Effectiveness in Donor Acquisition

Presented by Douglas K. Shaw

January 28, 2010

Contents are copyright © 2010 by Douglas Shaw & Associates, Inc.,

DEVELOPING A “BALANCED PORTFOLIO”

Donor acquisition is much like investing in the stock market. It’s wise to have
diversity in your donor acquisition program. This is important for many reasons:

1. It reduces your exposure if something should go wrong.

2. It allows for multiple exposures to your most promising prospects.
3. A balanced portfolio allows you to maximize the number of donors you are able
to acquire even if some of them come at a fairly high cost.

Some of the most commonly used approaches to acquiring new donors are:

‰ Direct Mail to “response lists”

‰ Saturation mailings to your entire community
‰ Coupon mailers e.g. ValPak, ADVO etc.
‰ Stuffers in utility bills, newspaper subscriber bills and cable TV bills
‰ Free Standing Inserts (FSI) inserted into your newspapers
‰ Print and on-line Advertising
‰ Annual PR/Marketing Campaign
‰ Websites (Essential because recent studies are showing people are looking up
your ministry on-line before they’ll give to any donor acquisition effort)
‰ Designated splash page for the acquisition campaign is essential
‰ Outdoor Advertising
‰ Television / Radio
‰ Theater slides

SETTING YOUR PRIORITIES

Whenever a ministry asks our firm to help them acquire donors our first step is to
help the ministry to think through the process of donor acquisition to determine what
makes sense for them. Here are some questions to help you sort through your priorities:

1. What are your growth goals? Are they moderate? Aggressive? The more
aggressive your growth goals become the more you will need to consider how
much you are willing to pay to acquire a donor.

2. Do you need to have net income from your donor acquisition efforts? If you
are relying on net income from your acquisition efforts to help you fund your
ministry then this will limit the amount of donors you are able to acquire.

3. What is your current donor attrition rate? Most ministries have not
determined this. A healthy attrition rate should be somewhere between 17-
18%. If your ministry’s attrition rate is much higher than this, you should be
asking yourself “Why?”

490 E Roosevelt Road, Suite 101 ● West Chicago IL 60185 ● Phone: 630-562-1321 ● Fax: 630-562-1686
email: mjohnson@douglasshaw.com ● www.douglasshaw.com
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 4. What is your Long-Term-Donor-Value? This is the net value of a donor over
an extended period of time. Most ministries like to measure donor values
after 5-6 years. This is important because it will help you to know the long-
term impact of your donor acquisition efforts.

5. What is the impact of donor acquisition on my faithful donors? As critical as

this question is, many ministries are not able to measure this. Many donor
acquisition programs fail to protect current faithful friends resulting in over
mailing and higher attrition rates. We all know that a new donor produces
less money than an existing donor. For this reason, you need to know the
impact your donor acquisition program is having on your long-time
supporters.

AVOIDING THE PITFALLS OF “SATURATION MAILINGS”

Some agencies offer low-cost “saturation mailings” that blanket communities
including the faithful supporters on your donor file. While these mailings often produce
a good number of new donors and significant net income, there is a hidden downside to
your ministry.

What you may be gaining in glowing acquisition results is often coming at the cost of
lost revenue from your current donors and higher attrition rates. The lost revenue comes
when a saturation mailing asks a prospect for a gift ranging from $7.00 up to $35.00.
When this mailing is sent to your faithful supporters (who by now are contributing at a
much higher level) they respond to the choices they are given e.g. instead of giving a gift
of $75.00 they may give $35.00 or less.

When faithful donors receive a saturation mailing, they see it as a mailing from your
ministry and not a special once-a-year donor acquisition effort for others in your
community. They see it as just another request for money from your ministry. So when
saturation mailings are overlaid upon cultivation mailings, donors can become
disgruntled and ask to be removed from your file or, even worse, they just stop giving
and you never know why.

Remember, the excellent net income from a saturation mailing has to come from
somewhere. It’s coming from your current donors who are being pummeled with appeals
that ask for too little too often. If you evaluate the result of your saturation mailings by
removing the income from your existing donors, you will see that saturation mailings are
“robbing Peter to pay Paul,” and your ministry is the loser.

