Thursday, October 29, 2009

How Much Should Your Ask Be?

When making face-to-face asks of major donors, you invest lots of time and analysis to determine what your ask amount should be. Each ask is highly customized and personal.

Wouldn’t it be great to make personalized asks of your direct mail donors?

Well, you can! Arrowhead Management creates personalized asks for our clients’ donors. Personalized ask amounts ultimately raise more money for your cause.

We use only your database and Excel: we create a query in your database to identify all donors who gave last year and pull the following giving data: highest single gift last year, total dollars given (including events, but not in-kind and silent auction) and number of years donor has given.

We export this data to Excel and title three new headings as Low, Medium and High. Low is the highest single gift in the previous year and the minimum your cause hopes to receive this year. High is the sum of all gifts/ number of years of giving and likely the largest single gift you can realistically expect to receive from this donor.

We take the average of the Low and High values to create the Medium.

Sample donor:

 

Highest Gift Last Year

Total Given

Total Years Giving

Low

Medium

High

Nate Silver

$50

$600

6

$50

$75

$100



Nate likely gives a couple gifts and/or attends events each year (since his total giving is $600 and his highest gift last year is smaller than his annual average). So, this range of asks is within his comfort zone of giving, while still encouraging him to upgrade.

Finally, we mail merge these values into your electronic or snail-mail appeal, so Nate Silver is asked to consider making a contribution of $50, $75 or $100.

Shameless Arrowhead Management Plug: Nate is a simple example and we recognize that each organization has specific circumstances that require further personalization. If you have questions about how to handle your year-end appeal, please give us a call!

We’ve found this strategy effectively increases response rates and upgrades donor giving.

Thursday, September 3, 2009

Converting Prospects

How a Donor Becomes, Well, a Donor

As fundraisers, we spend the vast majority of our time persuading people to act now.

We raise more money when we mobilize our existing supporters than when we engage people who haven't the faintest idea about our work. Customized appeals are always more successful than general appeals that try to interest everyone. Relevance to donors is paramount.

So how do we grow the pool of relevant prospects?

Let’s remind ourselves how our current donors became, well, donors.

In this blog, we'll define the five key steps that all donors go through before you're aware of their gifts. Our next blog will share a case study about one of our clients, which applied these principles to its direct mail program.

Awareness
The first step is for people to be aware of the causes and social change movements that your nonprofit belongs to. For instance, Kiva.org connects donors with entrepreneurs in emerging markets. Kiva.org belongs to the social entrepreneurship and microfinance causes.

If you're Kiva.org, both your current donors and prospective donors are, at some point, aware of social entrepreneurship as a movement.

This awareness leads adults to fall into two buckets: those predisposed to become donors and those who are not.

Although this five-step process is not always linear for donors, let’s start with people already predisposed to contribute to your organization because of their awareness about your cause.

Image Matching
At some point in the contribution process, donors visualize themselves as belonging to your cause. They co-brand themselves with your work because of the positive association your cause brings them.

Fact Matching
People who see themselves as connected to your work begin to educate themselves about it. They might Google broad industry terms or they might speak with friends or colleagues to learn more about the depth and breadth of your cause.

Organization Matching
While donors are researching your cause, they will inevitably come across your organization as well as your competitors. They've strengthened their engagement with your movement and are looking for opportunities to express their values. Make sure you are easy to find!

Gifts

You did it! Donors just completed the important journey to find you and make a contribution.

Wednesday, August 12, 2009

Lapsed Donors: Top 10 Ideas

1. Do a matching gift. Raise a set amount that you can leverage for a direct mail appeal. Have the appeal come from the donor and share why s/he cares so much about your cause.

2. Tell the story of why your cause matters from the perspective of a volunteer or client.

3. If you have a local community leader engaged in your work, have an appeal come from him/her.

4. Do a micro-campaign. Launch a small campaign around one, tangible outcome - say it costs $5,000 to provide a medical service to a patient – and build your appeal around improving that one person’s life. Remember, have a launch, beginning and celebration.

5. Remember, in difficult economic times, more people give – but they are more likely to give smaller amounts. Create an appeal around that concept. Select a low per person cost service – maybe it costs $10 to feed a family for one day – and ask small gift donors to help one family.

6. Start with an email ask; 7-10 days later, follow up with snail-mail (or vice versa). Snail-mail everyone on your list – or just those who opened the email but didn’t contribute.

