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.