Donor-Central Has Changed

I wanted to share some exciting news.

Thanks to you, my business has been growing. In fact as you may have noticed, I have been too busy working this year to even blog.

So, to accommodate the additional business, I’m proud to officially announce that I have added a partner. I have teamed up with Joe
Churpek and we have formed a new company, Analytical Ones LLC.

Anyone one has worked with Joe, as I have over the last 3-years, knows he’s not only really smart, but super to work with. He is a top-shelf direct response analyst with big agency experience. Plus he is a primary research specialist. And I feel very blessed to be partnering with him to give my clients access to his insights and talents.

The blog will still continue at Analytical Ones and we will be doing business as Analytical Ones starting immediately.

Last thing, please check out our new website and let me know what you think. First 100 people who sign up for our email updates or follow us on Twitter will get a $5 Starbucks certificate.

We look forward to expanding our analytical services to even more great clients.

Thank you all for your business.

Here’s our problem in fundraising. We are still using the term “direct response” in our efforts. We still measure our efforts by “direct
response.”

But donors are not responding directly to our efforts.

They respond indirectly.

Like: We mail them an appeal; they go online and send a donation via bill-pay. That’s indirect action.

Our paradigm has changed forever.

It’s time we retire the term direct response. This is too bad for us analysts, because it was a simpler paradigm to measure results.

We have to come to terms with the fact we are living in a world of indirect response. And it’s complex, more expensive and difficult to
measure.

But we have to deal with it.

For a direct response fundraising analyst, the first quarter is always the busiest time of year. We are evaluating all the fall campaigns and determined what worked, what didn’t, and making plans for the 2012.

And on top of that, it’s client meeting season; lots of clients to see and lots of presentations to prepare – which means lots of travel too.
So you may have noticed I haven’t posted much lately. That’s because I have been pretty focused on working to meet my clients’ needs. It’s all good. But I have noticed, as for most things, once you get out of the habit of doing something regularly, re-starting is tough.

Because I have been seeing people and spending too much time in airports, I’ve been thinking about connections.

As great as technology can be in facilitating staying in touch, nothing can ever replace the face-to-face meetings for staying connected. And as much I dislike making connections at airports, I like making connections with people face-to-face.

What strikes me is that while most of the client conversations we are having this year always seem to wander towards how we can revitalize old channels and leverage new channels to make a connection with donors – donors (all of us really) try to leverage technology to control their connections.

And that leaves us all at an awkward impasse.

It’s like we are trying to connect flights at the wrong hub.

Until we figure out how to re-humanize our methods and messages, we are going to be stuck waiting for a connection.

One of my friends, James Read shared this picture on Facebook the other day. I thought I’d share it all with you.

Fundraising professionals on the agency side are an interesting breed. They live on a knife edge of for-profit helping nonprofit.

Many of us wanted to something meaningful with the talents we were blessed with, so rather than help some greedy corporation turn a dime, we are trying to help some worthy cause turn a dime. But there is always this nervous tension between agency and client. And I think that tension is a positive thing.

The agency is always trying to push the envelope (sometime literally) to increase revenue. And if it’s an agency worth its salt, the only metric that really matters is net revenue. Clients on the other hand, view all decisions through the cost lens. As one client famously said in a meeting, “I’m not going to spend another $100K even if it does increase my revenue by $1MM.”

Agencies have a broader scope of what works and what doesn’t. The nonprofit has critical context about the organization that the agency
cannot know, but they can leverage that context to the organization’s advantage.

The beauty of this picture is that every role is true at one time or another. Agencies are sometimes wise and extremely helpful. Other times they are expensive or run around in circles. But there is no question a good relationship between agencies and nonprofits are essential for optimizing net revenue.

Now that you’ve done the analysis, it’s time to create your overall budget.

Most often nonprofits back into their budget. For example, the development director will be told what their budget is. Or, they will be told that they need to raise $4MM from current donors (we aren’t talking about new donor acquisition today) while maintaining an ROI for 4.00. In other words, they have $1MM to spend. Then they go about figuring how they are going to spend that $1MM.

Back to the table; we’ll use the same one we used yesterday.

Our first task is to determine a specific ROI goal for each segment in the table. Though your overall goal may be a 4.00 ROI; this may not be the case for each segment. For example, in your lapsed segments, your objective is to just breakeven (ROI = 1.00) to reactivate that segment. In the $1000+ segments, you may want an ROI of 10.00.

