Mental accounting and nonprofit giving

Back in March, we looked at how people have different mental buckets for their expenses.  Certain amounts are set aside for home expenses, car expenses, utilities, entertainment, education, etc.  And there’s a bucket for many for charitable giving.  We talked about this in the context that you can (sometimes) get someone to make a gift they wouldn’t normally make by framing it as an exceptional expense — something they wouldn’t normally budget for.

Since then, there’s been a more in-depth look at mental accounting in nonprofit giving.  Monica LaBarge and Jeffrey Stinson published an article called “The Role of Mental Budgeting in Philanthropic Decision-Making,” as well as doing a podcast about it that you can listen to here.

Some key highlights from how people mentally account for their donations:

  • Generally, people substitute one charitable act for another, not for a non-charitable act.  That is, people substitute sports for movies or church giving for alma mater giving, but they don’t generally substitute movies for church giving.
  • The amount allocated to charitable giving is usually at about 10%.  It’s interesting to hear this, as this is the amount often suggested by religious institutions as the amount to give to them; generally, however, it seems to be a rule of thumb for charitable giving.  Even non-religious givers centered around 10%.
  • Interestingly, tickets to galas and events can be considered charitable gifts or in other buckets.  One donor to whom the researchers spoke talked about how buying a table for a gala was a business expense because that was his goal in sponsoring.  In the next breath, he talked about giving to an organization through a ticket purchase because he knew the person being honored.  Thus, it’s important to understand how the giver classifies their giving to you.  You may be able to take multiple buckets to maximize your giving.
  • The happier people are with their giving to you, the more they are able to give.  This sounds obvious, but when someone enjoys giving to you, they are willing to dip into other buckets (like entertainment) that may not normally be open to you.
  • You may be able to work with business people who support your organization to sponsor in ways that help their business, giving you access to their business budgets.  Focusing just on philanthropic giving caps your upside with your donors.

Much of this comes back to the dictum “know thy donor” — the more you know about how your donors think of you and their experiences with you, the better off you are.

Mental accounting and nonprofit giving

Winning the battle against scope insensitivity, part 2

A reminder for those joining our program already in progress: scope insensitivity means that people are willing to give the same about to solve a program almost no matter how big it is.

Part of this is likely that humans don’t reckon big numbers well.  After all, in our salad days, we needed to figure out how many animals were nearby and how many people were in our group, but we didn’t need to count the stars or, God help us, remember how many zeros are in a petabyte (answer: a lot).

Which leads us to have troubles with numbers like this:

1000_times

Thanks to xkcd for the illustration.

So how do you make large numbers comprehensible to your target audience?  In a great piece on Gizmodo, mathematician Spencer Greenberg covered some important ways to anything over a thousand into perspective.  His tips include:

Breaking the number down.  When MADD talks about the cost of drunk driving, the amount talked about is usually not the billions of dollars; it’s $500 for every adult in the United States.  Everyone can picture $500 or what they could buy with it, whereas we don’t know where to start with a billion dollars.

Actually, we do — with a vintage battleship gray Aston Martin DB5 — but that’s only a start.

Change the unit of measurement. The example he gives in the article is when talking about the deepest point in the ocean, don’t say 36,000 feet; say almost seven miles.  I would argue that for nonprofits, you may want to change the type of unit of measurement.  When doing earthquake relief, 8.4 on the Richter scale may not mean much.  But “I saw a sign that talked about the building being earthquake-proof buried under a pile of rubble” gives someone an idea for the force we are talking about.  Or 8.4 can be “the same force as the largest nuclear weapon ever tested.”

Batching the numbers.  We can’t picture 2.3 million people.  But we can picture the football stadium we saw on TV last night.  So “every NFL stadium filled to capacity at once” gets the message across.

Incorporate time.  In the article, he mentions that during the Battle of Stalingrad, Russians broadcast the message that “every seven seconds, a German soldier dies in Russia.”  That gets the message across (that message being “RUN!!!”) in a way that 388,000 people dying each month does not.

