RFM analysis

Saving money with DIY analytics

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I probably should not be the person talking about DIY.  I have a T-shirt that has a bit of every paint color I’ve ever painted a room, because I am physically incapable of not dripping on myself.  And that is minor compared to some of the crimes against home-anity I’ve committed.

Let me take the opportunity to apologize to everyone who has ever bought a house I’ve worked on.  I hope the electrical burns have healed by now.

But I do believe in DIY analytics and tricks to save money.

You can and should be using professionally produced models.  Many of them will help save you money and/or produce additional revenues.

But you can do a few things on your own to avoid breaking the bank, speed the rate of progress, or both.

Here are some cost-saving things you can do in your own spreadsheet:

Any others that Direct to Donor readers have used?  Please let me know at nick@directtodonor.com so I can share with the community.

Saving money with DIY analytics

Toward a linear RFM

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In addition to the many challenges of RFM already discussed, the segmentation puts up artificial barriers between segments.  Some of these include:

  • Let’s say someone is one of the people we talked about yesterday that gives every November or December.  If s/he gave in November 2014, then again in December 2015, are you really going to consider them having “lapsed” in the middle?
  • The distinction between frequency groups is artificial. As we discussed on Tuesday, Sandy, who gave you 100 gifts, and Miriam, who gave you two, are both considered multidonors for most RFM segmentations.
  • The distinction between monetary value segments is artificial. Which donor would you prefer – a donor who donates $10 ten times per year or a donor who donates $50 once a year?  RFM prefers the latter; I’m guessing you would prefer the former.

But how to do you create equivalencies among every different segment?  Would you rather have a donor who gave $100 to an acquisition package six months ago or a loyal semi-frequent $20 donor?

The ideal would be to run a model with lifetime value as the dependent variable and your traditional RFM variables, plus as many of the ones that we’ve talked about this week, and determine what your actual drivers of value are.

But lifetime value, as you can tell from the name, takes a long time.

So let’s steal a rule-of-thumb model from the for-profit world.  Connie Bauer first (at least first to my knowledge) proposed this in an influential 1988 Journal of Direct Marketing article called “A Direct Mail Customer Purchase Model.”  Here, I’ve replaced purchases with donations; I think it works in our world with this replacement.  To get the RFM score, you multiply these three things together:

  1. The reciprocal of recency of the last donation in months.
  2. Number of donations
  3. The square root of the total amount of donations the person has made.

There are a few things I like about this shorthand:

  • There’s a reasonable equivalence between recency and frequency.  Would you rather have someone who has given four gifts who gave their last gift a year ago or someone who has given two gifts and their last one was six months ago?  These would be roughly equivalent in this model and that looks about right.
  • It mitigates the artificial distinction between months.  That 12-month versus 13-month difference that in a normal RFM analysis could be the difference between sending and not sending a communication?  In this model, it’s about an 8% difference in scoring.  Important, but not fatal.
  • Because I’ve not seen the effect of the sheer numbers of gifts have a huge impact (once you get above a certain point) on retention rate, it seems intuitive that monetary value is a smaller factor than the other two.

There are some weaknesses.  Donation amounts aren’t linear: if someone has given a $25 gift in the past, the odds that they will go from there to $26 to $27 is not likely.  Some time periods, like a year, are somewhat magical, especially for one-gift-per-year, seasonality-focused donors.  And in an ideal world, you would want more recent gifts weighed a bit more than more distant gifts.  A donor’s behavior tomorrow will be more like their behavior last month than their behavior in 1988.

But given that, it’s an interesting look at the topic.  I hope the week gives you the courage and the tools to take another look at your segmentation strategy and calculations.  You’ll go nuts if you try all of these simultaneously, but conscious and continuous improvement can make huge differences in the long term.

Toward a linear RFM

Vive le donor difference

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When Iyoure-killin-me-smalls-quote-1 was but a wee lad, I played youth baseball.  Or perhaps more accurately other kids played baseball at me.  I excelled in three things and three things only:

  • Bunting
  • Getting hit by pitches, to the point that I once got hit by a pitch that was called a strike.  I had to wait to get hit by the next pitch to take my base.
  • Stealing signs.

