metrics

Round 3 of the more donors versus better donors debate: intangibles

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For our viewers joining the program already in progress, for the past two days, Betty (arguing in favor of better donors over more donors) and Mo (arguing in favor of more donors over better donors) have been debating.  Today, the final round of the debate: intangibles.

Mo: The implications of focusing on fewer donors scares me.  My thinking is that you will draw the line at five dollar donors and cut quantity and donor volume accordingly.  Then, when you have fewer people on file and higher per piece costs, you’ll have to move that line up to ten dollars.  And so on down a death spiral.

Betty: As we’ve established, the amount that I’ll save by not having to have expensive means of communication to donors that aren’t going to pay back helps our bottom line.  If anything, focusing on higher-value donors is a way of getting out of a death spiral by cutting out the people who helped us get there.

And we know that number of donors on file is a false metric.  It ignores that some people are worth inherently more to the organization than others.

My concern is that there’s only so much time and attention you can give to a direct marketing program.  Too much of it goes to the Sisyphean task of trying to get $5 donors to become profitable.  Why not focus on what matters?

Mo: Because bulk matters too.  When we go to lobby for legislation, officials ask how many members we have.  They notice if we are a force.

And upgrading got us where we are.  Look at your current high-value donors.  They were $5 donors 20 years ago.  It was cultivation and upgrade strategies that made us what we are.

Betty: That’s fine and dandy back when acquisition could turn a profit.  But every year, acquisition becomes a little harder and a little more expensive.  This isn’t kindergarten where everyone has to have a turn.  We are accountable to all of the donors that we have that we use their donations wisely.  If we aren’t getting net money from a person, we owe it to all of our donors to let them go.

Mo: Why not just customize your donor stream for them where you can make a profit?

Betty: You should if you can, but you can’t always.  And keeping them in the mail stream does something else: it starts making your pieces that win in tests the ones that are tailored toward a lower common denominator.  That’s the death spiral you should worry about: the temptation to cut costs by doing things like not personalizing pieces that don’t matter as much to the most marginal segments of your file.

Verdict: I’d like to know what you think at nick@directtodonor.com.  Personally, I buy some of Betty’s arguments here.  There always is a threshold at which you need to cut some donors off.  Rationally, then, it seems like there should be a threshold at which you should try not to acquire them.  What that threshold is will vary from organization to organization.

So tomorrow, we’ll talk about the implications of if and where you choose to draw the line.

Round 3 of the more donors versus better donors debate: intangibles

More donors versus better donors: long-term and external benefits

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To review, yesterday, Betty (arguing in favor of better donors over more donors) won a slight victory over Mo (arguing in favor of more donors over better donors) in talking about costs of fundraising.  Today, they will debate again: this time on the topic of external benefits of donors.

Mo: The case here is manifest.  To put a value on a constituent that comes only from what they give through direct marketing is myopic.  Having more donors means having more people that support you and having more people that support you means:

  • More awareness of your mission in the community
  • More volunteers
  • More advocates

Betty: It’s nice to believe that there are something things you can’t put a price on, but you can.  You can get awareness with PSAs and earned media. You can advertise for volunteers (and incidentally, thinking someone who gives $5 at time is dedicated enough to your mission to be your top volunteer is wishful at best.)  And you can get online advocates for $1.50 a pop from Care2 or Change.org.  If you want real change, the high-dollar donors in a congressperson’s district will hold more sway; they are who you get through consciously soliciting for value.

Mo: That works for some districts, but if you are doing the things that you need to do to get high-value only donors like zip selects, you are going to be ignoring a lot of districts that are just plain poor.  And you are going to be ignoring them with your message, mission, awareness, and advocacy.

But if you want to boil it down to dollars and cents, let’s go there.  Some smaller donors make for extremely effective peer-to-peer fundraisers.  You rarely know who is a deacon at the church and can pass the hat at the plant.  And casting your net broadly gives you a greater opportunity to get those types of donors.

Betty: You may have a point on peer-to-peer fundraising, but low-dollar peer-to-peer fundraisers are likely to bring in more low-dollar donors.  Now you have twice the problem.

