Every nonprofit organization needs more of two things: time and money. Okay, every organization (nonprofit or for-profit) could use more of those two resources. Hey, now that I think about, I could use more of those two myself…
Time and money are the most valuable resources in the world, and for nonprofits, the impact of having “more” of either can be meaningful. Of course, time is finite — we all are limited to just 24 hours in a day, but money, funding, is theoretically uncapped, and for a nonprofit, having more of it generally equates to having a greater impact on the world.
Fundraising professionals strive to power the financial engine that sustains millions of organizations across the globe, but at one point or another they all face the same common question: how do we raise more money? Of course, such a broad question can’t be addressed in a blog post, nor should it be. Increasing the “growth in giving” is an issue worthy of industry boards and committees, not blog posts or ad hoc analysis.
Yet, as with most things, there’s a simple answer here. Yes, the complete answer to “how do we raise more money?” is incredibly complex, but no that doesn’t mean there isn’t anything you can do today to address it.
Let’s start with a universal truth; there are only three ways to raise more money. Now, before you scroll to the comment section of this page and begin typing your, “there are more than three ways to raise money, bozo!” comment, please bear with me.
Any organization, nonprofit or for-profit has only three ways to increase the amount money they receive. They could:
- Acquire new donors/customers
- Retain existing donors/customers
- Monetize their donors/customers
It’s really that simple.
I’ve appended “/customers” to each of the three fundraising strategies above for a reason. As you continue reading this blog post we’ll address each strategy with both a nonprofit example and a for-profit example. You’ll quickly realize that for-profit companies are employing each of these three strategies on you every day.
Let’s walk through each one.
Acquire new donors/customers
Everyone, and I mean everyone is familiar with donor acquisition as a strategy to increase funds raised. Actually, when you first started reading this blog post, you may have thought that donor acquisition was the only way to raise more money.
For what it’s worth, nonprofits are really good at acquiring new donors. So are for-profits when it comes to acquiring new customers. You don’t have to look far for examples of either vying for your attention and pocketbook.
You’ve most likely received mail from a nonprofit that you’ve never donated to before. That the mailer was most likely from an organization with a similar mission to a different nonprofit that you have donated to before.
You’ve also likely received mail from for-profit companies that you’ve never interacted with before. All those credit card offers you get in the mail? Yep, it’s the same concept those nonprofit organizations employ — identify people that fit certain criteria, send them mail, ca-ching.
This is donor or customer acquisition 101, nothing earth shattering here.
In either scenario, the goal is to bring in enough new donors/customers and have their revenues cover the cost of acquisition. On our quest to raise more money though, an acquisition strategy is actually our worst bet. Unfortunately, now more than ever we’re addicted to acquisition-based growth. It’s sexy to talk about how many new donors you’ve acquired (more on vanity metrics here), and it’s fun to win people over and get them to contribute to your cause, but it really isn’t your best bet.
It may seem on the surface that in order to raise more money we need to increase our network of potential funders/donors/customers, but fundraising through acquisition is actually incredibly expensive and inefficient. 9 times out of 10, it’s not the right answer.
Retain existing donors/customers
More recently, the concept of increasing funding through donor retention has become appealing. Where acquisition is expensive and costly, retention is cheaper and more lucrative. There are a lot of expenses in acquiring a new donor (more on that here), and considerably fewer expenses to retain a donor (more on that here).
Many nonprofits strive to move one-time donors into monthly “sustainer” programs, or at a minimum get them to renew their contributions year after year. The newsletter you receive once a month? That’s a reminder to donate and engage with the organization.
Nonprofits far and wide are buying into the concepts of retention based fundraising. Acquire a donor, build a relationship (send the newsletter), raise more money (fingers crossed).
The transition towards retention based fundraising has been kicked into high gear as a result of alarmingly low first-time donor retention rates. As development departments become more data-savvy they’re realizing that their numbers don’t lie, 25% donor retention rate simply isn’t sustainable.
For-profits are not to be outdone in this arena, they to have acknowledged the benefits of retaining customers as well. Go grab your car keys, I’ll wait a moment until you get back. Now look at your key chain, how many “rewards cards,” or “key tags” do you have?