490 E Roosevelt Road, Suite 101 ● West Chicago IL 60185 ● Phone: 630-562-1321 ● Fax: 630-562-1686
email: mjohnson@douglasshaw.com ● www.douglasshaw.com
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 At Douglas Shaw & Associates, we understand your need for new donors at a
reasonable cost. But we encourage you to take the “longer view” by merge/purging your
existing file from saturation mailings. Yes, we know it raises the cost of your acquisition
package and it lowers the traceable income. But the longer view shows you will keep
your existing donors longer and they will give at higher levels when they are not included
in saturation acquisition efforts. So beware of the downside of what appears to be a
highly profitable venture. It may be coming to you at a high price--the future of your
ministry.

KNOWING YOUR NUMBERS

At Douglas Shaw & Associates we believe that in order to be a good steward of the
funds entrusted to you by your supporters, you need to know your own numbers. We
serve many ministries that did not know their own numbers when we began our
relationship. Today, they have a solid grasp of the essential criteria needed to make
informed decisions. But, what are the numbers you need to know? Here are the most
critical numbers you should never be without:

1. The percentage of responses that are new donors vs. existing donors. This is
important because a response is not a new donor e.g. if you receive 14,000
responses of which 10,000 are new donors, then your percentage of new donors
from acquisition is 71.4%. This is a very acceptable rate! However if you are
realizing only 55% or 60% then you have a problem. You may need to rethink
either your merge/purge process or determine the level of market saturation you
are willing to withstand.

2. Cost per donor: This is the net cost you paid to acquire a new donor. This is
determined by subtracting your total acquisition cost from your total acquisition
gross income. This is your net income. Now divide your net income by the
number of new donors you have acquired. This is your cost per donor e.g.:

Total acquisition gross income $125,000

Total acquisition cost ($135,000)
Net cost to acquire your new donors ($ 10,000)

Gross acquisition responses 14,000

Number of new donors 10,000
New donor rate 71.4%

Cost per donor* ($1.00)

*($10,000)/10,000 new donors

490 E Roosevelt Road, Suite 101 ● West Chicago IL 60185 ● Phone: 630-562-1321 ● Fax: 630-562-1686
email: mjohnson@douglasshaw.com ● www.douglasshaw.com
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 Incidentally, this would be an excellent cost per donor (CPD)! Many ministries
spend up to $25.00 to acquire a new donor. An aggressive growth program will very
easily see an $8.00-$10.00 CPD.

3. Long-Term Donor Value (LTDV): This is the “big picture” number that you
need to know. This tells you the net value of a donor over time. Most ministries
measure their LTDV over a 5-6 year period. Here is how LTDV is measured:

Net cost to acquire new donors ($10,000)

Total direct mail mailing cost ($96,000)

(12 appeals @ $.80 each to 10,000 new donors)

Total newsletters mailing cost ($ 40,000)

(4 newsletters @ $1.00 each to 10,000 new donors

Total thank you letter mailing cost ($ 8,750)

(1.75 gifts x 10,000 @ $.50 each)

Total cost to cultivate 10,000 new donors for 1 full year ($144,750)

Cost to cultivate 1 donor for 1 year ($14.48)*

*($144,750/10,000)

Average gift from new donor $30.00

Number of gifts from new donors x 1.75

Total gross income from 1 donor after 1 year of cultivation: $52.50

Cost to cultivate for 1 full year: ($14.48)

Net value of a new donor after 1 year: $38.02

490 E Roosevelt Road, Suite 101 ● West Chicago IL 60185 ● Phone: 630-562-1321 ● Fax: 630-562-1686
email: mjohnson@douglasshaw.com ● www.douglasshaw.com
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 Now, looking at your own donor file determine the following:

1. The % of the original new donors who remain active in years 2-6

2. The average number of gifts they give in years 2-6

3. The average gift amounts they give in years 2-6

4. The cost to cultivate in years 2-6

5. Following the same process as outlined above, subtract the total

cost to cultivate a donor over 6 years from the gross giving in 6
years and you have your Long Term Donor Value.

If you find this process confusing you may want to ask your fund raising agency
to help you in determining your Long-Term-Donor-Value. If they are not able or
willing to do this you may want to hire an agency that is willing (DSA is very
willing)!

490 E Roosevelt Road, Suite 101 ● West Chicago IL 60185 ● Phone: 630-562-1321 ● Fax: 630-562-1686
email: mjohnson@douglasshaw.com ● www.douglasshaw.com
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