These are some good tips.  I would add another — infographics.  For the modern nonprofit, an infographic can explain in a way that simple numbers can not.  There is a strong article in this month’s Bulletin of the Association for Information Sciences and Technology (get it on any quality newsstand today!) that highlights tips for creating a good infographic.

They include:

  • Identify a meaningful comparison for your audience. It has to be something that resonates with your audience, not just you.
  • Tell your audience what you want them to do or think. Like all things, we want to begin with the desired action in mind.
  • Don’t crowd your message with less important numbers or statistics.

There are some good nonprofit examples in the article, so I recommend a read.  Hopefully, you can now get your millions and billions down to something that people feel like they can do something about.

Winning the battle against scope insensitivity, part 2

The limits of urgency

Back in December, we talked about how scarcity and urgency can help build response and persuade people to give.  But in April, we reviewed a study that indicates that a deadline actually suppressed response rates and that that suppression is only lifted when there is a good reason for a deadline, like the end of a matching gift.  

So how does urgency affect an appeal?

Two researchers took a look at this with a large Danish charity.  

danish

A large Danish.  But not a large Danish charity.

In email, they had four test groups.  All received the same email with the subject line “Lokwang is grilling rats”.  This isn’t actually the first half of a Cold-War-era spy passphrase (where the other spy is supposed to say “But the oyster wears a fine green wristwatch”); it tells the story of a child named Lokwang who go weeks without food who eat rats in order to survive.

The only difference in the emails were that they had different deadlines:

  • Three days out
  • 10 days out
  • 10 days out + a reminder email
  • 34 days out

Similarly, they ran text campaigns with deadlines two days, three days, and 34 days out.  If a donation was made before the deadline, it would be matched.

The deadlines had no significant impact on the propensity to give.  None.  The researchers found a “now or never” effect that you probably have seen with every email you’ve sent — people generally act upon reading it or not at all.  Text messages, even more so.  

Additionally, the increase in urgency was linked to an increase in requests to be removed from the email/text list.  I usually don’t look too much at this as a metric, since often the things that are most effective have higher removal rates (after all, if you have double the open rate, for example, the more people are exposed to the “unsubscribe like.  The only email that would have no unsubscribes to a list of size is the one that was never opened.

What did increase giving was the reminder email/text message.  While this also increased the unsubscribe rate, it also increased giving rates by over 50%, a trade off you almost certainly are willing to take.

So perhaps urgency is not as powerful a force for online donations as perhaps I had thought.  While I’m thinking it still definitely has places in end-of-year fundraising, disaster fundraising, and a few other places where urgency is real, this would tend to indicate that manufactured urgency may be unnecessary and, in fact, counterproductive.

The limits of urgency

Mars, Venus, and social proof

Here at Direct to Donor, we have a tradition – every 100th post anniversary, we take a look back at some past posts and update them with new information.  “Tradition” may be a bit strong, since we will hit 200 posts this week, but we’re working on it.

Back in February, we took a look at how women and men donate differently.  TL; DR?  Women generally donate more and more often.  Women respond best to social proof, clear injustice, and efficacy appeals; aligned self-interest worked best for men and worst for women.

However, there is a new study that may shed different light on the gender* dynamics of social proof.  In the original study, here’s the phrase researchers used to try to get men and women to donate in the social proof condition:

“When you give to CRP, you join your fellow citizens in helping to fight poverty. The poor are now being helped by record numbers of charitable givers across the country. You can join the movement to eliminate poverty with your contribution to CRP.”

As you can see, this doesn’t mention a specific amount – the social proof comes in the decision to donate, rather than the amount to donate.  The researchers in this case found that women donated more often to this type of appeal.

The reason I go through this set up is that there is also a study out that indicates something different.  This study from Croson, Handy, and Shang looked at a radio station call-in scenario.  Subjects were told, after making a $25 gift, that someone else had just donated either $10 or $50.

Croson and Shang have looked at this type of data in the past (here and here), finding that this type of social pressure/pull can significantly increase the amount given by a person.

Here, they asked subjects how much they think and average station listener would contribute and how much they would contribute in the next year.

It turns out that social norms did influence contributions, but almost entirely from men.  So men were more likely to use this social information to inform the amount they gave.

