Worst Is First
March 8, 2019 Roger Hiyama
Optimizing your donor acquisition program
The year is still young. You’ve realized that you’re facing new fundraising challenges with your acquisition program. In reality, these new challenges are recurring challenges that almost seem like a scene from Groundhog Day (with all deference to Phil Connors and Ned Ryerson).
Paper cost increases are forecast again as the game of supply and demand is played out on a worldwide basis. The United States Postal Service (USPS) rate increase went into effect in late January. Your acquisition budget has remained flat over the past year but these price increases will impact the number of contacts or promotions you’re able to send compared to last year.
3 STEPS TO GROWING YOUR DONORS
#1 Improve Worst First
#2 How to Identify Worst 10%
#3 Replace Worst !0% Balance/Back-fill Audiences & Lapsed Reactivation
Shift Budget to Display Ad
Shift Budget to Paid Social Media
Shift Budget to Lapsed Donor Telemarketing Shift Budget to ‘Breakout’ Offer Testing
Identify which marketing dollars are least effective, and redirect those efforts into more productive market spends.
To compound these challenges, the overall metrics of your acquisition program have come under pressure. Your response rates began to see a slight decrease in the fall of last year. And, while your average gift might have increased slightly, the reduced response rate has increased the cost to acquire a new donor.
In fact, according to industry benchmark reporting, the number of newly acquired donors is down from 6 percent to 11 percent across nearly every nonprofit category during the past year. The decline began in early 2018 and continued into the fourth quarter of 2018.
Higher costs, a flat budget, shrinking list rental/exchange universes and declining performance metrics require a different approach this year if you’re to maintain a strong house file. It’s time to implement an optimization plan for your acquisition program in 2019.
Step #1: Shifting Your Focus – Worst First
Like most fundraising managers, you are very aware of your average metrics – response rate, average gift, cost per 1,000, net cost to acquire a donor, etc. These are the numbers that you’re routinely quoting and are an integral part of your budgeting process.
It’s time to shift your focus. It’s time to focus on the worst first. To make dramatic performance improvements to your program, the key is to make improvements to your worst performing marketing spend. So, just as you know your average metrics, a new focus must be on knowing the worst metrics as well.
Most fundraising managers are shocked when confronted with the performance metrics of their worst 10 percent marketing spend. But, focusing on the worst is the best way to improve your overall metrics.
Step #2: How to Find It – Identifying Your Worst 10%
You can identify your worst spend in a couple of ways. The simple way is to just sort the performance metric of choice in your list results spreadsheets. You will probably prefer to run this exercise individually on each campaign since the implementation will be done on a campaign by campaign basis. You might choose to sort on Net Cost To Acquire or Net Per New Donor metric in descending order.
Next, look to the quantity mailed column at the bottom of your sorted spreadsheet and combine the quantity mailed until you reach the quantity represents 10 percent of your overall program. That’s the worst 10 percent.
Are the results shocking to you?
If you’re participating in one of the nonprofit cooperative databases, an alternative more complex, but more effective, way to identify your worst spend is by using optimization modeling on the net file during post merge/purge processing. As opposed to the simple method which is just sorting on the list results, the optimization modeling has the ability to score individual records within each list based on their likelihood of responding to the appeal. Optimization modeling will usually rank the net file into anywhere from 20 to 40 segments with the worst names being in segments 20 or 40 respectively.
The reason that optimization modeling is so effective is that most marketing plans are somewhat optimized by nature of the lists included in the plan. Optimization modeling has the added ability to rank individuals based on total giving behavior within the industry/cooperative database, ranking names by their likelihood of response.
Names identified in segments 38, 39 and 40 of a 40 segment optimization model should never be mailed. Using the optimization modeling can tease out the worst names from every list — and, every list has its dregs.
If you’re not part of a database co-op, the simple method of identifying your worst 10 percent spend is still a great way of refocusing your acquisition efforts.
Step #3: Replacing the Worst 10%
Once you’ve identified the worst 10 percent, your decisions on replacing or redirecting the spend is the fun part of the optimization exercise. And, if you’re not restricted in how or where you can redirect your investment, you can really begin to position your program for growth by evaluating all acquisition channels.
Depending on how you view donor acquisition, arguably you should consider the following as replacement strategies:
• Balance/Back-Fill Audiences: A growing best practice is to replace dropped names from your merge/purge with balance or back-fill audiences identified using predictive response modeling. In other words, replacing the segments 38, 39, 40 names with new prospect names that score in segments 1 thru 5. It might add a day or two to your direct mail production schedule but it’s definitely worth it.
• More Lapsed Reactivation: If you view lapsed reactivation as a part of your acquisition program, consider increasing the volume or contact frequency to lapsed donors. If you currently mail to 100,000 lapsed donors, consider increasing that number to 125,000. If you’re running a lapsed campaign five or six times per year, consider increasing the number of contacts by one or two.
A lapsed donor usually reactivates at a higher average gift than a cold prospect. Likewise, a reactivated lapsed donor will usually renew the next year at a 10 to 15 percent higher rate than a cold prospect name. Co-op modeling is an ideal way to identify your lapsed donors that are actively giving to similar organizations.
• Shift Budget Dollars to Display Advertising: Display advertising is one of the least utilized advertising channels by nonprofits. If you’re not doing any website remarketing or co-targeting campaigns, you should strongly consider shifting $15,000 to $30,000 into a digital advertising initiative. Start by remarketing visitors to your donation page or website where you’ll likely see a positive return on investment (ROI) immediately. A smaller organization recently experienced a 30 ROI on its first remarketing campaign.
Next, consider targeting display ads to lapsed donor universes and co-targeting display ads to lapsed and cold names that are receiving your direct mail pieces.
• Shift Budget Dollars To Paid Social Media: Consider running a fundraising campaign in Facebook using custom audiences or look-alike modeling within the Facebook platform. Many organizations are seeing break-even performance metrics while adding new donors to their files.
• Shift Budget Dollars To Lapsed Donor Telemarketing: Telemarketing is one of the more effective reactivation techniques for lapsed donors. And, while the relative cost per contact is more expensive, pledge and conversion rates make telemarketing a very effective tool to reactivate lapsed donors for either onetime gifts or monthly sustainer gifts.
• Shift Budget Dollars Into More “Breakout” Offer Testing: Challenge yourself to test beyond slight tweaks and incremental testing and develop new “breakout” offer tests. You can make bigger strides by testing new offers that may provide significant double-digit growth. You just need to allocate a little bit of money in this type of “breakout” offer testing.
You have the ability to greatly impact your acquisition program for the rest of 2019 and beyond. Start by focusing on your worst marketing spend first, identify which marketing dollars are least effective, and redirect those efforts into more productive marketing spends.
Roger Hiyama is senior vice president, client services at Wiland. His email is email@example.com