Secret’s Out: Nonprofits Aren’t For-profits & Donors Aren’t Customers

Are businesses and individual consumers the same? No, not in the slightest. A business may purchase a sophisticated cloud software tool to help with human resources management, yet you and I would never know that software even existed. As individuals, we have no need for it.

Ah, it is officially that time of year again. Say it with me now, “I promise that this year I will do a better job to retain more donors.” One more time. Even louder!

You can hear the masses chanting this, can’t you? Each year The Association of Fundraising Professionals’ Fundraising Effectiveness Project (AFP FEP) releases a report on the “Growth in Giving.” A roundtable of researchers and software vendor executives spend months gathering, collecting and analyzing donor data to create a one-of-a-kind industry report on key “fundraising effectiveness” metrics.

This report serves as a snapshot in time of how individual giving in the nonprofit sector is growing and evolving.

The 2017 AFP FEP report was published earlier this month. And, as with last year’s, unrest ensued. Bloggers, thought leaders and nonprofit professionals alike have shared their two cents on why one metric in particular, donor retention rate, is “still so dismal.” The AFP FEP report highlights dozens of metrics, yet without fail each and every year, donor retention rate stands out from the rest. Regardless of how interesting or compelling the other metrics are, donor retention rate is the most important take away from the report.

It should come as no surprise then that with such a hot button topic, many folks want to share their theories on why retention is so low. One conversation I came across online stuck out to me.

Jay Love, the Co-Founder & CEO of Bloomerang shared his thoughts on the report in the comment section of The Agitator website.

The conversation continued when Gayle Gifford, co-founder of Cause & Effect chimed in:

To which Jay responded:

I found this exchange really thought-provoking.

We should compare donor retention rates with retention rates for home appliance or car maintenance plans? Wha? Huh? And maybe now nonprofits should “observe and compare day to day practices in communications and customer/donor service”? Where to begin?!

Donors aren’t customers

No matter how irked, frustrated or confused I become from comments that suggest nonprofits need to act more like for-profits, I will never be able to share my thoughts as well as Vu Le from Nonprofit With Balls Nonprofit AF did back in 2015.

Vu gives several great reasons why nonprofits should not be compared to for-profits. All of which are valid, well thought out and excellently presented in his piece.

Let’s focus here on one topic Vu didn’t address: the notion that donors aren’t customers.

Have you ever wondered if there might be a good reason why donor retention rates in the nonprofit sector are so much lower than customer retention rates in the for-profit space? Are donors customers? No, not even a little bit. Doesn’t that mean we’re comparing apples to oranges? Sure, but they should still be at least a little closer… Should they?

It’s naive and short-sighted to suggest that nonprofits should retain donors as well as for-profit companies. Think about what Jay is proposing here: the behavior of donors making financial contributions to mission based organizations should be comparable to their behavior with a mechanic or handyman. You get your car serviced because the check-engine light comes on, does the same mechanism exist when making donations?

To illustrate my point, let’s consider the reality of the for-profit business world. Did you know that 72% of businesses in the United States are B2B companies? That means 72% of all for-profit companies are in the business of selling their “stuff” (cloud software, t shirts, etc.) to other businesses. The other 28% focus their attention on selling their “stuff” directly to individual consumers.

Let those numbers sink in for a moment.

Are businesses and individual consumers the same? No, not in the slightest. Businesses have different needs than consumers. A business may purchase a sophisticated cloud software tool to help with human resources management, yet you and I would never know that software even existed. As individuals, we have no need for it.

B2B is a lot different than B2C, and business professionals don’t go around suggesting that B2B benchmarks should align with B2C benchmarks.

So, how does this relate to nonprofits? Which type of business model does a nonprofit more closely align with? Selling to other businesses or selling directly to consumers? They “sell” to consumers, right?

Gayle Gifford alluded to this in her comment. She said, “I wonder if retention rates are so high because … once my firm is locked into using a particular technology platform across multiple departments and users, it’s much more difficult to switch.” YES. That’s part of the equation here. B2B sales have higher retention in part because B2B solutions (tend to) provide vital infrastructure to their clients.