This last was where my “talent” was.  I would watch the third-base coach and when I thought a steal was coming from the signals, I would yell into the pitcher and catcher from my position in right field.  (Of course I was in right field.  There’s a chance someone might hit the ball to left field.)  I probably caused more outs with catching signs than catching balls (though still far less than I caused by batting).

The trick to stealing signs is to look for what is different from the usual.  The same is true for catching donor signals – the trick is to look for what is unusual and work from there.  Some tips:

Seasonality: Most donors are season agnostic.  They donate when an appeal touches them or strikes their fancy or they hear about you on the news or they found a $20 in a purse in the back of a closet.  However, some will renew membership in January like clockwork.  Others believe in end-of-year giving (this is prevalent among online donors).

Like everything else, there is a way of doing a sophisticated model to determine this.  However, like only some things, there is also a fast, relatively easy, and free way to do it in Excel or similar spreadsheet:

  1. Pull all of the gifts at which you want to look.  I would recommend donors with at least three years of giving history and at least four gifts, so you have a sufficient history to work with.  You want the gifts labelled by a unique donor ID number.
  2. Label all of the gifts by month (1 = January, 12 = December, and everything in between)
  3. Run a pivot table that summarizes the gifts by donor with the min month and the max month.
  4. Subtract the min from the max.

(If you’d like a walkthrough of this in more detail, please email me at nick@directtodonor.com)

Now look at the results.  The majority of donors will likely have a wide spread of 9, 10, or 11 months.  However, you will also see some 0-3 month spreads, meaning that over (at least) a three-year period and (at least) four gifts, they have given to you only in one quarter of the year.  Thus, you can likely reduce your costs on soliciting them in the other quarters of the year (not eliminate, as you don’t want them to forget you exist).

If you want to be very thorough, add six to each month number and repeat to capture those few donors who may focus their gifting around both the end and beginning of the year, but not the middle.

Premium v non-premium: This is actually the same analysis as the months, except instead of coding your gifts by month, you need to code your communications by whether they required a giveaway to give.  Some people will present as exclusively premium or non-premium donors.

This is powerful combined with seasonality analysis; if you find someone only gives at the beginning of the year to your membership campaign and has never given to a premium piece, you don’t need to send them address labels in May or the calendar in September or telemarket to them in June.  Instead, you can use lower cost (and more cultivative) pieces like donor newsletters to maintain the relationship with them.  Yes, this may only be saving $3 per year per donor, but if there are 10,000 of those donors on your file, you are talking about real money.

Out-of-place gifts: Someone has given you $10 times.  They just make their 11th gift to you: a $173 check.  What should you logically ask them for next time?

HPC says you should ask them for $173 (possibly rounding to $175).  Common sense says that the person may not have turned from a generally smaller donor to a prospective mid-major prospect overnight.

Research indicates a better answer is to use average donation of giving for longer-term donors.  Thus, you see the anomaly, take it into account, but don’t let it drive your decision making.

Another potential treatment is to use a continuous, rather than segmented, version of RFM.  We’ll discuss that tomorrow.

In the meantime, if you are interested in more research on ask strings and amounts you should ask for, I’m working on a book/white paper/whatever it ends up being on just that topic.  Newsletter subscribers will get a free PDF copy of it when it comes out, so if you would like one, please sign up for my free weekly newsletter here.

Vive le donor difference

Using non-donor knowledge to enhance segmentation

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Yesterday, we introduced you to two special people that a traditional RFM analysis would group as 4-6 month $25-49.99 multis.  To wit:

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.

We talked about how their donation history can and should differentiate them.  There are additional indicators here, however, that can also enhance your messaging and segmentation:

Online interactions.  If someone is active online, it’s relatively simple to group their interests by their activity – what they click on, look at, and interact with.  (Actually, technically, interact with is the easiest, click on is slightly harder, and look at can be a bear with some online tools.)