Once the ROI goal has been determined for each segment, then we calculate how much can be spent on that segment. Let’s look at the segment 7-12 Months/$25-49.99. In this analysis, there were 1,507 donors in that segment as of December 31, 2010 and in CY11 on average (including inactive donors) each donor gave $15.95. So the whole segment generated $24,037. So, to meet this segments ROI goal for the budgeting year, you can spend up to $6,009 of your $1MM on this segment, or $3.99 per donor.

Now repeat this exercise for each segment.

Of course, where it gets tricky is when you have some costs that will affect all the segments (like the cost of developing your email). These
costs need to amortize across all the segments. This is why people hate budgeting. It can get complex.

Using this table as a tool, and applying some basic math, even building a complex budget doesn’t have to be painful. And if you are one of those people who have already filed your 2011 taxes (like I have) you may even enjoy this process.

Once your organization can agree with these three assumptions described in yesterday’s blog, then you are ready to take the first step in making your budgeting process easier and more effective.

First, it requires some analysis.

This table is an example of a Segment Value Grid. It’s pretty simple. This uses typical RFM segment definitions. This particular table is of donors who gave 3 or more gifts in their lifetime with the organization.

Across the top are typical monetary segments. In this example, the monetary variable is based on Single-Largest-Gift (SLG). Some people refer to this as HPC (Highest Personal Contribution).  But other organizations use most-recent-gift MRG or some average of gifts size.
Along the side are the recency categories.

In this example, it follows the traditional 0-6 months, 7-12 months as so forth. The donor was flagged into the segment based on their giving as of December 31, 2010.

Let’s look at one of the cells, the 0-6 month $0.01-9.99. There are two numbers in each cell. The top number in the cell ($8.92) is the average per capita revenue the donors in that segment contributed during 2011. It’s important to note that these average values include both active and inactive donors in that segment.

The cells are color coded to make it easy to read: Salmon colored are segments that generated between $0-19.99 per donor; yellow between $20-49.99; and, blue $50+.

The bottom number (171) is the number of donors in that sell.

Really quick, if your organization spent more than $8.92 on cultivating each donor in that cell (or collectively, $8.92 x 171 = $1,525) your organization lost money on that segment.

Thought of another way, if you wanted to generate an ROI of 3.00 on that segment, your budget for that segment could not exceed $2.97 ($8.92 / 3.00).

Next time we’ll discuss who you back into your cultivation budget using this table.

One of the biggest challenges in fundraising, as we transition slowly from a predominately single channel direct mail model to a integrated paradigm, is figuring out how to budget your spend across the channels.

I think this Marketoon captures the sentiment of most development directors today.

But I have a plan that might revolutionize how you can approach your budgeting process. And it’s really simple.

First there are some assumptions:

• First, your total budget can’t increase. Just because it’s a multi-channel world doesn’t mean you have more to spend in development.

• Second, you cannot afford to take a net revenue hit as you transition from a single channel to a multi-channel model. That means when you move money from your direct mail silo to your digital silo, you have to be reasonable expectations that you will realize at similar net revenue in the new channel.

• Third, the development director must have budgetary control over all the media channels. You can’t have a web budget, a PR budget, a marketing budget, a direct mail budget and a major donor budget. They all have to be combined into what I call a donor relations budget.

If your organization can agree with these three assumptions, then you are ready to take a big step in making your budgeting process easier and more effective. We’ll take that next step tomorrow.

I like this “Marketoon” by Tom Fishburne. It pretty much sums up our world today.
Hyper-multitasking is a way of life for anyone in business today. Listening is not valued. Talking is.

But I am glad to announce that this age of perpetual distraction is not my fault. Nor is it caused by “my people.” And this isn’t just my opinion, now there is science to back it up.

Of course I am referring to my fellow introverts who live and work in a chaotic world dictated by extroverts. However, in Susan Cain’s new
book, Quiet: The Power of Introverts in a World That Can’t Stop Talking, she outlines what us introverts have always felt but have been too shy to say aloud: Introverts are more innovative. Shy people rule!

The week’s cover story in TIME Magazine reports (page 42) “Introverts are better at listening – which, after all, is easier to do if you are not
talking – and that in turn can make them better business leaders, especially if their employees feel empowered to act on their own initiative. And simply by the virture of their ability to sit still and focus, introverts find it easier to spend long periods in solitary work, which turns out to be the best way to come up with a fresh idea or master a skill.”

So all you managers out there, especially you extroverted ones: if you want to get the most out of your introverted reports, don’t force them
to participate in your team building exercises.  And don’t be worried if they aren’t verbal in your brainstorm sessions. We introverts like to listen and absorb.

And if you are patient– when we are in our quiet place — we will come up a great idea.