So, these sound like two opposing studies – one indicating that social norms work better on women; the other indicating they work better on men.

However, I think there is a way to reconcile these results.  It would appear that social norms – how a community is banding together to help fight poverty – are more influential for women than men when it comes to deciding whether to make a donation.  However, when the time comes to actually make the donation, women will keep their own counsel about how much to give more than men, who are more influenced by outside views.

This is an interesting area of research; I hope we can get research that is able to show a clearer direction.  In the meantime, I would keep appealing to men and men alone with enlightened self-interest and use social proofing as a strategy to anchor men to higher gift amounts.

 

* Technically, it’s sex dynamics, since the study appears to have looked only at a male-female dichotomy, but “Sex Dynamics” sounds like a book you would get on Kindle so no one would see you looking at the cover.

Mars, Venus, and social proof

Quantity versus quality of pieces in donorcentric fundraising

Food for the Poor, the DMA’s Nonprofit of the Year last year, sends 27 mail pieces in its control donor series throughout the year.  These are all very good donorcentric letters, focused on the impact that you as a donor are having in saving people in their times of desperate need.

Another nonprofit of my acquaintance that will remain nameless, sends out one appeal per year.  When they asked me whether they should send a second piece, I told them that they should make their one piece work first, because it was not a compelling appeal.

There are wonderful donorcentric people who argue that nonprofits need to reduce the amount they communicate across the board.  I would argue that they need to reduce the amount they communicate badly.

Let’s take a look back at the reasons that people give for stopping giving to a nonprofit from Dr. Adrian Sergeant (first covered in Wherefore Segmentation):

 

reasons-for-lapse

As you can see, 72% of the reasons were related to not getting our message across like “other causes are more deserving” or “I don’t remember donating” or “they don’t need money any more.”  Less than four percent said inappropriate communications.  People are leaving because we persuade too little, not too much.

And as for the sentiment you may get about mailing too much, Van Diepen et al looked at irritation from nonprofit mailings.  They found that irritation can be incurred from mailings, but that it had no impact on revenue per mailing.  That is, people kept donating at the same rate per piece.

As Jeff Brooks put it in his wonderful book The Fundraiser’s Guide to Irresistible Communications:

[A] typical donor gets at least 10 pieces of unsolicited mail every delivery day.  That’s 3,000 pieces a year.  If you write to a donor twelve times a year, you’re sending 0.4 percent of her yearly total.  If you stopped mailing, the daily average would drop from 10 to 9.96.  Not a meaningful difference for you and your donor.

But for you, that cutback would mean lost revenue, forever.  A loss of hundreds, maybe thousands, of dollars from each donor.

You’ll never solve the Too-Much-Mail problem if you treat it as a numbers game.  The real issue is the relevance of the mail, not the volume.

All of that said, you could be mailing too much, as measured by both your net revenues and a true donor focus.  Here are some of the symptoms:

  • Channel mismatch. It is correct and laudable to try to get an online donor to give offline and vice versa.  However, there is a point of non-response (that varies by organization) at which the online donor is very unlikely to give.  For example, if someone gave their first gift online, continues to give on online, and hasn’t so much as looked at 10 mail pieces from you, you might be wasting money in sending those appeals (note: I say those appeals – perhaps a mailing that encourages her to go to the Website and make a donation is just what the doctor ordered).
  • Seasonality mismatch. If someone donates every November or December like clockwork, but never a second gift in the year over five years, you are probably safe in reducing the mailings they receive in spring and summer.  Note that I don’t say eliminate.  It could be that the updates they are receiving in the summer are the reason they donate in the winter.  But you can probably save some costs here.
  • Mismatch of interests. As we’ve advocated in the “change one thing” approach to testing, you can find out what messages people will respond to and what they won’t.  One you learn that, for example, a person only gives to advocacy appeals, you can safely cut some of the other types of messages they get.  Or someone who only gives to premium pieces get premiums (but for whom they are a turn-off don’t).
  • Systemic waste. Additional mailings should do two things: increase retention rates and increase total program net revenue.  That is to say, it’s not enough to say “this piece is a good one because it netted positive”; you need to be able to say that without the piece revenues would have been down overall.