Okay, maybe I’m dating myself a bit (everything seems to be digital nowadays), but do you remember when you had a “rewards card” for every grocery store (and Blockbuster) on your keychain? That “key tag” was the grocery stores mechanism to build a relationship with you and retain your business; Generating more money through retention 101.
It’s the same concept no matter where you go. Business and nonprofits alike can both raise more money when they build lasting relationships with their donors and customers. Raising more money from retention is simple, keep a donor around and they’ll give more at less cost to the organization. It’s a good thing our sector is moving in this direction. But…
Monetize donors/customers
The third strategy to raise more money is the least widely known one in the nonprofit space. Monetizing a donor relationship. To be fair though, many for-profits struggle with this concept as well, it’s not unique to just our sector.
Monetizing a donor relationship is a fancy way of saying, “we’ve retained a donor, now how do we get them to increase their amount of giving”. In layman’s terms, that’s really all it is. How can we increase the revenues associated with our donors, how can we “upgrade” them.
Monetization ties in with a fundraising metric you may have seen floating around the internet, donor lifetime value. Lifetime value is a projection of future revenues attributed to your relationship with a donor. I’ve written extensively on LTV here and here, please take a look.
Examples of monetization are harder to come by. Qualifying an activity as part of a “monetization” or “upgrade” strategy is difficult. If Uber announced a plan to invest $100 million in improved customer support the reaction would be, “wow, Uber is finally waking up and realizing they need to help support their users experience more.” That sentiment would be true, but that investment in customer support is also an example of Uber’s monetization strategy. Although the implications of investing $100 million on customer support may initially appear as red ink on the balance sheet, its impacts on overall customer lifetime value will positively affect revenues in the long-run.
Monetization strategy is not cut and dry. It’s not all that easy to follow.
On the other end of the spectrum though there are more obvious monetization investments being made. For example, many nonprofits employ “donor upgrade campaigns.”
Take for example this fantastic case study from Judicial Watch.
Monetization strategy doesn’t always have to be so discrete.
Applying this at your shop
So, how do we raise more money? We have three strategies to choose from:
- Acquisition
- Retention
- Monetization
Acquisition is the easiest to understand; we spent this much money and acquired this much in donations.
Retention is next in order of simplicity; we spent this much money to acquire those donors and they’ve retained their giving for four years now.
Monetization is the hardest; we invested in new donor thank-you callers and have realized a 26% increase in average second-donation amounts.
If you’re trying to answer the age old “how do we raise more money” question at your organization it’s my hope that this blog post got your gears spinning. Although acquisition strategies may feel the most compelling right now, it’s important to rationalize that they’re probably not. Retention is a worthy area to look for increases in revenues, but the best place to start is most likely by investing in harder to qualify and quantify activities that align with your monetization strategy. Yes, these will be more difficult to sell to your board, but if executed correctly, they’re well worth it.
Zach, thanks for this excellent blog. It is easy to think conceptually about acquisition and retention but not about monetizing strategies. As a fundraising department, you want to excel in all three areas and create synergies between them.
Zach, if you’ve not already done so, I would suggest that you read the excellent book The Black Swan by Nassim Nicholas Taleb. My hope is that this will give you some understanding as to why much of what you are saying here is simply inaccurate with regards to most fundraising programs. To use Mr. Taleb’s vocabulary, fundraising properly done exists in the land of “Extremistan,” where outlying events (i.e. large gifts) have disproportionate influence. Consequently, the concept of normal population distribution does not apply the way it does, say, in evaluation the habits of people shopping at supermarkets. In my experience, this has proven true even in organizations who primarily use direct mail to raise money (not a great idea in and of itself, by the way — although direct mail is obviously a very valuable fundraising tool).
That’s it in a nutshell Zach. Acquire. Retain. Upgrade. Easier said than done, but… it’s got to be done! No way around it. And for-profits “get” it much better than nonprofits. They understand the need to invest money to make money — and retain 9.4% of customers rather than 2.3% as a result. For some oddball reason, nonprofits became comfortable with investing money in donor acquisition, but not in retention. I’m not sure why. Maybe because, as you suggest, new donors are “sexier?” Whatever the reason, it’s beyond time to get comfortable with investing in retention and upgrading. The return is much, much higher too. There just has to be an understanding that a realistic time-frame must be anticipated. Patience here is a virtue. LTV takes awhile to develop. Excellent post, as usual. 🙂
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