Let's Raise Some Money
Insights from Karen Climer about fundraising and nonprofit organizations

How Much Should I Spend On Cultivation And Renewal?

December 2nd, 2013 by Karen Climer

Last week, I wrote that acquisition is a losing-money deal.  If you have to spend more money to get a gift than the gift is worth, then how does the organization survive?  By renewing the gift.  The longer you keep the donor, the more profitable their gift becomes (even if they never increase their gift).

According to the Fundraising Effectiveness Project, every $100 gained in 2012 was offset by $96 in losses through gift attrition.  Furthermore, every 100 donors gained in 2012 was offset by 105 in lost donors through attrition.  That’s 105%.  Holy cow!  More donors are running from our nonprofits than would run from a burning building!

There is always going to be some attrition, but 105%?!  What is the problem?  I believe the problem is the short-term thinking that is rampant in our sector.  We are focused on this year, and this year only.  If we can just meet our goal for the year, we will worry about next year, well, next year.  Since we are focused only on this year, we don’t spend any money on cultivating and renewing donors.  Or if we do spend money on it, we wait until we are ready to ask for a second gift.  But if you ignored your donor for a year, it’s no longer renewal.  You are back to acquisition.  That gift will require as much effort (and cost) as the original acquisition.  So, you are even further from breaking even or losing money with this donor.

We are trying to cut costs because we are focused on the short-term.  But donor retention is not a cost – it’s an investment.  According to Adrian Sargeant, by improving your donor retention by just 10%, you can double the lifetime value of your database.  Let me say that again … if you improve your donor retention by a mere 10%, you can double the lifetime value of your database.

The original question from my colleague related to whether more should be spent on acquisition, renewal, and cultivation.  The answer is you have to spend money on everything.  When I say spend money on everything, that doesn’t mean you go on a fundraising shopping spree.  Spending money alone will not increase your fundraising results.  You have to be intelligent about it.

I would encourage all nonprofits to do the following:

  1. Measure cost-per-dollar-raised, but focus on lifetime value of a donor.  You have to know these numbers for YOUR organization (not national averages, but for your organization).  If you don’t, how are you measuring your fundraising costs?
  2. Don’t expect all segments of your income to achieve the same cost-per-dollar-raised.
  3. Once you know the cost-per-dollar-raised and the lifetime value of a donor for your organization, focus on improving it.

 

The original question from a colleague was about fundraising costs, and what segments should largest piece of the fundraising budget.  My final answer is the same as my original answer from last week: “It depends.”

If you have any thoughts about fundraising costs, please leave a comment below.

Posted in Cultivation, Fundraising Costs, Renewal

4 Responses

  1. Martha

    It all boils down to…
    1. know thy donor (customer)
    2. know thy numbers
    3. measure thy numbers

    your blog is, once again, right on the money!!

  2. Karen Climer

    Right on the money … is that a fundraising pun? (I crack myself up.)

    Your comment reminds me of the old adage about the things that get measured get done. Be sure you are measuring the right things. Based on the results of the FEP study, too many of us are measuring net revenue. What we should be measuring is lifetime value of the donor.

    Thank you for reading.

  3. Lynn

    This all goes back to the fundamentals of stewardship. If we are truly valuing our donors then they wouldn’t be leaving.

    Practice the fine art of THANK YOU and your numbers will improve.

    Add a #4 to what Martha said:
    4. thank thy donor

  4. Karen Climer

    Absolutely, Lynn! Thank you for your comments.

    If you practice the fine art of thank you, your numbers will improve. But as Martha said, you have to know and measure the numbers to know if they improve.

    Thanks again for reading and for your comments.

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