To make the math simple, let’s say you mail three pieces, each of which gets $100K net revenue.  If you eliminated one of them and two pieces started making $150K net, that third piece was not netting program revenue (unless it was a cultivate piece that set up future year’s revenues or had an upgrade component or the like.

What this nets out to is that in a donorcentric future (or, at least, in my donorcentric vision of the future), people will ask how many control pieces you send and you will have to say that it depends greatly on the donors themselves (or give a range like somewhere between two and 30 pieces per person).

And, of course, that each of these pieces is customized and crafted to appeal to that particular donor or segment.  That, in my mind, is listening to the donors and not trying to let a Platonic ideal donor get in the way of each precious unique donor snowflake.


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Quantity versus quality of pieces in donorcentric fundraising

Donorcentricity: it’s only a fad if you aren’t doing it

I had the pleasure of doing a debate at last week’s DMA Nonprofit Federation Leadership Conference with Lynne Wester, the Donor Relations Guru, about donorcentricity.  She was pro (and was a pro, surprising no one); I was con.

Several people asked me afterwards what I actually believe.  For the most part, I’m very much pro-donor-centrism.  I took the con side because I believe what John Stuart Mill said:

quote-however-unwillingly-a-person-who-has-a-strong-opinion-may-admit-the-possibility-that-john-stuart-mill-125-26-67

And also because sometimes an admirable goal of improving the nonprofit sector’s sometimes abysmal treatment of donors loses sight of the goals of fundraising.

So this week, I’d like to poke, prod, and challenge the wisdom for and against a donor focus, starting with what it is and why it’s important.

The answer is not to make our donors feel better.

The answer is to cure cancer.  Or end drunk driving.  Or prevent mistreatment of animals. Feed the hungry.  Protect the abused.  Light the fire of education.  All this and more.

To do these things, we need money.  To get money, we need donors.  To get and keep donors, we need our donors to give happily.  Thus, making our donors happy is a good goal.  It’s just not the end goal.

But at the same time, we ignore it at our peril.  In the room, I talked about the amazingly low retention rates we have, especially for first-time givers, as a reason to churn-and-burn.  My actual conclusion could not be farther from the truth – retention is something on which can we continually work and improve.

We face numerous challenges right now to the very model of nonprofits historically.  Donors are looking to fund an impact and a cause, not necessarily an organization.  Why should they pay what they perceive to be (but aren’t) high overhead rates when they can do a microloan with Kiva, or directly fund a school through DonorsChoose or find a particular person in need through GoFundMe ?

In addition, aggregator sites are more than happy to give nonprofits the money as long as they own the constituent.  Facebook, usually a reliable example of most examples of walled gardens and rented land, is one of these where information does not get to the nonprofit for meaningful communication.

All of these satisfy donors’ needs to make a difference and feel an impact, while not engaging with an organization.

There are three ways I can see to adapt to this new world:

1. Fail.  Remember, in the words of Adam Savage:

8f91734f6c29ed44eb6cdf9041940470

This may not sound particularly palatable, but it’s better than being the best buggy-whip salesperson or whale-oil-light manufacturer or print journalist left on earth.

2. Compete on the value of our models for effectiveness. Small scale efforts like GoFundMe can fund one person, but they can’t fund a systemic scale against hunger.  Individual donors tend to pick projects based on the basis of attractiveness and skinniness and whiteness (unfortunately), so nonprofits fill a role in helping everyone.  Small efforts can’t effectively change laws or study methods for change.  And they while they fix things well, they can’t prevent them from breaking.

Unfortunately, these are usually tough sells.  For years, we have talked about the systemic problems through the story of the one.  It’s the one that touches the heart and we know that emotion is far better than education in low-dollar appeals (and since you attract people as low-dollar donors, that hurts acquisition as well).  If someone can see a person’s plight and fix it, rather than the underlying problem, easy trumps thorough.

3. Compete based on how well we can treat donors. That’s donorcentricity.  That’s where we can have a meaningful advantage.  One-off sites like Facebook can’t build a relationship around an issue like we can.  And while Kiva is fabulous in terms of creating an addiction around helping, other sites lack in this regard.