Make no mistake, if you work at a nonprofit you’re involved in B2B sales. Not on the selling end, but on the purchasing end. Think about your donor CRM platform. Imagine going into the office tomorrow and getting rid of it. You couldn’t.

If you were unhappy with your current provider you might switch to a different vendor, but you can’t simply wake up one morning and get rid of your CRM all together. That would be catastrophic.

That’s the reality of retention in B2B sales.

As you can see, it’s not helpful to compare a business’ retention rate, say your CRM vendor, to your nonprofit’s donor retention rate because you can’t do your job without their software, but your donors can satisfy their philanthropic intentions without you.

The fact that donors can live without your organization is beyond your control. For-profit companies retain their customers at a high rate as a function of necessity, not because they’re exceptionally outgoing or “nice.” You can thank your donors all you want, send them handwritten letters, personalized emails and highly targeted appeals, and guess what, some still won’t donate again. Because they don’t need you. They don’t need to contribute to your organization to carry on with their lives. Your organization isn’t their CRM, it’s not mission critical.

So when Jay, or anyone from the for-profit world says, “you should be retaining more donors,” think twice. Donors aren’t the same as customers. Don’t fall for the fallacy that they are.

When do retention rates matter then?

If we’re going to compare apples to oranges, let’s at least make it a more realistic comparison. For example, 92-93% customer retention (I have yet to find a source for this) in the for-profit software world is comparable to 90%+ donor retention in the major gift world.

Major donors, unlike their peers who may contribute less, do (or at least tend to) find your organization “mission critical.” Most major donors simply can’t wake up in the morning and “switch providers.” Your major donors have deeper roots with your organization, making them more comparable to for-profit software purchasers.

But that begs the question, “why aren’t there industry reports for retention rates that are broken down by giving level?” The narrative that donor retention rates are always low, so it must be the fundraisers’ fault is played out. We need better reporting to get a more honest sense of how nonprofits are retaining their most important donors.

In our preliminary research here at Fundraising Report Card®, major donor retention rates (defined as donors contributing $5,000+ a year) are significantly higher than the average retention rates presented in the AFP FEP report. That is AWESOME. Plus, it’s an amazing indicator of how well development staff cultivate and maintain meaningful relationships with their most important donors.

While I wouldn’t advise comparing for-profit customer retention rates with nonprofit donor retention rates, if we’re going to, let’s at least make the comparison apples to apple pears and not apples to oranges — B2B customers to major donors. Then, and only then, will we get a more accurate indication of how donor retention stacks up to customer retention.

Data is great, empowering and insightful. But damn, data can be misleading. Nonprofits are not for-profits. Donors are not customers.

A heck of a lot of for-profit companies would be well off if they acted more like their nonprofit peers. So, before you go around the internet shaming nonprofits for their lack of “donor love,” think twice. Are donors really customers? Are nonprofits the same as for-profits? You should know by now the answer to both is a resounding no.

12 thoughts on “Secret’s Out: Nonprofits Aren’t For-profits & Donors Aren’t Customers”

  1. In a “transactional” framework, donors are treated as a one-time client whereas in a “transformational” framework, donors might approximate customers, customers with whom your nonprofit has a deeper and lasting relationship. I don’t think we need to dismiss the donor/customer analogy even if we believe there is no comparison to be made between a for-profit and non-profit. Vast majority of donors support causes, not organizations. Many of us in the nonprofit world have it wrong to think that donors are committed to our organizations. They simply are not. What appeals to most donors and why they gravitate to your nonprofit is because your cause inspires them and they want to be a part of your mission. Thanks Zach for stimulating further dialogue on this important topic.