Someone who gives more money at the outset is also likely to give more outside of a traditional single-channel direct marketing program.  They are the ones who will become the multichannel givers, major donors, and monthly givers.

Mo: Yes, if you go exclusively for the people who eat with multiple forks and pinkies out, you will get more of those high-value upgrades.

But you will rarely get bequests.  There is a great case study from the ASPCA.   Because they had focused on higher-value donors, they were not getting as many bequests.  In fact, they were excluding the 70+-year-old, $10 and under givers that were their best planned giving prospects.  So they made a conscious choice to go back and reacquire these donors, sending them (only) the best house mailings and working to upgrade them to bequest giving.

The verdict: Have to give this one to Mo on points.  A traditional lifetime value calculation ignores the value of donors as volunteers and advocates, which do have their own quasi-monetary value.  And bequest giving often comes from “tippers” on your direct marketing file of a certain age who give to help you in their lifetime, but are saving a nest egg for donation at the end of their lives.

This is certainly not to say that higher-average-gift donors don’t have greater major donor prospects; it’s just saying that a portfolio approach of quantity will have hidden benefits that should be uncovered.

More donors versus better donors: long-term and external benefits

More donors versus better donors: cost of fundraising

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Previously on Direct to Donor…  the question was raised as to whether it is better to have fewer, better (that is, higher value) donors or more, lower value donors.  And now, today’s episode…

point counterpointWe’ll try this debate style.  Betty will be arguing for our better, fewer donor model (aka the Ravenclaw strategy) and Mo will be arguing for our more donors regardless of how much they give (aka the Hufflepuff strategy).

Betty:  Simply put, many donors just don’t pay for themselves.  Let’s say you have a robust multichannel solicitation program that costs you about $5 per person to run.  If your $10 donors don’t average more than a half a gift year (which may be pushing it, assuming that a healthy portion of them are first-time donors), these donors are literally losing you money every time you communicate with them.

Mo: Then don’t mail them so much.  Solicitation costs are something that are under your control.  Lower-dollar donors don’t have to have the same cadence as a higher-dollar donor.  Nor do you have to send the same packages or use more expensive means like telemarketing to keep your lower-dollar donors.  Try to convert them to less expensive means like giving online.

In fact, because volume is a big predictor of communication costs for means like direct mail, you save money on all segments by having more people on file.

Betty: First, let’s dispense with the notion that a $8 offline donor is suddenly going to become a $50 online donor.  Honestly, at that level, you wouldn’t even pay to e-append them.

Second, bulk of donors will save you per piece, but only by a couple cents per piece.  That doesn’t compensate for the vast differences in net per piece value from a strong donor.  In fact, that’s why you can communicate much deeper into your file with higher-dollar donors; even a small chance of getting a gift from a $100+ donor is better than a good chance of getting a gift from a $5 donor.  

And in very strong average gift segments, you can be making over a dollar, two dollars, five dollars, or more per communication to your strong segments, a virtual impossibility with lower dollar segments.  So your fundraising efficiency is much greater.

Mo: Fundraising efficiency should not be a metric.  You can tell it’s unimportant and misleading because Charity Navigator measures it. (rim shot)  What you want is to be able to maximize the net revenue you can deliver to the mission of the organization.  And thus you want to have these donors.  There are some segments of donors that like to give $5 at a time, but they will do it to every other or every third communication you send them.  While it’s not a home run, getting on base often means something.

And these donors are much cheaper to get.  Sometimes they are half of the cost of acquiring a larger-average gift donor.

Betty: But because they make smaller gifts and usually have smaller response rates, they are far less able to make back the investment.  A quality donor is a gift that keeps on giving and lower quality donors simply aren’t.

Mo: But you don’t know the hidden gems when you acquire them.  Having more donors is likely panning for gold.  And so you want quantity.

Betty: That would be true if donors generally upgraded.  However, if someone gives you the same amount three times, chances are you are going to be getting that amount for the rest of their useful donor life.  Upgrading is good to try to do, but you can’t count on it for the bulk of your audience.  And loyalty goes up as average gift goes up, so you really can tell from average gift whether someone is more likely to become a good donor for you.

