms:

  • Prospective donors are people who haven’t given yet, but might.
  • New donors are donors who are giving their first gift to your organization. I said we’d be defining terms.  I didn’t say they’d be hideously complex.
  • Converted donors/second gift donors/first-year donors are all terms for people who have gotten over the hump and given to your organization within the next year
  • Multi-year donors are people who have given reliably over multiple years
  • Lapsed donors are donors who haven’t given in a while. In a lifecycle analysis, this is frequently put at a time horizon (e.g., given the past year or past two years), but in reality it’s often militated by a broader analysis.  For example, if someone donates $5, you will stop trying to retain them much sooner than someone who donates $100).
  • Deep lapsed donors are lapsed donors, only really lapsed. Again, when this is is defined by your organization.
  • Lapsed reactivated/reinstated are people who were lapsed and have since given a gift. This is an important category often overlooked, in that these reactivated donors can’t be treated like people who just gave their second gift, but neither are the part of that key multi-year donor group.

Blackbaud indicates that the average retention rate is about 50% — that is, of your file, half will give you a gift in the next 12 months.

But as you can see, that’s oversimplified.  First-time donors are less likely to retain with a retention rate about 27%; multi-year retention is 58%, according to Blackbaud’s white paper on the topic.

But they only look at these two categories for retention.  It’s best to look at your retention rate in four buckets:

  • New
  • First-year
  • Lapsed reinstated
  • Multiyear

This is why retention rate as an overall metric camouflages what is happening in your file.  You may have a higher overall retention rate than you did a couple of years ago, but lower retention rates in all of these categories, similarly because you have more multiyear and fewer new donors than you did in years past.

If you prefer, lapsed could be included in here; I don’t because I think of lapsed retention as reactivation – there has to be an effort to reacquire donors, rather than talking to those whose attention you have already.

The other reason it’s important to look at each of these groups separately is that they require different strategies for retention.  With new donors, you have been a first date.  You have learned a tiny bit about them and they about you.  Also, to stretch the dating analogy, your relationship at first is new and exciting.  You can explore things early on like sustainer asks and that person might be in the afterglow of giving and your outstanding onboarding process (more on this later this week) and willing to entertain that notion.  Testing different messages and learning instruments like surveys are par for the course.

Conversely, for your multiyear donors, you should know what they like and don’t like.  Do they give only in the fall and when their gift is matched?  Do they love advocacy appeals?  Is your calendar hanging in their house and are all of their mailing labels yours (i.e., premium donors)?  Not only can you know these, you are expected to know and play back to them – see Ellinger’s Peak of Ideal Customization for details.

One additional retention metric to be aware of is an output from retention rate: lifetime value.  Here’s the formula for lifetime value:

clv-equation
Because everyone loves calculus

Wait!  Please don’t leave!

This is the overly complicated version.  You can ignore discount rate because the cost of money is so low. What you really want are “what is the net value of a person’s donations to an organization going to be?”  The key inputs to this are:

  • What are they giving?
  • What does it cost to get them to give that, initially and ongoing?
  • What is the likelihood that they will give gift 2 from now (and three and four and five) – that is, what is their retention rate? That’s the calculus portion of this – you sum each donation that someone will give, discounting it by the likelihood that they will give it

Retention rates, like compound interest, are magical, rippling through your program for good or ill for years to come.  Tomorrow, we’ll look at the inverse of the retention rate – why people stop giving.

How to measure retention