A nonprofit I once worked with (let's call them Sweetness and Light) once learned an important fact: The lower a first donor's gift, the less value that donor has to the organization.
I know that may sound like something you say "duh" about. But it's actually a very strong and useful truth. A donor's first gift to a given organization is a very accurate predictor of their future value. A low-end donor (let's say one who gives you $10) will be less valuable than a higher donor (let's say $50) in these ways:
- Total lifetime value will be about one-fifth as high.
- Continuation rate will be lower -- they'll lapse sooner.
- Chance of upgrading (to a significantly higher level of giving) will be about half as high.
It's just a simple fact of life: Donors tend to stay true to their behavior.
And the prudent response is to shift your acquisition toward higher-value donors, which you can do by moving average gift upward. (To do that takes a combination of higher value lists, higher ask amounts, and higher-value fundraising offers.)
Sweetness and Light, however, began to see low-end donors basically as drooling barbarians -- possibly carrying a virulent strain of leprosy that can spread through the mail.
We will no longer seek donors who give under $20 was their cry. From this day forward, we'll allow no riff-raff onto our donor file. (That's not exactly how they put it, but you get the picture.) Here's what they did:
- They stopped renting lists that returned average gifts below $20, no matter how high the response had been.
- They ramped up the amount they were asking for.
- They stopped cultivating under-$20 donors.
It worked. Average gift skyrocketed. Lower-end donors became rare. Continuation and upgrade rates were great. Campaign performance was better than ever.
But Sweetness and Light's revenue went into a steep decline. The decline had two sources:
- A dramatically lower volume of donors.
- An even more dramatically shrinking pool of major donors.
When S&L decided the under-$20 donors were persona non grata, they narrowed the gate through which donors could enter their file. And a lot fewer donors came through. Those who made it, of course, were more valuable, but the drop in volume largely offset that increase in value. And most surprising, the pool of potential upgraders became much too small: The percentage who upgraded was excellent, but it was a percentage of a much smaller number -- leading to an overall drop in major donors.
Sweetness and Light eventually became aware of the disaster that was happening under their feet. But it took a while, because they were dazzled by the rising performance numbers they saw. It took about two years to realize what the problem was. And it took longer than that to recover. The overall impact was devastating to their mission.
Shifting from a volume orientation to a value one is something most nonprofits would be wise to do.
Just don't do it with a chainsaw, the way Sweetness and Light did it. Take it slowly. Replace lower-value donors with higher-value ones. Then you'll get the improved performance you want -- and the overall revenue you need.