The verdict: This one is a split decision.  The case for more donors makes some good points and you should be doing whatever you can do to minimize your costs with low-dollar audiences.

But, by a nose, we have to give this to the case for better donors.  There is a point in every file where donors just stop being profitable.  For some, it’s at $5; for some, it’s at $15.  At that point, you don’t have a good way to make money for your mission from them.  And when you can’t fund your mission from them, you should aim not to acquire them.

“But wait!” Mo says.  “What about the non-monetary benefits of having more donors?”  Well, that will be tomorrow’s debate.

More donors versus better donors: cost of fundraising

The choice: more donors or better donors?

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There is a forthcoming study in the Journal of Marketing Research looking at the choice of defaults in donation asks (e.g., which radio button you have auto-clicked on your Website for donation level).

One of the findings was that for many scenarios, changing this default impacted average gift and response rate, but didn’t change revenue.  That is, the average gift and response rate moved in exactly offsetting ways.  So which is the winner?  

Let’s leave aside the fact that there is an obvious correct answer to this*.  It brings up an interesting conundrum: all other things being equal, would you rather have fewer, better (which we will operationalize to higher average gift) donors or more, lesser donors (lower average gift)?

So, let’s say your campaign is bringing in $100,000: would you rather have 2,000 $50 donors or 5,000 $20 donors or some other scenario?

This is a realistic question.  If you graph out your acquisition success by outside list that you are using, chances are you will get something like this:

paretoefficiency

This is actually a good sign.  It means that you are using the best lists, as you are approaching something close to the Pareto efficient frontier (a fancy way of saying you can’t grow any more; you can only make tradeoffs).  After all, if there were a list that was in the upper right here — high response rate and high average gift — you’d be doubling down on that.  But since there isn’t, do you invest more in the upper left or lower right?

This has far-reaching implications.  For example, what metric do you use to determine the success or failure of an acquisition piece?

Yes, in a perfect world, you would use lifetime value.  But we don’t live in a perfect world (if you doubt this, watch a presidential debate at random; this could make Dr. Pangloss open a vein).  Lifetime value takes time to manifest and you need to know what you are making a decision on tomorrow.

So, for your preliminary work, do you go toward net cost to acquire a donor, which will reward getting a large number of smaller donors?  Or do you go to something like net per piece, which will reward fewer larger donors?

(Or, as I’m starting to do, do you look at the donors that a campaign is bringing in and their initial give, then projecting out their average gifting as a poor man’s model for lifetime value?  This is a better solution, but again, don’t let logic get in the way of a good thought experiment.)

This week, I’d like to explore this thought experiment in some detail (in part because it’s something I’m struggling with as well), laying out the case for both approaches and seeing what the implications of this are.
* The correct answer is to set up ask strings and defaults based on previous giving history and/or modeling; customization cuts this particular Gordian knot.

The choice: more donors or better donors?

It’s time to stop… vanity metrics

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I’m writing this during the South Carolina Republican primary.  The votes haven’t started being counted yet, but I know who is going to win.  Because I know that Ben Carson has 35% of the Facebook likes among GOP contenders in the state; Trump is second at 25%.  Thus, Carson will get approximately 35% of the vote.

What?  Doesn’t it work that way?  Facebook likes aren’t a reliable indicator of support, donations, interest, or almost anything else?

The bitter truth: Facebook likes are a vanity metric.  They have little to do with your ultimate goal of constituent acquisition, donor conversion, and world domination, yet people will still ask what that number is.  And when they hear it, they will nod, say that that’s a good number, and ask what we can do to increase it.

That’s when a tiny little part of you dies.

So, in our Things To Stop Doing, we have vanity metrics.  These metrics may make you feel good.  They may be easy to measure.  And some of them may feel like a victory.  But they bring you little closer to your goals.  We are creatures of finite capacity and time, so the act of measuring them, talking about them, or (worst of all) striving for them drains from things that actually matter.

Facebook likes and Twitter followers are probably some of the better-known vanity metrics.  But they are far from the only ones.  And while some of these are partly useful (e.g., Facebook likes is an indicator of a warm lead repository for marketing on the platform), there’s almost always a better measure.