  2. Nice post Zach and some good things to think about. I love Jay but think it is quite crazy to compare nonprofit retention rates and for-profit companies (particularly B2B subscription companies) and nonprofits, and donors, are definitely different than for-profits, and customers. That being said, I’m a fan of ‘customer’ language being used and the shift companies have taken to ‘customer success’ and ‘customer experience’ and ‘customer loyalty’ in roles and focus is an example of where nonprofits CAN learn from our for-profit peers and treat donors more like customers. Having chat windows to help explain a cause or campaign, using Zendesk to log donor inquiries, and having dedicated staff focused on supporting and caring for donors – lower level ones toot – are all easy to implement ideas when we really care to and want to. I still think the biggest problem facing donor retention is leadership/management not knowing what there’s is and why, not caring enough when they do, and no accountability to make significant changes. There’s got to be something we can learn from great nonprofits and other for-profits on how to structure teams and goals so that people and staff care and are held accountable. Anyways, rant comment over but nice post!

    1. Interesting Brady. I’d be curious to know your fundraising background and achievements to understand your lens. I had Jay’s view back in 2000, as a result took my whole team to the Disney Institute to understand creating the customer experience. We drove retention to 94% and increased lifetime value by 285%. We also learned not to measure retention the way it is currently being measured. So from experience, not speculation, I can say Jay is accurate.

  3. Great post Zach! I was at the AFP conference and kept hearing about this “dismal” retention rate and other take aways from the corporate world. We aren’t for profit companies and we should be treated like them. Nor should we look at our metrics in the same way. I found the major donor retention rate example helpful, the question then is what strategies can we use to retain other donors the way that we do major donors? Great conversation, excited to share it with others.

  4. Another thought-provoking post Zach. I do, however, somewhat disagree (first time for everything!).
    Donors are customers. They are not simply wallets, ATMs or cash-dispensing objects. They are people with needs, and the nonprofit’s job is to address those needs.

    When they give you something (e.g., money), it’s your job to return the favor. Retail stores give a tangible product or service. Nonprofits give an intangible ‘feel good’ in return. This is the foundation of the value-for-value exchange upon which all fundraising is based. If you don’t complete the exchange transaction, you’ll lose your constituents. I don’t care what you call them. They’ll go someplace else.

    Donors, like most people, are on a quest for meaning. Your job is to facilitate their philanthropy (aka “love of humankind”) journey. This is not dissimilar to a quest for the perfect sweater. You need to know what folks are looking for in order to give it to them. Are they seeking warmth? Style? Comfort? Convenience? Price point? Once you know, you can build a bond with these folks.To know what your donor (aka customer) wants from you, and deliver on it, is to keep them. They’ll return to you when you deliver on the experience they’re seeking.

    This is both business 101 and fundraising 101, but both for-profit and nonprofit organizations tend to think about folks as categories of data (I have 100 new donors; 55 lapsed donors, 35 downgrades, etc.). They then warehouse folks in their database and deal with them on a prescribed schedule. This is quite different than thinking about folks as real people, and asking questions such as “how do I want donors/customers to talk about my organization/company in a year?” Asking this question forces you to see them as a human, and as someone with whom you must consider building a real relationships if you want them to stay in your orbit over the long term.

    BTW: I went and looked up the definition of “customer” and do think donors are one of a nonprofit’s customers.
    1.a person or organization that buys goods or services from a store or business.
    2.a person or thing of a specified kind that one has to deal with

  5. Thank you Zach. I agree entirely with Claire …”Doors are customers”. Using the vehicle owner/mechanic analogy; the vehicle owner notices a red light on the dashboard and drives to the mechanic, pays him to fix it. If the mechanic does a splendid job the vehicle owner will keep coming back. The same applies to nonprofit/donor relationship. A donor wants to donate to achieve something…fight poverty, improve food security, fight disease etc. These are data that should be on the donor’s dashboard and the donor can best get them from the nonprofit. If these dashboard data are simple and clear to the donor and they show progress, the donor will be prompted, just like the car owner, to do something i.e give to the nonprofit to address the challenge. In my 10 years experience in fundraising i have noticed that non-profits invariably fail to share with donors key data that the donor needs to make a decision. That’s the beginning of donor retention. You will not retain a donor if you are not giving them the data they need. Once they have the data they need in clear simple terms, they will be looking for someone to fix it. And if you are the one who provided the data why can’t they trust you to fix it. And if you keep fixing it, why shouldn’t they entrust more resources to you to keep fixing it. So i see a perfect customer/service provider relationship here.