With Sandy, she is an advocate for you and doesn’t seem to require premiums to donate – perhaps you can replace the labels in that upcoming package with a paper version of an action alert – cheaper, and likely more effective.

Other organizational interactions.  Sandy has been a walker – do you want to mention that your walk is coming up in 90 days in the PS or in a buckslip?  Similarly, you should probably customize the messaging to acknowledge that she has given her time as well as her donations.  Making her feel known will only help her loyalty.

Outside data.  Getting outside data on your donors can help you adapt your tactics.  If you find out that Miriam does all of her banking online, perhaps she’s a better target for an EFT-based monthly gift than you thought (with the right messaging).

List co-operative data may indicate that that she gives to nine other charities far more often and more generously than to you.  Perhaps she’s just not that into you and you might want to cut your losses soon than you might have thought.

You may find out she does a lot of business on the telephone and find that it isn’t your organization that wasn’t lighting her up; it was the means by which you were approaching her.

All this and more can come from data appends.  And you can try to get that email address and engage her online, so hopefully you can learn more about her.

All of this – donor and non-donor interactions – are masked by an overarching RFM category.  But what if we could dispense with RFM categories altogether?  We’ll talk about that Friday; if you don’t want to miss it, or any of our Direct to Donor posts, please sign up for our free weekly newsletter.

Using non-donor knowledge to enhance segmentation

RFM segmentation alone must die

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220px-lev_trotskyRecency, frequency, and monetary value (RFM) are the ruling troika of segmentation-land.  And like one of the old Soviet troikas, they brook no challenge to their rule (e.g., Trotsky, pictured at right, was murdered on Stalin’s orders with an ice ax).

But they are simply not good enough alone anymore.  I tried to be civil about this in my post Beyond RFM.  But beyond is not good enough.  We need to let a million flowers bloom in the world of segmentation.

This means taking the “7-12 $15-$19.99 multi-donor” view of segment out for a date with your ice ax.

OK, not really.  It’s still going to be a decent starting point.  But it has to stop being the ending point.  Even for those of us that have to leave complex modeling to people with more letters after their names.

So this week, I’d like to take you through various different ways of figuring out the all-important question “is communicating with this donor in this way going to help achieve my goals of net revenue, quality file growth, and/or world domination?”.

And the first topic that should be layered on is listening to what a donor’s behavior is telling you.

Part of this is non-donor behavior.  You likely already have this information if you have the donor’s email.  You can potentially tell if they’ve been to your Web site, how often, how long they spent, and what they looked at.  You definitely should be able to know how they’ve reacted to emails you’ve sent them in the past.  The difference in a lapsed donor who still regularly opens your emails and clicks on the articles versus one who, according to your email records, may or may not be dead is a significant one.

If you can get robust data, so much the better, because now you can not only include people in a communication they may not have received before, but also customize it based on what they are interested in.

But some of this is donor behavior you already know, but RFM filters out.  Channel is one. Take an online donor who is reliable and frequent at donating online.  If you’ve mailed her/him 25 times over the years to try to get him/her to donate, but s/he hasn’t responded, chances are that s/he doesn’t want to give through the mail.  Personally, I’ve found telemarketing to be the most persnickety channel: those who give through it really give through it; those who don’t, really don’t.

Another is cadence.  If someone has given you ten gifts in the past ten years and all of them have been in November or December, my money is on the fact that you can ease off the gas in May.  One program of my acquaintance runs a membership campaign that starts every January.  There is about five percent of their file that will give a membership gift like a clockwork every January or February and then nothing for the rest of the year.  Should you stop trying to get extra gifts?  No.  Should you cut your cadence way down and save yourself some costs?  Yes.

These are things the donor probably thinks they are telling you explicitly with their behavior.  It’s now incumbent upon you to listen.

Because tomorrow, things get a little bit harder, as we talk about lifecycle and loyalty.

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RFM segmentation alone must die

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