So rather than die off, donorcentricity is going to be (in my mind) how we justify our very existence: we are the best at creating meaningful connections between donors and the world they wish to create.

So this is not a fad.  It is not everything, but neither is it nothing.  But in my mind, it also doesn’t mean what some people think it means.

Along those lines, I’ll be talking about communication quantity tomorrow.

Donorcentricity: it’s only a fad if you aren’t doing it

Ask string amounts: to round or not to round

 

Rounding can be controversial.  On the one hand, round numbers could potentially help with fluency, which is crucial in persuasion.  Rounding out ask strings can help you get out of weird numbers that consistent upgrading can create (e.g., if you donate $30, then upgrade by 50% each time, that’s $45, $67.50, $101.25, then $151.875.  And if you haven’t got a ha’penny, then God bless you).

On the other hand, there is a potential draw in using an odd amount specifically to stop someone short (e.g., your $17 will feed X people).  In fact, in face-to-face settings, panhandlers found that when they asked for change, 44% of people contributed.  When they asked for a quarter, 64% contributed.  When they asked for 17 cents or 37 cents, 75% of people made a contribution.  This is called the pique technique: the idea being that the odd request breaks people out of their normal mental structures, forcing them to think about what you are saying.

However, this may or may not be as applicable in non-face-to-face environments.  Burger et al took a look at the mechanism by which this worked.  They found that contributions only increased among people who came over to ask a question; there was no difference in giving between people who were given a specific answer (e.g., “I need to buy a stamp”) versus those who were given a generic answer (e.g., “I need to buy some stuff”).  Since there isn’t a mechanism for someone to stop and ask you a question in the mail or online (yet!), this technique may not work on asynchronous platforms.  And, in fact, a study of the pique technique when applied to causes, rather than donating directly to the person face-to-face, found no significant difference with this technique.

There is, however, evidence that rounded numbers can increase giving.  One study of donations found that rounded values increase giving by seven percent.  Specifically, they found that people were more likely to choose things that were on the ask string (what they called an appeal scale) than rounded numbers not on the ask string, but that a good number of people wrote rounded numbers in as the other when not on the ask string.  Additionally, they found when a round number was on the ask string, there was a particularly strong pull of that number on donations.

In addition to articulating that round numbers have a pull that is independent of the pull of a person’s internal reference point and the ask string itself, they also helped define a conundrum.  To wit: what is a round number?  As the authors put it:

“While the notion of a round quantity is seemingly intuitive, it is nonetheless difficult to make precise. Round numbers are operationalized in the present paper as the face values of commonly used French currency notes or small integral multiples thereof. Based on the data used here, this functional definition accounts for all but a negligible proportion of off-scale donation amounts, in the sense that adding or removing additional rounded values does not substantially alter any aspect of the analysis.”

As we noted in the all about the Benjamins piece, these banknote values are especially strong — $100 in particular. 

 

In summary, fluency seems to trump creativity in the case for round numbers, especially at higher levels.  If you are looking to increase average gift, it should be to something that is highly fluent like $20, $50, or $100; if you have to be creative, do it with lower ask amounts so that they don’t have as much draw.

However, there is some evidence that having one oddball, very high donation amount can be helpful, as we noted with the Make-a-Wish Canada example here.

The idea of providing an outlier as a potential anchor and/or moneymaker is an interesting one.  While I could find no data on this from the nonprofit world, there are studies from the for-profit world that indicate that the existence of one very high product can increase what someone is willing to spend on a medium-priced product.  This explains the existence of those news stories you hear from time to time about how someone has created an even more expensive hamburger, made with wagyu beef, caviar, gold leaf, and unicorn tears.  

ht_burger_kb_120530_wmain

Medium rare, unicorn tears on the side, please.

Having this burger on a menu, in addition to the free publicity, could also increase average spending.


 

This post is a section of my upcoming, not-quite-a-book, not-quite-a-white-paper about ask strings.  It will be free to all subscribers to my free weekly newsletter, so please sign up here.

Ask string amounts: to round or not to round