Recently in one of our meetings, or perhaps in the daily back-and-forth strategic debates, dialogues, and brainstorming “events” that we engage in with Greg Fox, our Chief Strategy Officer here at Merkle, he challenged us to be curious and think differently, out of which a few interesting points of view rose to the surface.
So I figured I would, perhaps on a monthly basis, post one of them for you, gentle readers, to consider, poke holes in, and generally comment back about. To be clear, there are no right or wrong answers here, which is the beauty of such an academic exercise as this, and admittedly our strategic team is not absolute in our opinions on most of these items one way or the other – so you won’t be hurting anyone’s feelings.
The Challenge – What is the “Real" Cost to Acquire
So, to get back on point, the premise around this topic, in simple terms, is that we all know how we calculate the cost to acquire or the cost per dollar raised on our acquisition campaigns, at the campaign level. We also all know that the single biggest challenge facing our industry is our ability to acquire new donors in a cost-effective way.
So what are we doing about? What are you doing about it gentle readers? What dramatically new, innovative, earth-shattering progress has been made? Greg would say, with regards to acquisition, none. We still approach acquisition the same way today, as we did 5 years, even 20 years, ago as an industry.
The thinking around this is as follow:
If I have a $0.30 cost per piece
And a 1.00% Response Rate,
I have a $30 cost to acquire.
But are we really exposing “all” of the cost for these new donors? All of the investment?
This is where the incremental cost to acquire debate begins.
If a prospect is on a “great” list, a list you maybe mail every month, and have mailed every month for several years, the very real possibility exists that this prospect has been touched 12, 24, 36, maybe even 48 times over the last few years. Each touch, assume again $0.30 cost per piece, adds up in the absence of a response. So this new donor you just acquired last month in your acquisition campaign may have $3.60, or more, “incremental acquisition cost” associated with them. All your previous efforts are now sunk costs in this individual name.
So are all new donors equal then? The data would suggest no. Furthermore, are there donors on list sources that are probably not making the cut for your acquisition mail plan who, when incremental cost to acquire is factored in, might be far more advantageous for your organization to pursue from a Net Investment and LTV perspective? Almost undoubtedly.
If Donor A was touched once lifetime in Acquisition, $0.30 cost per piece, and responded with a gift of $15, that new donor is going to be roughly a $15.00 investment. If Donor B was touched 48 times over 5 years before responding and responds with a gift of $15, you are already starting in the hole with $14.40 of sunk cost.. In this case it becomes a $29.40 investment in this individual.
The trajectory of Donor B’s LTV is almost decided in advance of your first cultivation touch, as now you need to get at least 3 more gifts from this donor to get to net positive, because they were twice the investment of Donor A. To make matters worse, on the surface, you never might have realized that fact. Doesn’t it just make you wonder if there isn’t a smarter way you could be doing things?
The net revenue chase is on.
Stephen is a Strategy Director at Merkle with a combined 12 years of expertise in both commercial and nonprofit marketing, strategy, and analytics. In his free time Stephen is working on becoming a ninja, as well as focusing on his life-long dream of completing the last side on his Rubix Cube.