Because it always comes back to what your goals are.  Usually, that goal is to get people to take an action. Your metrics should be close to that action or the action itself.

Without further ado, some metrics to stop measuring.

Web site visits.  Yes, really.  This is for a couple of reasons:

  1. Not all visitors are quality visitors.  If you’ve been using Web site visits as a useful metric, and wish to depress yourself, go to Google Analytics (or your comparable platform) and see how long visitors spend on your site.  Generally, you’ll find that half or more of your users are on your site for more than 30 seconds.  Are 30 seconds long enough for people to take the action you want them to take on your site?  Not usually (except for email subscribes).

  2. Not all visitors are created equal.  Let’s say you find that people coming to your site looking for a particular advocacy action sign up for emails 10% of the time; those who come looking for information about a disease sign up 5% of the time; those who look for top-line statistics sign up 1% of the time.  Which of these is the most valuable visitor?

    This isn’t a trick question.  You would rather have one person looking for advocacy actions than nine people looking for stats.  Except that the metric of Web site visits lumps them all into one big, not-very-useful bucket.

These are both symptoms of the larger problem, which is that if you had to choose between two million visitors, of whom 1% convert, and one million visitors, of whom 3% convert, you’d choose the latter.  Thus, potential replacements for this metrics are visits to particular pages on the Website where you have a good idea of the conversion rates, weighted Web traffic, and (most simply) conversions.

Mail acquisition volume.  You get the question a lot – how many pieces are we sending in acquisition?  Is it more or less than last year?  And it’s not a bad estimate as to a few different things about a mail program: are they committed to investing in mail donors?  Is the program growing or shrinking?  What are their acquisition costs?

But from a practical perspective, all of these things could be better answered by the number of donors acquired (and even better by a weighted average of newly acquired donors’ projected lifetime values, estimated from initiation amount and historical second gift and longer-term amounts, but that’s tougher).  A good rule of thumb is:

Never measure a metric that someone could easily game with a counterproductive action.

And you can do that with mail acquisition volume by going on a spending spree.  Of course, you can also do that with donors acquired, but it will spike your cost per donor acquired, which you are hopefully pairing with the number of donors acquired like we recommend in our pairing metrics post.

Time on site.  You notice that people are only spending an average of 1:30 on your Web site, so you do a redesign to make your site and content stickier.  Congratulations – you got your time on site up to 2:00!

Someone else notices that people are spending 2:00 on your Web site.  They work to streamline content, make it faster loading, and give people bite-sized information rather than downloading PDFs and such.  Congratulations – you got your time on site down to 1:30!

Therein lies the problem with time on site – whatever movement it makes is framed as positive when it could be random noise.  Or worse.  Your sticky site may just be slower loading and your bite-sized content may just be decreasing conversion.

So another rule of good metrics:

Only measure metrics where movement in a direction can be viewed as good or bad, not either/both.

Here again, conversions are the thing to measure.  You want people to spend the right amount of time on your site, able to get what they want and get on with their lives.  That Goldilocks zone is probably different for different people.

Email list size.  While you totally want to promote this in social proof (like we talked about with McDonalds trying to get cows to surrender), you actually likely want to be measuring a better metrics of active email subscribers, along the lines of people who have opened an email from you in the past six months.  These are the people you are really trying to reach with your messaging.

When you remove metrics like these from your reporting or, at least, downplay them, you will have fewer conversions with your bosses that ask you to focus on things that don’t matter.  That’s a win for them and a win for you.

I should mention that I am trying to build my active weekly newsletter subscribers.  Right now, we have an open rate of 70% and click-through rates of 20%+, so it seems (so far) to be content that people are enjoying (or morbidly curious about).  So I’m hoping you will join here and let me know what you think.

 

It’s time to stop… vanity metrics

The human face of overhead

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I am overhead.  And I have been overhead for over eight years now.

I’ve been in charge of a direct marketing program.  I’ve participated in our board meetings, managed staff, and written fundraising strategies.

If you care whether you accidentally get two of a communication or not, that’s me.  I helped set up the database systems for our organization, set deduplication criteria, and worked to make sure our fundraising and outreach efforts run smoothly.

