Why Does Donor Acquisition Suck? (It’s Not Why You Think)

There are many theories as to why the number of donors is decreasing in the U.S., with many centering around organizations’ failure to engage, thank, or otherwise provide donors a meaningful giving experience.  While all of these are likely contributors, I believe there is a much larger economic explanation that will continue to adversely affect the fundraising marketplace for the foreseeable future:  disruptions to traditional retirement investments.

According to Blackbaud’s report on generational giving, 69% of all donations come from donors over the age of 50.  Therefore, it is important to understand how economic trends are affecting people who are retired or are nearing retirement age.

According to Forbes Magazine (Ben Bernanke’s War on Senior Citizens, 12/12/12), prolonged low interest rates are forcing seniors to spend their investment principal, or enter into risky investments:

“Uncle Sam has been waging an undeclared war on seniors for the past decade. With interest rates at historic lows and with the Federal Reserve (“the Fed”) poised to keep them artificially low for years, senior citizens will be left standing alone at the Great American Debt Dance.

To understand the miserable position seniors are in, some economic history is in order. According to the Census Bureau, from 1998 through 2005 the median senior citizen’s net worth grew an average of 11 percent per year. Of course, home values were rising over this period, but if we subtract the growth in home prices, the median senior’s net worth still grew by an average of 8 percent annually.

That party ended in 2005. From 2005 to 2010 (the last year for which data is available) the median senior’s net worth declined an average of 2.8 percent per year—a particularly troubling situation for those who are retired and rely on their accumulated savings to live.

The decline in home values played a part, but only a part. From 2005 on, seniors saw their accumulation of wealth slow by between 12 percent and 14 percent annually, depending on whether one counts changes in home values. Why have seniors’ net worths taken such a staggering hit? The answer is shockingly simple: By holding interest rates at or near zero for so long, the Fed has been forcing seniors to switch to riskier investments like stocks and mutual funds just to maintain their standards of living.”

The ten-year trend for donors especially highlights the impact of the Fed’s monetary policy.  We see a significant downturn in new donors beginning in 2005.  This trend also validates what many fundraisers have already observed:  donors are focusing their giving on fewer organizations and are less willing to consider adding new organizations to their giving portfolios.

With seniors and Boomers pulling back in their philanthropy, it may be tempting to look to younger generations to fill in the gaps, but that, too, presents significant challenges.  According to Blackbaud, donors born between 1981 and 1995 represent just 11% of total giving in the U.S. and contribute two-thirds less than older donors annually.

So what to do?

First, organizations must recalibrate their acquisition strategies to invest in the acquisition of quality donors.  This means a focus on life-time-value, not upfront cost to acquire or 1-year ROI.  Analysis will tell you which lists produce donors who have the greatest value over time.  Focus your acquisition investment on acquiring as many high quality donors as reasonably possible. What matters in today’s marketplace is quality, not quantity.

Board mandated or arbitrary limits on cost per donor or months to break-even are outmoded and need to be eliminated to thrive in today’s fundraising reality.

Second, organizations must invest more in donor retention.  If you acquire better prospects who are more likely to be upgraded and retained, this job is infinitely easier.  Also, because you have acquired better prospects, you can invest more to quickly secure a second gift and/or convert new donors to monthly giving.

Third, take a good hard look at your solicitation schedule and integration strategies.  Donors are being approached by your competitors in ever more sophisticated ways.  Are you reaching donors frequently enough and in their preferred channels?  If you think you are contacting donors too often, you almost certainly are not.  Donors’ tolerance for communication from organizations they support is far greater than you think.  Don’t be afraid to reach out and engage them.

Good luck and happy fundraising!