How to Lose 100 Donors
Question: What’s the best way to lose 100 donors?
Answer: Be average. Or, more specifically, have an average donor retention rate.
For nonprofits in the United States, the average donor retention rate is 51 percent.
Really think about that for a minute.
That means that after all the work we do as fundraisers to identify prospective donors, actually make the ask, get someone to say yes, and then secure donations, nearly 1 out of every 2 will not give again the next year.
1 in 2 will not renew. 1 in 2 will be one and done.
If that trend continues, in five years, only 7 of those original 100 donors will remain.
In 8 years, it’s down to 1.
But this doesn’t need to overwhelm you. You can avoid this in your organization by implementing a few simple principles.
Here’s what I’ve learned about managing retention within my own nonprofit.
A few years ago, the nonprofit I founded in 2011 - Foundation for Government Accountability - had a 50% retention rate of our donors. We figured it could be better.
But it didn’t seem like a serious problem because we were still growing, primarily from new donors and increased giving from the donors that stayed.
What we thought wasn’t a big deal was, in fact, a huge liability for our organization.
Donor retention is simply the percentage of donors who continue giving from one year to the next. It’s a simple metric to calculate (see the full break down of how to do this at the end of article) but it’s hard to conceptualize.
So let’s dig a little deeper and understand how donor retention plays into the revenue of your nonprofit with an example.
What’s the financial impact of improving your donor retention from 51% (average) to 75% for your organization?
The math gets complicated, but here’s the bottom line. If you can move your retention from 51% to 75%, you will replace an entire year of revenue over five years.
(The yellow bar in the image above represents total revenue with a 51% retention rate. You can see it drop quickly over time. Now, look at the green bar, a 75% retention rate. For this example we are using 100 major donors who give $10,000 a year)
You don’t have to be a math whiz to notice how significant the difference is between the green and yellow bar. That’s the revenue you’re losing by having poor retention. Think about how much money you raise a year. $1 million, $2 million, $100K?
Now thing about this: If you improve retention, you can have that amount on top of what you raise, every 5 years. What kind of impact could your nonprofit make with an extra year of revenue to work with? You can give that to your organization by improving your retention rates. Here’s how.
Improving Your Organization’s Retention
At my nonprofit, we were able to improve overall donor retention from 50% to 75% in just three years when we did two significant things.
We changed how we look at retention
We changed the way we think about the donor experience
The great thing is that these two changes cost our organization very little and had a dramatic impact on our growth.
Step 1: Change how you look at retention
Because the impact of donor retention is hard to conceptualize, it can be difficult to recognize its compounding effect.
Albert Einstein said that, “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it. Compound interest is the most powerful force in the universe.” If Einstein ran a nonprofit, he would have talked about donor retention. It’s compound interest for your organization. When we systematically unpack retention, we can identify areas to fix but also areas where it works well. We broke down donor retention in our organization in three different ways:
Donor Size- We looked at the retention rate of small donors and large donors ($5k or $10k more a year for us) separately and focused on improving major donor retention first (fewer people and biggest total dollars).
Donor Type- We also looked at retention rates by different donor types and broke it down by individuals, corporations, foundations or government funding. (We don’t get government funding, but your organization might so I included it.)
Donor Source - We finally looked at how did they initially get connected to your organization? Were they a referral? Someone who went to an event? From direct mail?
When we looked at our retention these three ways, we found bright spots where we had already improved retention. We also identified some costly trends where we had retention well below average.
We then made the hard decision to cut certain activities with poor donor retention and double down on strategies with high retention.
Let me repeat that. Stop doing what’s producing poor results. Do more of what’s working.
Analyzing our retention strategies caused us to completely cut out all direct mail prospecting because of the terrible retention rates. We then put the money we been spending on direct mail towards areas where we already had excellent retention.
Step 2. Change how you think about the donor experience
The other major thing we did was change how we thought about the donor experience. As a fundraiser, we can be myopic in the chase and excitement pursuing a donor and forget to continue to develop the relationship with just as much passion and focus after they say “yes.”
What most of us forget to think about it from the donor’s perspective. For them saying “yes” is just the start of the relationship. (Like a marriage proposal.) While you’ve achieved your “goal” of getting the donation, the donor has yet to realize their goal: to make a difference in the world by partnering with you and your nonprofit. But it can be months or even years before the donor will see the impact from his or her gifts and fulfill the donor’s own goal.
Thinking about it from the donor’s perspective changed our whole process.
We now focus and invest in the relationship during the period of time right after they say, “Yes” since we’re just beginning the relationship and want it to take root and grow. We nurture the relationship and provide a consistent experience throughout the year - staying top of mind with the donor, keeping them up-to-date with the work we’re doing in a personalized way, and sharing the impact that donation is having through our organization.
It seems obvious to focus on the donor experience, but making it happen is easier said than done. It takes creation of systems and intention to improve donor retention. But it’s worth the effort.
It’s easy to get distracted by the day-to day of running our nonprofit (actually achieving that big impact). It’s easy to justify putting off or forgetting to work on improving your donor experience.
But it’s a critical mistake that both hurts retention and does not properly honor the donor’s financial commitment to your organization. To avoid this, we created a system within our organization where each donor gets consistent, personalized updates built around each donor’s individual preference.
For instance, we found that most of our major donors only give once a year, so we time our ask meetings to just once a year, around the time they prefer to donate. We never ask a major donor for money outside that time and don’t send them direct mail (house file letters) with asks or email solicitations. This is part of showing the donor that we pay attention and recognize how they prefer to give and that we care enough to make an effort to accommodate their giving style.
Your retention numbers don’t have to be average and even small improvements in your retention will result in huge payoffs for your organization.
If you want to improve your retention, focus on these three areas:
Look at your retention rate by donor size, type, and source
Eliminate activities with poor retention.Double down on areas with high retention.
Focus on the donor experience from the donor’s perspective - create an excellent, consistent experience year-round.
Unpacking Donor Retention:
Let’s nerd out for a moment on donor retention. Even if you’re not a math fan, you know by now that figuring this out is well worth figuring out for your organization.
Most donor software can easily calculate donor retention. You can also do it quickly by hand by quickly looking up these three numbers:
The total number of donors this year
The number of NEW donors this year
The number of donors last year
If you’re calculating donor retention by hand, plug those three numbers into this formula. Take the total number of donors MINUS the number of new donors and divide by total number of donors last year. Then multiply by 100 since it’s a percentage. Now you have your donor retention rate for your nonprofit.
Example: If you had a total of 100 donors this year, 50 new donors this year and 90 donors last year, your donor retention would be (100-50)/90 *100 which equals 55.6% retention rate.
The total number of donors MINUS the number of new donors
Divided by total number of donors last year
Then you multiply by 100 since it’s a percentage