All of these are overhead.

When someone says they want to fund a mission or a cause, but not the overhead that goes along with it, they think they mean that they want to make sure nonprofit executives don’t fly to Gstaad on their private G6s.  

emirates-executive-lounge-area

Probably not the local homeless shelter’s board meeting. (Image credit)

What they actually mean, whether they realize it or not, is that they prefer that I and thousands of other people who work for nonprofits don’t exist.  No lawyers to sign our leases, defend our copyrights, and review our contracts.  No finance operations to make sure that every donor dollar is spent in accordance with policy and that all of the books balance.  No one on the other end of the phone to take a donation and talk with you about your monthly gift.  And no mail piece to ask you to give; you’ll just come to the Web site and do that on your own, right?  Not really, because Web software to accept and process donations is also overhead.

Not only do we need these, we want these (or, at least, we should).  Stanford Social Innovation Review said that nonprofits aren’t investing enough in these things and, as a result, are getting subpar results.

We transcend lean and mean; we are now emaciated and ticked off.

There are some lights in the wilderness.  The Ford Foundation, realizing that 10% was too little for overhead on its projects, has raised their limit to 20%.  And the initiative for the Overhead Myth is gaining some steam (although the irony of Charity Navigator being involved will be discussed later in the week).

But this is something we must address together.  As Ben Franklin said, “we must hang together or we will most assuredly hang separately.”

That’s why, even though they may work, I strongly encourage to remove your Charity Navigator four-star rating as a false badge of honor and for you to stop talking about the percent of your dollars that go toward your mission.  All of your dollars go toward your mission.  Some of them just take longer to get there.

The human face of overhead

Setting your direct marketing budget goals

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So, you want to budget for your direct marketing…

Wait.  Scratch that.

So, you have been told to budget for your direct marketing.  None of us really want to set a budget.  Yes, you want to be able to project what communications and campaigns will do, the better to measure expectations for the future and learn from our successes and failures.

But the ideal direct marketing world would be one where there was not a number to hit, but rather a series of goals.  You would set up your communications and tests, learn from what was done, retool the program for the future given what you’ve learned, and get hot oil massages from attractive members of your preferred gender(s).

Back in the real world, though, it is imperative that our causes know what they can count on from the direct marketing program and, ideally, from the bridges you have created to events, major gifts, planned giving, monthly giving, and corporate outreach.  Someday, I will blog about multichannel attribution, just as soon as I feel like I’ve figured it out myself.  Or, to speed things up, if you think you have a handle on it, email me at nick@directtodonor.com and I would love to give you a guest blogging opportunity.

These budgets let us know what staff we can bring on, projects we can take out, people we can help.  It’s imperative that we set them and that we stick to them.

I would argue there are three relevant things for which to budget:

  1. Net revenue. Think of your direct marketing program like a black box for a moment.

    black_box-aeroplane

    No, not that type of black box.  Hopefully.  Our black box is magical.  You can put in $100,000 and get $200,000 out.  You can put in $1.8 million and get $3 million out.  And, most importantly, you can put in X and get out Y, because our magic box is algebraic.

    Your organization needs to know what Y minus X is – how much does the magic box add to the money that is put into it.  Or, but another way, this is how much extra are you contributing to the mission through your activities.

  2. Program health. Your number and quality of donors determine how good your black box is going to be in future years.  There is a point at which this conflicts with #1.  A good program will take a maximized net revenue and reinvest some of that to help sustain and grow the program in the future.  Simplistically, this means acquiring donors.  Beyond that, it also includes the tests that fail so you have the benefits of the ones that succeed, cultivation communications that may not bring in immediate revenues but set donors up for better things down the road, and other tactics that sacrifice net for lifetime value (e.g., acquisition of monthly donors).
  1. Crosschannel health. This is more difficult to measure, but it will be to your benefit to start trying.  That is, how much if what you are doing helps out with other efforts.  A good example is with planned giving efforts.  An ideal target audience for planned giving appeals are 70-plus year old “tippers,” who give to your organization often, but not much, and who have substantial assets that may not be known by your organization or even conventional wealth screening indicators (living in modest homes and neighborhood, little to no stock activities, certainly no M&A or Wall Street stuff, and few political donations).  This is also a borderline audience for most direct marketing activities – they require more expensive (mail and phone) solicitation, they are unlikely to convert to monthly giving), and models will show them to have low lifetime value.  But what value do they have in the long-run?  A focus only on net revenue and traditional RFM-based file health metrics will ignore folks like this.

