Recently over lunch with a major donor of a local charity, whose board I serve upon, someone posed the question in the title of this post when the subject of donor retention arose. The discussion become so vigorous I immediately knew others would be curious. My hope in creating this blog post is to bring the vast differences, in not only the actual metrics of customer/donor retention, but also the mindset regarding them to light.
Commercial Sector Background
Over the last 25 years, I have had the opportunity and privilege to be a board member, investor, founder and consultant to a fairly large and diverse group of commercial businesses. In every single case there has been an immense focus and passion upon the measurement of, as well as the continued improvement of, customer retention metrics.
The following methods of figuring retention are utilized and regularly reviewed by commercial businesses:
- Annual Customer Retention
- Annual Customer Dollar Retention
- Net Annual Customer Dollar Retention
Each of the three are part of every board packet, investor prospectus and financial statement review.
Why?
It’s simple. The difference of a percentage point or two can spell out profit versus loss or more importantly success versus failure!
Seldom is there a commercial business budget model created without a section factoring the incredible effect retention rates can play.
Retention rates are often a portion of employee, manager and executive bonus plan calculations. Thus paying direct homage to the age old adage of what gets measured and compensated for is what is improved most over time.
Nonprofit Sector Current Situation
Over the same 25 year period, I have had the opportunity and privilege to also serve on a wide variety of nonprofit boards as well as consult with several. The concept of donor retention is an afterthought as a key metric, at best, for most of them.
Case in point:
- Not a single nonprofit budget or budget worksheet I have seen utilized donor retention as any sort of factor
- Donor retention has only been measured and reported at a small handful of the charities I have been involved with as a board member or consultant
- It has only been discussed at length at one board meeting I attended in the last 25 years
- Average charity donor retention is 40-50% versus average commercial customer retention rates of 70%-90% or higher
Thankfully, this is changing, as the awareness of how critical donor retention is has become more prevalent.
The slowness of the coming age of donor retention awareness is painfully puzzling since most nonprofit boards are comprised of mostly successful commercial sector business executives. For some reason connecting the dots to the importance and immense financial impact of donor retention has only recently been happening. (Perhaps Bloomerang with its supreme focus on donor retention has made a difference finally…)
Next Steps
Every single person reading this post, who is either directly or indirectly involved with a nonprofit funding it’s mission via fundraising, can help bring proper awareness of the impact of donor retention to light by doing one or more of the following:
- Share this post with as many others involved with the nonprofit sector as possible
- Insist that the next annual budget worksheet has a variable added for donor retention rate, then use it
- Demand that donor retention is a key metric being measured and posted for all to see
- Ask that strategies around donor retention be discussed in future board meetings, as well as fundraising committee meetings
The impact of raising the national donor retention average by 10% would be huge in the funding of nonprofit missions. In addition, the expanded relationships with donors would improve the recruitment of brand new donors to the sector. Let’s hope both happen in some manner.
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Comments
Claire Axelrad
Agree retention is FUNDAMENTAL. I've been in the sector 37 years, and began measuring retention from the get-go. I came from a legal background, and it just seemed the OBVIOUS and logical thing to do. Before the advent of databases (like Bloomerang) that made calculation a cinch, it sometimes took me three days to pull together all the info. But... I did it so I could report it back to my boards. And then, together, we could focus on strategies that would help us improve in areas where we needed improvement. After 30 years in the trenches, I went out and began coaching/consulting 7 years ago. When I speak to groups, I ask how many know their donor retention rates? Very few! Then I ask how many would know how to figure it out? Some, but not enough. I really don't understand it. Yes, there's a huge focus on #donorlove these days. But I often find it's absent a retention goal. Some people count LYBNTs and SYBNTs, yes. But some of these counters don't relate these numbers to specific strategies designed to improve them. Simply knowing your retention rate isn't enough. Numbers must translate to strategies. Strategies must be measured. If the strategies aren't working, they should be changed. And, yes, things are getting better as we shine a light on this important nonprofit management topic. Thanks for doing so Jay!Simone Joyaux
I've been working in this sector since 1975. I don't much remember the early years in any great detail! As Deborah notes, different arenas of the nonprofit sector - and different leaders and - have talked about about customer/donor retention. But I would say that "more recently (e.g. the year 2000+ or so)" seems to bring increased focus. For example: Adrian Sargeant & Elaine Jay's book BUILDING DONOR LOYALTY (2003). Ahern & Joyaux KEEP YOUR DONORS: THE GUIDE TO BETTER COMMUNICATIONS & STRONGER RELATIONSHIPS. And the last decade? Wow! More and more about "donor love" and donor = customer = retention = ..... For example, the Fundraising Effectiveness Project (FEP) piloted in 2006. Googling donor retention produced 4.6 million results. Googling customer retention produced 16.6 million results. As a full-time consultant for 31 years so far... I still far too often hear nonprofits talk about not having enough time to focus on donor retention. I still far too often hear fundraisers & bosses & boards say (and yes, I also hear them think!) -- that they have the right and responsibility to educate others about the importance of giving to specific causes & charities. Arrogance. Self-righteousness. I wrote about the sense of entitlement I saw (and still see!) in nonprofits in the 1st edition of my first book...STRATEGIC FUND DEVELOPMENT:BUILDING PROFITABLE RELATIONSHIPS THAT LAST (1997). And back then I talked about nurturing relationships with donors in order to keep them. Nonetheless...I still don't see enough interest in and respect for loyalty and lifetime value. But I do see more. And I do believe - as Jay says - that things are changing. I believe that loyalty and lifetime value ...#donorlove... will continue to grow so that nonprofits and fundraisers will embrace/follow/apply this much-needed (and obvious!) theory/academic and practice research.Dorothy Wisnewski
The number of nonprofits that never think to measure retention boggles the mind. Other than as a justification for the addition of, or increases in, certain line items, how would you recommend incorporating donor retention into annual budgets?Deborah L. Pedraza
With all due respect, donor retention was a key metric in 1997 when I began my career in educational advancement, and has remained critical to this day. I learned early on the formula that it costs about $1.15 to raise a dollar from a new donor, but only 35 cents to raise a dollar from a previous donor, and LYBUNT reports as well as constituency participation rates have always been vital to my work. The importance of donor retention is by no means a new idea in the educational advancement sector.Melinda S.
This is great! I appreciate the action items you posted at the end as well. Sharing in Nonprofit Happy Hour