7. Reacquaint donors with your mission. Many donors simply forget why you matter. Focus on what still needs to be done, rather than what you’ve already accomplished.

8. Reinforce donors’ image of themselves as important philanthropists. Phrases such as “as somebody who makes a difference in the community, you…” strengthens giving as part of their value systems.

9. Offer donors the option of making special occasion gifts. Tie in your appeal with holidays or other mission-based events – say, Mother’s Day for breast cancer.

10. Create multiple engagement opportunities. Prospects who write letters or volunteer will become donors. Donors appreciate that you value more than just their contribution.

Tuesday, June 9, 2009

Does Your Fundraising Strategy Match Your Donors?

Sometimes, fundraisers become so enmeshed in daily operations they don't have time to stand back and analyze whether their fundraising strategies match their donors' needs.

Consider Happy Homes for Kids. Let's fast-forward 20 years – they've hired several staff and have expanded to include a summer camp for their foster youth. College students staff the summer camp.

Say Happy Homes notices year-over-year declines in revenues and decides to hire Arrowhead Management to analyze its fundraising strategy.

We'll take this hypothetical example and tell you how we'd evaluate, plan and implement a strategy to improve Happy Homes's annual revenue:

Evaluate

Early into our analysis of Happy Homes, we discovered a not-so-startling trend: the vast majority (85%) of donors had been Happy Homes counselors…and a few had even been campers! Yet, when we analyzed Happy Homes's fundraising strategy, you'd have thought Sociology PhD were donors: appeals spanned several pages, were text-heavy and focused on the rampancy of "Nature Deficit Disorder" among youth.

Happy Homes had no Web engagement for donors, yet campers – low-income youth – were expected to register online.

As we dug deeper, staff confessed they couldn't figure out why donors only gave once. Staff showed us compelling, tug-at-your-heartstrings stories about former campers who became judges and entertainment executives…stories that were typed up and mimeographed (don't pretend you can't recall that delectable scent of purple ink from elementary school).

It was clear: Happy Homes's fundraising activities were misaligned with its donors.

Unfortunately, mismatching fundraising strategy with donors is an all-too-common mistake among nonprofits.

Plan

Once staff understood the importance of aligning donors with fundraising strategy, Happy Homes realized its donors wanted to: reconnect with counselors, see pictures of current kids at camp and hear camper success stories.

Together, we created an annual plan that re-aligned Happy Homes's fundraising activities:

  • Create a group on Facebook, featuring pictures from recent and earlier camp sessions;
  • Retell the mimeographed stories in email appeals, and;
  • Reserve all references to Nature-Deficit Disorder outbreaks to grant proposals.

Implement

Over the next twelve months, Arrowhead Management executed on this plan by:

  • Soliciting various donor segments, on a quarterly basis, using targeted email and snail-mail appeals;
  • Creating an online web footprint;
  • Identifying 10 current donors who were likely candidates to upgrade their gifts, and;
  • Launching a monthly e-newsletter featuring photos of current campers, counselor get-togethers and first-hand stories from campers

Outcomes

As a result of modifying its fundraising strategies, Happy Homes experienced:

  • Overwhelming response on Facebook: within 48 hours of creating a group, over 300 members joined – at least 75% were former counselors Happy Homes had lost track of;
  • Decrease in its lapsed donor rate from 50% to 35%, and;
  • Increase of 15% in overall revenue from individuals.

Take a good hard look at how well your fundraising strategy matches up to your donors…does your fundraising strategy need to be realigned, so you too can increase your fundraising success?

Tuesday, April 7, 2009

Maximizing Your Donor Database

How to Transform Your Database From a Money Pit Into a Profit Center

The development database…just the term stirs fear in the minds of good Development Professionals.

So many things can go wrong with development databases…are donor recognitions and salutations perfect? Did this week's donors receive acknowledgment letters? How many duplicates?

With these in mind, development departments work very hard to ensure that, as a result of their database, "nothing goes wrong."

And, yet at the end of the day, most of us are exasperated with our databases. Even when we have a good, "clean" database, we can't help but feel like it's a money pit. Partly because we don't really want to acknowledge that the expensive database we just bought can't do everything we think it should be able to do.

But, in fact, any good donor database has limitations. Databases have three main functions:

1. Storing Information
Databases store volumes of data about donors and giving histories; almost any data point about a donor can be stored in your database.