Purists will note that there are several things that are traditionally part of a budget that I don’t include here.  But that’s tomorrow’s post – the things that people think matter, but don’t.

Setting your direct marketing budget goals

7 direct marketing charts your boss must see today

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Yay!  It’s my first clickbait-y headline!

I preach, or at least will be preaching, the gospel of testing everything.  There have been times that it has been a rough year for the mail schedule, but then we get to a part of the year we tested into last year, so I know that the projections are going to be pretty good and our tweaks are going to work.  It is those times that there are but one set of footprints on the beach, for it is the testing that is carrying me. So I eventually had to test out one of these headlines — my apologies in advance if it works.

The truth is that there are no such charts that run across all organizations.  There are general topics that you need to cover with your boss – file health in gross numbers, file health by lifecycle segment, in-year performance, long-term projections, how your investments are performing.

But what you need to do is tell your story.  You need to analyze all of the data, make your call, and present all of the evidence that makes your case and all of the evidence that opposes it.

This sounds simple, but how often do you see presentations that feature slides that educate to no end – slides that repeat and repeat but come to no point.  Also, they are repetitive and recapitulate what has already been said.

On Monday, I brought up the war between art and science marketers.  The secret to how the artists win is:

Stories with pictures

Yes, really. The human brain craves narrative and will put a story to about anything that comes in front of it.  It also retains images better than anything else.  There’s a semi-famous experiment where they gave noted oenologists (French for “wine snobs”)* white wine with red food coloring. The experts used all of the words that one uses to describe red wine, without ever noting that it was actually a white wine. When confronted with this, the so-called wine experts all resigned their posts and took up the study of nonprofit direct marketing to do something useful with their lives.

winesmeller

OK, I’m lying about that last part.

My point is that we privilege our sight over all other sense – in essence, we are all visual learners.  When we see words on a slide, our brain, which is still trying to figure out why it isn’t hunting mastodons, sees the letters and has to pause to think “what’s with all of those defective pictures.”

So, as I’ve been writing a lot of defective pictures and I promised the seven direct marketing charts your boss must see today, let’s discuss a story that you would want to tell and how you would present it.

1.

Graph1

The idiot I replaced the idiot that I replaced cut acquisition mailings in 2012.

2.

Graph2

It spiked net revenue for a time, enough for him to find another job.

3.

Graph3

But that has really screwed us out of multiyear donors coming into 2015.  You can see the big drop in multiyear donors in 2014 because they weren’t acquired two years earlier.

4.

graph4

And multiyear donors are our best donors.  You’ll also note that our lapsed reacquired donors have greater yearly value than newly acquired with about the same retention rate.  Thus, my first strategic priority to focus more in reacquiring lapsed donors.  Not as good as the multiyear donor that idiot made sure we didn’t have coming into the file this year, but pretty darn good.

5.

graph5

Lapsed donors have actually decreased as a portion of our average acquisition mailing…

6.

graph6

…yet they have been cheaper to acquire.  In summary, they are better donors than newly acquired donors and they are cheaper to acquire, yet we’ve been reaching out to them less.  Thus, we have an opportunity here.

7.

graph7

Because of this insight and because my salary significantly lags the national average for a direct marketing manager of $67,675, I believe I deserve a raise.  I’m now open for questions.

I swear that in many presentations, this would be over 30 slides and over an hour long.  I’ve actually given some of those presentations and if someone was in one of those and is still reading this, I apologize.

