Donor retention key to nonprofit’s financial sustainability
In 2006, the Association of Fundraising Professionals and The Center on Nonprofits and Philanthropy at the Urban Institute launched the Fundraising Effectiveness Project (FEP), a nationwide, ten-year groundbreaking study designed to conduct research on fundraising effectiveness and help nonprofit organizations increase their fundraising results at a faster pace. The project goal is to help nonprofits measure, compare, and maximize their annual growth in charitable giving. Specifically, the FEP measures the percentage of new and lapsed donors and the size of donor contributions from year to year.
The 2011 results of the FEP have been released, and the conclusion drawn from the 2,377 nonprofit respondents is that if nonprofits could do a better job of retaining their existing donors, their long-term financial sustainability would improve. The 2011 FEP report showed that nonprofits have a donor retention rate of only 43.1 percent, meaning that 56.9 percent of their 2009 donors did not give in 2010. The cumulative study results over the past five years reveal that nonprofits (1) lose over 50 percent of their donors between the first and second donation; (2) lose 30 percent of those donors year after year thereafter; and (3) lose 30 percent of regular or sustainer givers from one year to the next. So, merely looking at the overall net income, and not calculating the difference between net gains and losses of donors and dollars from year to year does not give the management and boards of nonprofits the real picture of what’s happening in their fundraising efforts.
Several Sonoma Valley nonprofits have enjoyed donor retention rates that are much better than the national average. Nancy King, executive director of Pets Lifeline said,” Our donor retention rate over the past three years, from 2009 to present, has hovered between 80 and 90 percent.” Ann Reder, membership chair and board member of Impact100 Sonoma, a local women’s giving circle that raises over $100,000 annually to grant to Sonoma Valley nonprofits, said, “We have a very strong retention rate for a new organization. We are just starting our third year, and we have had 70 to 75 percent retention over the past two years.” Jodi Anderson, the incoming president of the Wine Country Chapter of the Association of Fundraising Professions and an experienced fund development professional with Hanna Boys Center, stated, “Donor retention rates fluctuate based on the donor’s level of commitment. The retention rate for a new donor who has just begun the giving journey will be quite different from that of a long term, invested donor.”
For Sonoma Valley nonprofits, donor retention is critical to their survival. Anderson said, “It is all about building and strengthening relationships. First and foremost, donor retention is achieved by making sure that donors feel respected and valued by the organization. This can be accomplished through a number of mediums, including (1) prompt and personal acknowledgments (not generic); (2) periodic updates regarding achievements and successes of both the organization and the service population; (3) focused appeals related to a specific need, coupled with motivational information about how their gift will make a difference; (4) invitations to events; (5) phone calls; and (6) special hand written notes.”
Kate Eilertsen, executive director of the Sonoma Valley Museum of Art, said that donor retention “is something that must be central to your thinking all of the time.” King added, “I find the personal touch is always important. For our major event, we followed suit with the Boys & Girls Club and did a thank-a-thon, where the board members and I called attendees to thank them for coming.”
There are myriad reasons that donors do not give to an organization from one year to the next. Reder notes that reasons members (donors) of Impact100 Sonoma do not return include “moving away, reduced financial circumstances, health issues, and the demands of work or other involvements and commitments.” King said, “We don’t have too many folks who fall out, but those who do seem either to have a change in their economic situation or a shift in their charitable giving.”
Anderson commented, “Even after following the best practices of donor engagement and cultivation, there will be times when donors do not renew their commitment the following year. If the organization has a memorial or tribute program and the donor has made a gift in honor of a friend or an associate, it may be that the donor’s only intent was to make a gift to honor the individual, and not continue giving as an annual donor. While events can be significant fundraisers for an organization, patrons who purchase tickets or become sponsors of an event are less inclined to transition into becoming annual donors. This is important to keep in mind for annual revenue projections.”
Jodi Anderson continued, “Donor attrition (death or relocation to another state) can have a significant impact on your organization if you don’t have a plan to replenish your donor pool on an annual basis. Acquisition of new donors needs to be viewed as an investment in the organization. A return on an investment for a new donor can take as much as 18 to 24 months. Continual revitalization of an organization’s donor base is essential to maintain the financial health and sustainability of the organization…A formalized fund development plan greatly improves the likelihood of achieving revenue projections and project goals. Though it is good to be spontaneous in certain circumstances, in fundraising, it can be a costly mistake for the organization.
Laura Zimmerman, executive director of the Sonoma Valley Education Foundation, summarized the importance of donor retention by stating, “For me, donor retention is a fancy way of talking about communicating. When you are connecting with donors about the work you are doing and the larger purpose you share, you can weather the economic ups and downs and the relationships will be stronger because of it.”
Dr. B.J. Bischoff is the owner of Bischoff Performance Improvement Consulting, a Sonoma firm specializing in building the capacity of nonprofit organizations and public sector agencies to better serve their stakeholders. She assists her clients with strategic planning, organizational and personnel performance improvement, fund development, and community relations. She is President of Impact100 Sonoma and can be contacted at firstname.lastname@example.org.