2. Organizing Information
For the most part, donor information is well-organized. Fundraising software developers (Donor Perfect, Blackbaud) do a good job making the user's interaction with data fairly straight-forward. Users can easily look up a constituent, enter gift and can find necessary information (Mrs. Smith gave five gifts totaling $500).

3. Answering User Questions
This is the most important and under-utilized purpose of a database. Databases are designed to answer simple questions, such as "which donors gave last year" or "how many donors lapsed two years ago."

At best, these answers provide interesting information, but they don't add financial value to your nonprofit.

However, the database gives you the most important tool a Development Officer can use to increase its top line and meet or exceed fundraising goals: a dataset.

Understanding a dataset's potential is important. The dataset is key to Silverizing your fundraising.

Moving Beyond Database Constraints

Once Development Officers understand that the development database gives them a dataset, they are ready to ask revenue-generating questions:

  • Who is giving $100 who should be giving $1,000?
  • Which prospects should be major donors to our organization?
  • How do we convert prospect to a donor (phone call, newsletter, etc)?
  • Who should we be cultivating for a Planned Gift?
  • Which event attendees should be giving more?
  • Which major donors are about to stop giving?

To answer these questions, start by taking the dataset and use a little knowledge of Excel and some fairly basic advanced statistics (we get the pun).

By mixing your datasets with Excel, you can model your donors' behavior. Your models will start answering these questions – for example, here are 10 donors who gave $100 last year who should be giving $1,000.

And, now, you can begin maximizing revenue.

So, please remember: your database isn't designed to – and thus, never will – spit out a list of which of your $100 donors should give you $1,000 (and frankly, your Development Committee probably won't be able to predict this with better certainty than if you picked donor names out of a hat at random).

But, if you want to identify these unique $100 donors, you can do this only if you acknowledge database constraints, use the database to create datasets and beef up your Excel skills so you can Silverize your fundraising activities.

Shameless Arrowhead Management plug:

Most nonprofits do a fairly good job keeping their donors' names and addresses current. But, few can undertake complex prediction and forecasting activities to answer questions that will make you more efficient, raise more money for your organization and transform your database from an "index card catalog on steroids" to a revenue-generating "can't live without" part of your development team.

Organizations looking for answers to these questions often find it more efficient to outsource their database management to people who can do this modeling.

Developing models of your databases is exactly what Arrowhead Management does - we'd love to help you create the models that answer these questions!

Sunday, April 5, 2009

Campaign 2008: Lessons Learned for Nonprofits

The nonprofit world watched the 2008 Presidential elections in wonder: how on earth did Obama raise that much money?

Many articles and seminars claim to give you the “secret sauce,” so you can “Obamanize” your fundraising activities.

At Arrowhead Management, we believe that all the Obama campaign did was take the annual fund “best-practices” that we all know and love and scale them up, using the Internet.

Not that there’s anything wrong with that (yes, one of us quotes Seinfeld with wild abandon), but chances are, you’re already Obamanizing your annual fund.

However, the Election 2008 secret sauce that you do need is how to “Nate Silver” your annual fund.

Who?

Nate Silver is a young pollster who few had ever heard of, but who absolutely nailed the 2008 Elections by accurately predicting, the morning of the election, the following:

  1. The presidential winner and percentile…down to the tenth of a percent;
  2. How 49 of 50 states would vote (Obama or McCain), only missing Indiana, (which was a very close call), and;
  3. Every single of the 34 senate winners. He even ventured that Al Franken would win Minnesota by a mere 150 votes (out of over 5MM). Franken is currently ahead by approximately 225 votes and the matter will be settled in court.

Clearly, this kind of polling accuracy comes after decades and decades of work in politics, right?

Nope.

Silver only “dabbled” in politics before he founded 538. Prior to delving into politics, he was the Managing Director for the “Baseball Prospectus,” a group of baseball thinkers who analyze baseball stats.

In what he probably believes is a greater accomplishment, Silver also predicted the Tampa Bay Devil Rays - arguably, baseball’s worst franchise who had never in its history had a winning season - to do “very well.”

Tampa Bay made it to the 2008 World Series.

For the 2008 election, Silver simply took the tools he used to answer questions such as “who is better, Babe Ruth or Barry Bonds (pre-steroids)” and applied them to politics. Every day, he analyzed all the daily election polls, using some pretty basic tools in Excel (data analysis plug in tool packet, if you really want to know), and posted his results on his website. Fivethirtyeight.com was an election poll of polls.