  6. Claire is correct. Just because the value we give in return for a donation may be entirely intangible, it would be a huge mistake to loose sight of the fact that the only sustainable relationship we have with our donors is an exchange of value.

  7. Yikes
    In some of the comments insisting on donor as equal to customer I hear absolutely zero focus on the actual honest to God mission of the organization. What in the world?
    What an awful burden to place on an organization, to serve rich people looking for personal meaning and affirmation for their lives?!
    From my years in grassroots but successful amd innovative organizations it is clear to me that being the most harass for the mission is the single most critical engine for success. An engine that is certainly multifaceted and can bring in varying strategies for living and implementing that mission success, such as incorporating supporters in that mission.
    The point is to understand the mission and the work and success of the mission as the driver – not donor personal life solutions first – as I seem to be reading.
    That is crazy. That is doomed to fall short every time in so many ways…

    1. M.A.: No one said anything about donors needing to be rich in order to deserve a value-for-value exchange. All human beings deserve this and, sadly, giving is infrequently its own reward.(I’ve written on this subject: We need our good instincts to be reaffirmed, recognized and appreciated. This doesn’t mean lavishing expensive gifts. It does mean prompt, personal thanks and ongoing reporting on the outcomes made possible by the donor’s generosity.

      This is ALL about the mission. But it incorporates the donors as an integral part of the mission. Donors and nonprofits serve each other… and a larger community/cause. The mission is values-based, and it is these values that propel everyone forward. It’s a communal endeavor.

  8. Interesting post! I am always excited to see newcomers to the nonprofit sector share their thoughts.

    Indeed you are compelled to “get your car serviced because the check-engine light comes on” but the decision of which mechanic you choose to do business with is a relational one (trust and confidence built up over multiple interactions). The same principle applies to fundraising.

    After re-reading Jay’s comments, I can’t seem to find an example of him saying that “nonprofits need to act more like for-profits.” I believe his goal in comparing for-profit customer retention rates to nonprofit donor retention is to motivate fundraisers to rise above the status quo. (Full discloser: I am an Officer at Bloomerang, a company owned by Jay Love).

    You also asked “why aren’t there industry reports for retention rates that are broken down by giving level?” As a matter of fact, there are! You can find them in the FEP report – specifically the donor retention supplement to each annual report. The 2016 supplement found that donor retention rates increase with gift size: 52% for gifts up to $100, 64% for gifts $100-$249 and 76% for gifts above $250 (from repeat donors). Target Analytics 2015 DonorCentrics US Recurring Giving Benchmarking Analysis found that multi-year donors with both a single and recurring gift in the prior year had retention rates of 90% (I believe this is what Jay was alluding to in his response to Gayle).

    Zach, those percentages are quite high and very close to the for-profit averages that you bemoaned in your post. Does it surprise you that organizations are achieving those retention rates, or are you saying that they shouldn’t aim to do so just because the for-profit sector boasts similar rates?

    You seem quite intent on categorizing and ranking donors by gift size. The Fundraising Report Card may classify major donors as donors contributing $5,000+ a year, but did you know that Vu Le (the writer you cite often in this post) is adamantly opposed to this philosophy?

    You might consider reading the excellent post he published today, where he states:

    “We define “Major Donors” as people who give a certain level, not according to their personal context but according to set thresholds. These donors get extra attention. It’s understandable; we need to keep the lights on. But it does unconsciously perpetuate society’s ingrained notion that people who have more money deserve special treatment. But what about the smaller gifts? What about the $10 from a student or a $5 from a colleague who is between employment? Are those not considered major gifts?”

    Zach, you stated “Most major donors simply can’t wake up in the morning and “switch providers.”” Are you sure? Does that come from your extensive experience as a major gift fundraiser? I assure you that any major donor, if they felted slighted by an organization, would “switch” from them without hesitation.

    Finally, you stated that “for-profit companies retain their customers at a high rate as a function of necessity.” Are you implying that donor retention is not a function of necessity? If so, I’d be curious to hear how you believe nonprofits can generate major gift prospects.

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