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72% Donor Retention!?
You could hear the ringing of high-fives on the other end of the line. “Wha-poosh!”
Mike, the Development Director even let out an, “Oh yeah!”
I set my water bottle down on my desk and chuckled; this meeting was a series of new experiences for me.
Over the past year or so, I’ve been lucky enough to work with hundreds, if not thousands, of organizations to dissect and analyze their Fundraising Report Cards®. This meeting in early January of 2017, with a few members from the development staff at a mid-size human services organization was one for the ages.
I was demoing the Pro version of Fundraising Report Card® and we had just landed on the retention dashboard. As we shared screens I paused on their organization’s donor retention rate.
That was when chaos ensued.
“Zach, is that our donor retention rate?” was the first question I fielded.
“Absolutely,” I said as I hovered my mouse over their segmented retention rates.
“Wait, wait, go back, what was it last year? Oh my, and what is it this year?”
The high-fiving started right then.
Donor retention is a really important concept for fundraising strategy. Pamela Grow has been discussing its importance for years! Check out his blog post from 2014, Nonprofit donor retention | The cheapest way to fundraise to learn tried and true ways to retain your donors.
This organization had never calculated their donor retention rate. That isn’t to say they didn’t recognize its importance, they simply had never prioritized calculating and analyzing it. They were overwhelmed with joy when they saw last year’s retention rate was 72%, a 12% increase year over year.
Everyone on the conference line knew how important donor retention rate was (thus the explosive reaction), yet it seemed strange to me that they hadn’t been aware of their awesome ability to retain donors. This led me to wonder why donor retention rates are beloved and revered, yet so infrequently calculated, measured and tracked?
Today, in part 5 of our Data-Driven Fundraiser’s Reference Guide we will explore donor retention. We’ll confirm what you already know about the importance of retention, and discuss how to calculate your retention rates. We’ll even segue into donation retention rate (the less talked about but equally important fundraising metric), and discuss some of the ways you can benchmark your retention performance against your peers.
Let’s take a step beyond the basics of retention.
Why retention is important
Let’s answer one simple question before we go beyond the basics: Why is retention important in fundraising?
Donor retention is the measure of how many donors from last year renewed their contribution to your organization this year. Of course you could measure retention in terms of other time periods, for example monthly or quarterly.
Moreover, donor retention rate is simply the standardized measure of retention. Retention rate reveals what percentage of your organization’s donors renewed year over year instead of the total number of donors retained this year. While both are important, rate is simply easier to benchmark against and track.
Those are our definitions, but they still don’t answer our simple question, why is retention important?
Let’s look at a quick example.
As you can see, a 10% change in retention rate can have an outsize impact on your long-term fundraising revenues . Changes in donor retention rate tend to have noticeable implications on your organization’s bottom line, that’s one of the reasons it’s so important.
Think back to parts 3 and 4 of this guide when we discussed donor acquisition cost and donor lifetime value. You’ll remember that to keep acquisition costs down you want to retain as many donors as possible, and to boost lifetime value you want to increase donor lifespan (aka retain more donors).
If retention rate is falling then donor acquisition cost is probably going up and lifetime value is most likely falling. But if the opposite is happening, if retention rates are higher this year than last, lifetime value is most likely increasing and DAC is probably falling.
Retention is important not only because it has real implications on your organization’s bottom line, but because it has implications on the health and stability of your fundraising operation. There’s a good reason retention was the fundraising buzz word of 2016. It’s important.
How to calculate your retention
As with most fundraising metrics, talking about them is much easier than actually calculating them. With retention though, we don’t have a complex formula like we did with donor lifetime value. Actually, in the grand scheme of things retention is pretty easy to equate.
Let’s say you wanted to calculate your donor retention rate for 2016. To do that you’ll need two values:
- X = Total number of retained donors in 2016
- Y = Total number of donors in 2015
Your formula will look something like this:
Donor Retention Rate = X ÷ Y x 100
For example, if your organization had 1000 donors in 2015, and 500 were retained in 2016, your 2016 donor retention rate would be 50%
Donor Retention Rate = 500 ÷ 1000 x 100 = 50%
Let’s also briefly touch on how you would go about calculating donation retention rates as well. Your inputs for that formula will be similar:
- X = Total amount of retained donations in 2016
- Y = Total amount of donations in 2015
Your formula will look something like this:
Donation Retention Rate = X ÷ Y x 100
For example, if your organization received $1,000,000 in total donations for 2015, and in 2016 $500,000 of your donation revenues came from retained donors, your 2016 donation retention rate would be 50%
Donation Retention Rate = 500,000 ÷ 1,000,000 x 100 = 50%
Calculating your overall retention rates is not too difficult. It may be more of a challenge to determine what your actual counts of retained donors and donations actually are. Keep in mind tools like Fundraising Report Card® will crunch those numbers for you.
Analyzing your retention rates
Simplifying retention, that’s Claire Axelrad’s goal! Claire has been preaching the importance of increasing donor retention for years! Check out her blog post from 2014, Nonprofit Donor Retention is Not as Hard as You Think.