So, you’re all wondering, great, but how does Nate, today’s Alex P. Keaton of baseball, relate to nonprofits?

Silver is not an outlier, nor are baseball and politics the only industries that are changing as a result of people looking at databases in a different way. In industries as diverse as credit card companies and casinos, companies are using data to strengthen customer loyalty and determine how much money they can extract from clients and still have those same clients feel they’re getting something of value.

It’s time the nonprofit industry got into this game and apply Silver’s polling lessons to their already-Obamanized fundraising strategies.

Effective statistical data analysis can answer important fundraising questions such as “what type of communication is more effective in converting prospects to donors?” or “how much will response rates increase if I call donors prior to an electronic- or snail-mail solicitation?,” and, our personal favorite, “which donors giving $100 should be giving $1,000?”

Nonprofits should look at the 2008 election with awe. But, what we should take away from this election was how we, as Development Professionals, can use Nate Silver-like tools to transform one of our biggest cost centers – the database – into a revenue generator.

Using data analysis – like Nate Silver does – we can convert the database into something that creates previously unidentified donor leads, tells Development Officers which constituents should just receive one annual fund letter in December and get those 2008 presidential campaign donors to say “yes we can” to your cause.

Monday, March 23, 2009

Subject Matter Expertise v. Fundraising and Organizational Expertise

When a small nonprofit hits the point in its growth when the Board of Directors can no longer manage its daily operations, it's time to bring in help.

That assistance comes in several ways, but the Board has one key decision: either contract the work out or hire in-house staff.

This article examines the pros and cons of each option (Arrowhead Management exists, in part, because nonprofits choose to contract work out, so we've certainly a bias toward that option; however, we recognize the value of in-house staff and hope we fairly present both sides).

To determine which option is best, the Board needs to identify its core competencies and areas for improvement. The assistance the Board seeks should expand the breadth of, rather than the depth of, the Board's existing strengths.

Which core competencies matter?

In general, nonprofits have three fundamental needs:

  • Subject Matter Expertise
  • Fundraising Skills
  • Administrative Support

Let's explore two different nonprofits to determine whether they should hire an outside contractor or in-house staff.

Scenario 1:

"Happy Homes for Kids" was founded by a social worker who identified a gap in foster care services and created a nonprofit to fulfill this need. Her Board is made up of other social workers and City and County employees who engage with foster care youth.

  • Subject Matter Expertise

Undoubtedly, this Board's subject matter expertise on the issue of foster care for youth is unparalleled. Board members are well-known and well-respected in their communities.

The Board can act as the face of the organization. Programs can easily be carried out with a few extra hours of volunteer commitment by Board members and community volunteers.

  • Fundraising Skills

Happy Homes is funded by a multi-year government grant. In the past, the Board has hired a contract grant writer, who works at the County with the founder, to help with this grant.

The Board is recognizes that Happy Homes is extremely vulnerable to shifts in government priorities and would like to diversify its revenue sources. But, no one is sure where to begin. A couple Board members have hosted house parties and raised about $1,700 over the last two years.

  • Administrative Support

Happy Homes is facing daily operational challenges. No one is really sure what to do with the contact information for people who came to their house parties. The wife of one Board member was handling the books for Happy Homes, but they just moved out of state and no one knows how to run QuickBooks.

Scenario 1 Analysis and Solution:

No one knows the foster care system like this Board. They know which direction they'd like to expand their programs to respond to new and emerging community needs.

However, Happy Homes lacks fundraising and operational expertise. They aren't sure which funders to approach and how to solicit them. The growth of their internal operations is outpacing their ability to function effectively.

Happy Homes is ideally positioned to hire an outside company to manage its fundraising and operational work. For instance, is it really the best use of this Board President's time to focus on fundraising data entry standards?

Shameless Arrowhead Management Plug: For about the same cost as hiring a staff person (salary, insurance, benefits, office space, etc), organizations such as Arrowhead Management bring a team of operational experts to run your organization.

For example, we provide web site designers, graphic artists, grant-writers, annual fund gurus and specialists in: database management, bookkeeping and volunteer/membership management. It's unlikely that a small and emerging nonprofit can easily find all these diverse skill sets, at high levels of competency, in one person.

And, emerging and grassroots in particular are often unable to pay Executive Directors salaries commensurate with their experience, so high turnover is often inevitable. Arrowhead Management achieves economies of scale by working with many diverse nonprofits, so our fee is affordable for a nonprofit with a budget under $1 MM.

