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Wrong Number

By The NonProfit Times - October 1, 2012

Bloomberg Markets magazine recently published a scathing article regarding the business practices of a tele-fundraising provider, outlining what it alleged were deceptive practices such as allegedly lying to donors about the portion of the donation that goes to the charity.

If true, such practices are certainly abhorrent. But much of the article condemned the use of all tele-fundraising. The article was a textbook “hatchet job.” It was based on innuendo and the opinions of so-called experts who clearly do not understand the practice of direct marketing, fundraising or donor development.

The article was as misleading in many ways and as counter to the public good as the practices it alleged.

The greatest misinformation is the insinuation that because tele-fundraisers often report a high cost of fundraising in financial reports to the attorneys general, tele-fundraising in itself is unethical and there is no legitimate purpose for it. This is dead wrong.

Donors who give gifts of between $15 and $1,000 are the lifeblood of most charities. Organizations would not be able to fund mission without the income those donors provide. Donors often begin by giving $10 or $20. They give more frequently and in larger amounts as they become more familiar with and impressed by the charity’s work. These donors represent a significant amount of the net income a charity requires to fund its mission. It also spawns major donors who give very large gifts and leave the charity money in their wills.

Charities lose between 15 percent and 20 percent of these “small” donors every year because their situation changes, such that they are unable or unwilling to continue supporting. The charity must replace them by either attracting new donors or enticing donors who have not given in a long time to contribute again. If they don’t do this, their donor files will shrink, revenue will decline, and program services will be curtailed.

Charities use direct mail, tele-fund­raising, television, print advertising, and other means to acquire these donors and to regain the support of donors who have not contributed in years. Reactivating or acquiring donors by direct mail is expensive, too. As any development director knows, it often costs more to acquire a new donor, regardless of how new donors are solicited, whether by mail, phone, television, or any other means. If you just look at that single program, it typically costs more than the revenue it produces. Television is typically even more expensive.

Many publishing companies use the same methods to sell subscriptions and find new readers. The reason charities use tele-fund­raising is two-fold:

  • A tele-fundraising program can often acquire or reactivate three to five times the number of donors per contact than a mailing will, at a comparable cost of fundraising.Most tele-fundraising companies will accept part of the financial risk and offer performance guarantees on lapsed donor reactivation programs and even new donor acquisition programs.
  • Consumer reporters frequently compare the organization’s cost of tele-fundraising (according to the attorneys general reports) to the overall cost of fundraising on the charity’s federal Form 990. The cost of tele-fundraising is almost always greater than the organization’s overall cost of fundraising.

 

The reporters do not explain that charities often hire tele-fundraisers only to regain lapsed donors and to find new donors. These activities have the greatest cost of fundraising. They hire them because they do a very effective job. Also, charities normally give only the lower-dollar donors for the tele-fundraisers to contact.

While the cost of fundraising on the charity’s Form 990 reflects solicitations to active donors and major donors, the cost of tele-fundraising on the attorneys general reports mainly reflects calling lower-dollar, lapsed donors and prospective donors. Reporters who condemn the use of tele-fundraising based on that comparison without at least pointing out the flaw in the comparison are themselves misleading the public.

When a tele-fundraiser acquires new donors for a charity, that charity not only receives the net revenue the program produces, it also gets a very valuable list of new donors. The charity will educate these new donors about the mission, using direct mail, email, and other communications. Many of these donors will become frequent, long-term donors and provide significant net operating revenue at a very reasonable cost of fundraising.

Attorneys general should allow the value of the new donors that are acquired to be included in the proceeds of the program. Unfortunately, they do not.

Tele-fundraising plays an integral role in the fundraising programs of many very reputable and ethical nonprofits. It is unfortunate that regulators and some consumer reporters seem unable or unwilling to recognize that. NPT

Nick Starvaz is president of Synergy Direct Marketing Solutions in Akron, Ohio, a fundraising consultancy that works with tele-fundraising firms. His email is Nicks@synmar.biz

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