After calculating your overall retention rate you’ll most likely want to know “how good is it?” This is a natural human reaction and one that I actually endorse (it’s healthy to see how your organization compares to its peers), but it’s important to not to fall prey to a few common analysis mistakes.
- Donor Retention isn’t a number, it is an indicator of behavior.
- There is no magic number, retention varies by organization and size.
- Poor acquisition can ruin donor retention.
Donor Retention isn’t a number, it is an indicator of behavior.
Okay, retention rate obviously is a number, but it’s important to remember there is also a human side to this metric. Once you have your retention rates in-hand, you and your team should be asking these types of questions:
- What are we as an organization doing to cause donors to stay?
- What are our donors doing that’s contributing to their staying?
- How can we better manage our donor relationships to make sure it continues?
- What are we as an organization doing to cause donors to leave?
- How can we better manage our donor relationships to make sure it happens less frequently?
Dissecting what is behind the number will ultimately help you figure out what changes it.
There is no magic number, retention varies by organization and size.
Many believe there is a magic retention standard that they need to achieve. “We need at least 80% retention,” some will say. In reality, retention rates will vary by sector, size, and even region .
Comparing your organization’s retention rate to a national average is a good place to start, but it’s far from the end all be all.
Instead of national averages, many savvy fundraisers analyze their historical retention metrics. Looking for trends in retention rates is more valuable than seeing how you stack up to a national average. Remember, your retention rate measures how well you’re handling donor relationships. This is something we can all get better at.
Keep this in mind when presenting retention rates at team meetings or to leadership.
Knowing how to compel your audience with data is more of an art than a science. Most people still have negative associations with numbers and statistics—unpleasant memories of boring math classes, intimidating technical concepts, or dry accounting. That’s a shame, because the message behind the numbers can be so enriching and enlightening.
The solution? Help your audience understand the “so what,” not the numbers. Ask: Why should someone care about your findings? How does this information impact them?
When you go to share your current retention rate with the Vice President or Director of Development make sure you have last year’s retention rate with you too. You’ll want a few years (I’d recommend 5) of retention rates to help show trends in overall retention efforts.
If you want to compare your retention to others, choose benchmarks from like-organizations within your industry. Fortunately, here at the Fundraising Report Card® we are working on calculating all those standards for you. Answering the question, “How does our retention rate compare to the rates of other small animal shelters in our region?” makes more sense than simply knowing where you stack up compared to the industry at large.
Give us some time, but that is what we are striving to provide for you with Fundraising Report Card®!
Poor acquisition can ruin donor retention
Poor donor acquisition can affect donor retention rates. Many organizations invest heavily in acquiring new donors but often these donors simply aren’t the right “fit.” The saying, “if we don’t acquire, we will expire,” was recently shared with me and epitomizes this dynamic.
Looking at donor retention rate by giving level and acquisition source can bring clarity to this issue. Look at retention rates among annual donors, mid-level donors, and major donors. Are there any patterns in who stays and who leaves? Calculate retention rates for your direct mail campaign, your email appeal and your annual gala. Do some activities retain more donors than others?
By doing this you’ll be able to see how retention varies among your constituents and pinpoint which activities positively affect retention efforts. Major donors tend to be retained at a much higher level than annual donors, for example.
If this is the case in your data, it could be a sign that investing more money in acquiring annual donors isn’t actually worth the cost. The goal in the end is to bring in donors to whom you can provide value while they also provide value to you. Segmented retention rates can help you get a clearer picture of how this is playing out in your own data.
When leadership asks for updated retention metrics at the end of the first quarter, come prepared with segmented rates that provide more clarity. Transforming and refining your data into actionable metrics is crucial to help leadership with strategic decision making.
Human side of retention, relationship building, planned gifts and more
Donor retention has implications well beyond the numbers in a spreadsheet or the graphs in your Fundraising Report Card®. Retention has human implications.
Donors who consistently make contributions to your organization (think donors who have been retained 3 or more years in a row) are good candidates to have exploratory major gift or planned gift conversations with.
Patterns in historical giving can be highly indicative of major and planned gift prospects. When you pair the insights that performance metric segmentation provides you (i.e. identifying your 3+ year retained donors) with other tools and services such as wealth screening or donor surveys, you begin to create a strategy for identifying, engaging and receiving major and planned gifts.
Retention and retention rates are great to graph and keep track of, but never overlook the constituents that make up your data points . They are real people, real donors, they have real relationships with your organization. Their historical giving patterns should be explored and understood to help identify who you should be talking to.
Applying these concepts at your shop
We’ve covered a lot in this section. Spreadsheets, graphs, major gift prospects — you see retention has implications all across your fundraising operation. How can you take bits from this section of the guide and start applying it at your shop today, though?
- Calculate your retention rate from the past calendar or fiscal year. Recall the story at the beginning of this section — you might be pleasantly surprised with the numbers you see!
- Avoid common retention analysis pitfalls. Look beyond the decimal points and percentage signs to understand the story your donors are trying to tell you. Segment your retention rates to get a more granular understanding of giving trends.
- Leverage retention to help identify major and planned gift opportunities. Longtime retained donors are great prospects for exploratory phone calls.
NOTE: Thank you Jennifer Willett, Cheryl Papsch and Lizzie Weiland for editing this section of the guide.
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