Scenario 2:

A group of 10 young professionals believes there's a need for smart, inner-city youth to access professional college counseling. At last year's alumni event, they heard the story of a young man from South LA who struggled through the college admissions process and eventually matriculated to the University to whose alumni group he was now speaking. They were inspired and founded a nonprofit, College for All, that focuses on the high school this young man attended and has started raising funds.

  • Subject Matter Expertise

Although all College for All Board members are college-educated, they graduated from high school about 10 years ago and aren't familiar with the new SAT format or college admissions standards other than the ones at their own alma mater. They aren't sure which students should apply early to which colleges or how to effectively help youth craft compelling personal statements.

  • Fundraising Skills

College for All's Board members make in the low six-figures and work at companies that match their gifts and have robust corporate giving divisions. They are positioned to pretty easily raising $200,000 annually for at least the next few years.

  • Administrative Support

Although the professional expertise of all members includes accounting, finance, consulting and law, all members agree they don't have time to effectively carry out all organizational programs on a daily basis.

Scenario 2 Analysis and Solution:

College for All's core competency is its fundraising potential. The Board has access to high net-wealth individuals and the credibility to secure individual and corporate contributions. They have the financial means to make generous, personal gifts.

Subject matter expertise is College for All's weak spot. Although the Board members are smart and could eventually figure out the answers to many of the questions about the SAT or admissions, it would be time-consuming and ultimately ineffective.

College for All is ideally positioned to hire someone who can lead the organization, design and execute its programs and unite all community stakeholders. College for All will not be able to transition to a professionally managed and credible nonprofit without hiring a subject matter expert in the field of college admissions as its Executive Director.

College for All should consider hiring, for instance, a former Admissions Director from a college or a current SAT and college admissions consultant.
_____________________________________________________________________________________

Arrowhead Management certainly hopes that you can find the right person for your organization. Also, we hope that, should the situation be right, you will consider working with us to help advance your organization's mission!

Sunday, March 1, 2009

Yes, Fundraising is About Relationships…No, Not Those Relationships!!!

For years, Development Professionals have repeated the same, tired mantra "fundraising is about relationships."

This mantra suggests that donors give only because they have a good relationship with the nonprofit's Development staff, and not because they have a passion for the cause.

There are at least three fundamental flaws with this so-called "truism."

First, if fundraising is about relationships, how come the average donor exists long before the average Development Director and remains active long after the average Development Director?

Second, characterizing giving as about relationships discounts donor intentions. If fundraising were about relationships, how come so many donors make "restricted gifts?"

In fact, a restricted gift for a cancer treatment ward for youth reflects a deep passion for care and treatment of cancer, rather than for finding a cure. Both are important, but the donor's value of treatment shines in such a restricted gift.

Third, if fundraising is about relationships, how come the business model for a nonprofit development office isn't havinge an army of Development Officers who meet with as many random people as possible to develop "relationships?"

For more information on donor motivation, we recommend an article by Paul Schervish, Ph.D (Boston College Center on Wealth & Philanthropy):

Inclindation, Obligation and Association: What We Know and What We Need to Learn about Donor Motivation.

When Development Professionals say "fundraising is about relationships," they could very well be right; the only problem is that some Development Professionals don't know which relationships are about fundraising.

At Arrowhead Management, we believe that the strongest relationships your organization can form are ones that can be identified by observing donors, their experiences, a host of data and several other characteristics of the donors' lives.

We call these experiences, data and characteristics "variables."

There are two types of variables: dependent variables and independent variables.

Dependent Variables
are the changes in behavior that occur as a result of independent variables. In a fundraising case, a dependent variable can be: that people give to your organization, how much money people give or how often people give.

Independent Variables
are characteristics that we can observe that MIGHT have an effect on the dependent variable. Independent variables can be: donor age, income, educational status, how long they have lived in the community or whether they are married.

Let's say you want to find out whether a donor's education level (Independent Variable) influences his/her decision to make several gifts each year to your nonprofit (Dependent Variable).

We combine these variables in the following formula, which by the way, we all learned in 8th grade Algebra 1 (but don't worry, no quiz at the end):

y=mx+b


In this model:
Y=dependent variable
M=slope (or the relationship; we'll discuss in a moment)
X=independent variable
B=starting point on the graph

If you're looking at more than one independent variable, then the equation looks like:
Y=m(x1+x2+x3…)+b

Each independent variable is labeled "x1, x2."