Some key notes from this:

  • Note the use of color to draw attention to the areas that are important to you. Other data are there to provide background, but if you are giving the presentation, it is incumbent upon you to guide the mind of your audience.  In fact, if you are giving the presentation, you may wish to present the chart/graph/data normally, then have the important colors jump out (or the less important ones fade away), arrows fly in, and text appear.
  • As mentioned, this is a different structure of presentation that would normally occur. Normally, there would be a section on file health, then one on revenues, one on strategic priorities, and so on.  However, when you structure like that, the slide that makes the point of why you are doing the strategic priorities you are doing may be 50 slides early.  You can say, “remember the slide that said X?” but regardless of what the answer is, the answer is really is no.  You are smarter than that.  You are going to use data to support narrative, not mangle your story to fit an artificial order of data.
  • There is one point per image (with the exception of #4, which had a nice segue opportunity) and no bullet points. Bullet points help in Web reading (hence my using them here), but they actually hurt memory and retention in presentations.

With this persuasive power, though, comes persuasive responsibility.  Not in the sense that your PowerPoint will soon have you enough dedicated followers to form your own doomsday cult, although if that opportunity arises, please take the high road.

What I mean is as you get better and better at distilling your point, there will be a temptation to take shortcuts and to tilt the presentation so it favors your viewpoint beyond what is warranted.  Part of this is ethical, to be sure – don’t be that type of person – but a larger part is that no one person is smarter than everyone else summed together.  Even readers of this blog.  If you omit or gloss over important data points, you aren’t allowing honest disagreement and insights among your audience that can come to greater understanding.  By creating an army of ill-informed meat puppets, you are going it alone trusting on your knowledge and skill alone to get you through.  There will be a day and that day may be soon when the insight you will need will be in someone else’s head.

You do have to prioritize for your audience.  You may have noticed some other points you would have covered in these graphs – retention in this program is falling and cost to acquire donors is increasing.  This person chose to focus on lapsed but didn’t hide the other metrics, which is sound policy.

So we will cap off the week tomorrow with tricks that other people use to shade their data.  I debated doing this section because it could be equally used as a guide to shade your data.  But you are trusting me and I’m trusting you.  Knowledge is not good or bad in and of itself, but let’s all try to use it for good.

* Oenology is actually from the Greek words for “wine” and “study of,” but that isn’t funny…

7 direct marketing charts your boss must see today

Metric pairing for fun and nonprofit

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There is no one metric you should measure anywhere in direct marketing.  Like Newton would have said if he were a direct marketer, each metric must have an equal and opposite metric.

The problem with any single metric is, as either or both of Karl Pearson and Peter Drucker said, that which is measured improves.  My corollary to this is what isn’t measured is sacrificed to improve that which is measured.

So what metric dyads should you be measuring?

Response rate versus average gift: This one is the obvious one.  If you measured only response rate, someone could reduce the ask string and lower the heck out of the amount of the ask to spike response rates.  If you focused solely on gift amount, you could cherry pick leads and change the ask string to favor higher gifts.  Put together, however, they give a good picture of the response to a piece.

Net income versus file health: Anyone could hit their net income goals by not acquiring new donors.  More on this another time, but suffice it to say this is a bad idea, possibly one of the worst ideas.  Likewise, an acquisition binge can increase the size of a donor base very quickly but spend money even more quickly.

Cost per donor acquired versus number of new donors acquired: If you had to design a campaign to bring in one person, you could do it very inexpensively – probably at a profit.  Each successive donor because harder and harder to acquire, requiring more and more money.  That’s why if only cost is analyzed, few donors will be acquired, and vice versa.

Web traffic (sessions or unique visitors) versus bounce rate: Measuring only one could mean many very poor visitors or only a few very good visitors.  Neither extreme is desirable.

Click-through rate versus conversion rate: If only your best prospective donors click on something, most of them will convert.  More click-throughs mean a lower conversion rate, but no one should be punished for effectiveness in generating interest.

List growth versus engagement rates: Similar to Web site metrics, you want neither too many low-quality constituents nor too few high-quality ones. Picture what would happen if someone put 1,000, 10,000, or 100,000 fake email addresses on your email list.  Your list would grow, but you would have significantly lower open rates and click-throughs.  Same with mail – as your list increases, response rate will go down – you need to find if the response rate is down disproportionately.

Gross and net revenue: Probably don’t even need to mention this one, but if you measure gross revenue only, you will definitely get it.  You will not, however, like what happens to your costs.

