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

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.

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