Our next question is to determine whether the independent variable is "statistically significant" or not. One thing to know is that either an independent variable is statistically significant or it is not; there's no "in between" or "sortas."

Statistical significance is a way of asking "does this independent variable have an effect on the dependent variable or not."

You can determine whether a variable is statistically significant using a "fancy" formula on MS Excel (we'll discuss at a later time).

Now, it's important to understand at the outset that most independent variables are NOT statistically significant.

The next thing you need to know is that the relationship between the independent variable and the dependent variable is measured by an "R Squared (R2)" value. Independent variables that are statistically significant—or matter—have an R2 value that ranges between 0 and 1.

Click here for a Wikipedia definition of R2, but, briefly, the R2 is found from an analysis between the independent variables and the dependent variable primarily through regression analysis (fancy pants math that Excel can do for you).

An R2 that equals 0 means that the relationship between say, a donor's education level, isn't significant in determining how frequently s/he gives.

An R2 that equals 1 exists only in theoretical, math models (there are no perfect statistical relationships).

An R2 that is not between 0-1 indicates that the independent variable(s) is/are not statistically significant.

However, with statistically significant independent variables, the closer to 1 the R2 is, the stronger the relationship.

So, if your analysis reveals that a male donor who is retired, married, has lived in the community for 10 years and has attended three events your organization sponsored with an R2 of .8, that means 80% of his giving can be attributed to those relationships.

Imagine if you know this example to be the case and that you can go into your database and find other donors with the same attributes!

Now, in that case, fundraising is a lot about relationships…

Wednesday, February 18, 2009

Measuring Donor Growth Rate

Perhaps the most important metric in analyzing your nonprofit's long-term sustainability is your Donor Growth Rate.

Donor Growth Rate measures the net change in the number of donors to your nonprofit.

Use the following equation to determine your Donor Growth Rate:


(Number of New Donors – Number of Lapsed Donors)/Active Donors


New Donors: Donors who make their first gift to your nonprofit

Lapsed Donors: Donors who gave last year, but do not the next year

Active Donors: Total number of donors who gave last year


Donor Growth Rate is measured in percentages: a Donor Growth Rate of 25% means you have 25% more donors this year, relative to last year; a Donor Growth Rate of -10% means that you lost 10% of your donors over the previous year.

Let's look at the impact on your gross revenue of various Donor Growth Rate scenarios.

For simplicity's sake, we've controlled the average gift and assumed other constants over a five-year period. We've also excluded inflation or the time value of money from our analysis (this analysis would result in lower revenue values after year one).

Negative Donor Growth Rate

Assumptions

Active Donors = Number of donors who gave in the prior fiscal year

Donor Growth Rate = Annual Total of -5% (any combination of lapsed donors and new donors that totals -5% of Active Donors)

Average Gift = This value remains unchanged at $75

NEGATIVE DONOR GROWTH RATE

Y0
Y1
Y2
Y3
Y4
Y5
Active Donors

5,000
4,750
4,513 4,287 4,073
Donor Growth Rate

-5%
-5%
-5%
-5%
-5%
Annual Net Donors
5,000
4,750
4,513
4,287
4,073
3,869
Average Gift
$ 75
$ 75
$ 75
$ 75
$ 75
$ 75
Gross Revenue
$ 375,000
$ 356,250
$ 338,438
$ 321,516
$ 305,440
$ 290,168


The impact of negative growth rate is significant over five years:

  • Number of donors declined by 23%
  • Absolute revenues dropped 23%

Zero Donor Growth Rate

In this scenario, your nonprofit adds exactly as many new donors as it loses. Assuming your average gift does not change, your gross revenue remains the same over the five-year period.

Positive Donor Growth Rate

Assumptions

Active Donors = Number of donors who gave in the prior fiscal year

Donor Growth Rate = Totals 5% (any combination of lapsed donors or new donors that total 5% of Active Donors)

Average Gift = This value remains unchanged at $75

POSITIVE DONOR GROWTH RATE

Y0 Y1 Y2 Y3 Y4 Y5
Active Donors

5,000
5,250
5,513
5,788
6,078
Donor Growth Rate

5%
5%
5%
5%
5%
Annual Net Donors
5,000
5,250
5,513
5,788
6,078
6,381
Average Gift
$ 75
$ 75
$ 75
$ 75
$ 75
$ 75
Gross Revenue
$ 375,000
$ 393,750
$ 413,438
$ 434,109
$ 455,815
$ 478,606

The impact of a positive growth rate is equally significant:

  • Number of donors soared by 28%
  • Absolute revenues grew by 28%
  • Not only are these metrics impressive, but you've also positioned your overall fundraising program for further growth:
    • You'll likely need to re-segment your Major Donors from your Annual Fund Donors and maybe expand the number of donor segments.
    • You may need to begin offering new giving vehicles to match the new and emerging needs of your new donors. New vehicles might include estate planning giving options, stock contributions, or automatic giving via credit card.