Net revenue versus ROI: Usually, these two move in concert.  However, sometimes, additional marginal costs will decrease ROI, but increase net revenue per piece as in the example yesterday.  In fact, most examples of this are more dramatic, involving high-dollar treatments where high-touch treatments increase costs significantly, but increase net revenue per piece more.  A smart direct marketing will make judgment calls balancing these two metrics.

Net revenue versus testing: This is clearly a cheat, as testing is not really a metric, but a way to increase your revenue is not to take risks, mailing all control packages, using the same phone script you always have, and running the same matching gift campaign online that you did last year.  Testing carries costs, but they are costs that must be born to preserve innovation and prevent fatigue in the long run.

These are just a few of the metrics to look out for, but the most important part of this is that any one single metrics can be gamed (whether intentional or un-).  One of the easiest ways to avoid this is thinking in the extreme – how would you logically spike the metrics.  From there, you can find the opposing metric to make sure you maintain a balanced program.

Metric pairing for fun and nonprofit

The basics of direct marketing reporting – part two

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Yesterday, we talked about the key metrics you want to look at in Excel – 13-14 indicators that speak to you about progress and testing results.

However, a direct marketing Muggle will look and these data and say “Huh.  Interesting.” This is direct marketing Muggle code for “this is not interesting and it makes me think of my Algebra II class, which was taught by a nun.”

While you will want all of the data, you will want a skinnier, clearer chart for others, preferably with colors that call out what is actually important.  Let’s look at a fairly standard test – your thesis was that extra personalization in the letter would increase average gift versus your control.  Here’s what this could look like:

uglytest

The first thing to notice is that your hypothesis was wrong – average gift didn’t go up.  But now you have another decision – should you pay for the additional personalization in the future?

You, as a direct marketing professional, can read this chart.  The increased personalization caused response rate to increase.  As a result, gross income per piece went up and net income per piece went up.  However, return on investment went down; the additional investment didn’t bring in as much as the investments before it.  What would you recommend to your boss?

This is a judgment call based on your goals for your program.  One good approach would be to call for a retest – possibly with even more personalization or to see if you can get the personalization costs down or different ask strings to try to boost average gift.  This is clearly not in the 95% percentile one way or the other (which are other good fields to add to your spreadsheet when you get more advanced), so more testing would be good.

But I know which one I would mail more quantity of when the next test is done – I would use the personalization version as the control.  For me, net per piece matters more than ROI.  Our donors’ time is a scarce and valuable commodity.  There are only so many times you have the opportunity to get in front of them, so if you have the opportunity to maximize their investment of their time, versus trying to go for cost control in borderline cases like this one.

Charity Navigator would disagree with me, as they focus on cost of fundraising, so that’s another point in my argument’s favor.  Remember the Charity Navigator Constanza test – hear what they have to say and do the opposite and it will be to your benefit.

So now you have your course of action.  Now you have to have other people see it your way.  Time to explain it:

pretty test

The first thing to note is that it’s legible.  The second is quantity and absolute gross, net, and cost numbers are gone.  These don’t have any relevance to the decision over what to roll out with.  If you leave them in, there’s a natural human temptation to think biggest = better, especially when it’s called revenue and has a dollar sign in front of it.  For a layperson, it’s good to eliminate these distractions.

Then we’ve color-coded the winning parts.  Control wins on cost; test wins on response rate and ROI, gross income and net.  This helps draw attention to the salient bits.  It is amazing how much these little steps can help focus minds.

You will note that I left ROI in there, even though it is evidence that does not support the case you are trying to make.  I’ve talked about testing as a central commandment on the direct marketer’s tablets.  But testing is nothing if there isn’t intellectual honesty.  You have to make the case, but also give your team all of the information to challenge you and make your arguments better.

This is usually where the aesthetic marketers get us data-driven marketers.  They tell quality stories based not on what is true, but on what we wish were true.

We must become equally good storytellers, because a good story plus data beats just a good story.  On Thursday, I’ll talk about how to present data in a compelling way, but first, we have to figure out how to measure our metrics.

The basics of direct marketing reporting – part two