Below is a chart that diagrams the difference between a positive Donor Growth Rate and a negative Donor Growth Rate.


Donor Growth Rate Effect on Dollars Raised Over Five Years

Don't bother squinting to see the individual values; this chart demonstrates how quickly a relatively small variance between positive (the orange line) and negative (blue line) Donor Growth Rates quickly escalates to a significant gap in just five years.

In addition to determining whether your Donor Growth Rate is positive or negative, you should consider the impact of your Donor Growth Rate on your revenue. For instance, you might find yourself with a negative Donor Growth Rate, while your total revenue increased. This is likely caused because you added new donors who gave gifts large enough to compensate for your volume losses. At best, this is a stop-gap strategy for the short term, but it won't sustain your organization into the future.

Your Donor Growth Rate gives you valuable information about the effectiveness of your appeal and your communication of your value to all donors. If you have a positive Donor Growth Rate, you're messaging well and the community generally believes your organization is a valuable asset.

However, if you have a negative Donor Growth Rate (sustained over a couple years), you need to re-examine your communication with donors. Explore investing in e-communications strategies and testing new messages about your mission and work that are relevant to your donors.

Most organization's fundraising goals are set based on last year: let's look at what we did last year and improve slightly. However, if you are off - even just a little - year-over-year, your nonprofit can quickly find itself in a significantly weakened financial situation.

Knowing your organization's Donor Growth Rate, on a multi-year basis, should be one of the first metrics you consider when forecasting your current year-end outcomes and when creating next year's budget.

Thursday, January 15, 2009

Groupthink

One of our favorite mistakes is "groupthink" as a synonym for "brainstorming."

We at Arrowhead Management are wordsmiths. We love words.

And, so it especially pains us when we hear Development Professionals who insist on misusing words.

We can't tell you the name of this former colleague who made this mistake incessantly, but suffice it to say that the alumni association of this nonprofit was so horrified that we all came together as a team to pen this article.

Brainstorm means:

A group creative process designed to generate

a large number of ideas to solve a problem.


Groupthink means:

When group members try to

minimize conflict and reach consensus

without critically testing, analyzing and evaluating ideas.


Examples of groupthink: Space Shuttle Challenger, Bay of Pigs Invasion and Operation Iraqi Freedom

Our guess is that destruction isn't what the nonprofit had in mind when "groupthink" was suggested.

Yet, the concept of groupthink is important for nonprofits to understand. When problems are brought to a group for discussion, it's vital that dissenting ideas be fully analyzed.

This isn't to marginalize the maximization of Kum Ba Yah moments in the nonprofit sector, but any solution worth pursuing should be fully vetted by stakeholders before it's implemented.

The sad irony of groupthink is that it usually happens when an organization's senior management doesn't suggest it as an outcome. It happens when an organization's culture values consensus over performance and outcomes.

Since nonprofits are accustomed to collaborating with external and internal partners to accomplish our work – often stretching thin dollars across a broad social problem – it can be challenging to eradicate consensus-based analysis to problem solving.

And, yes, we know that sometimes the impact we are seeking doesn't always lend itself to quantifiable outcomes (though we at Arrowhead Management think all outcomes can be...)

But, healthy debate and disagreement in the early phases of problem-solving minimizes roadblocks down the line.

So, the next time your colleague offers countering opinions to your ideas or the organization's conventional wisdom, don't take it as a personal attack. Don't characterize that person as "not being a team player."

Take this feedback as a signal that your idea needs to be vigorously explored further to ensure that the most appropriate solution to the problem at hand is found.

If your nonprofit is prone to groupthink, try this: create a time frame during which any criticism of ideas (not people) is mandated.

And, please – we're begging you – remember, the next time you want your team to bring bunches of fresh ideas to a meeting, ask them to "brainstorm" independently for 10 minutes.

Don't ask them to "do some groupthink."