Not For Profit Agenda Newsletters

A customer service revolution is brewing. Hotels, credit card companies, restaurants, financial services companies, and even airlines are all changing the way they treat customers. Why? Because a satisfied customer is a loyal customer. Nonprofit organizations are also beginning to understand that. Remember, keeping current donors costs less than acquiring new ones.

Donor relationship management (DRM) is an excellent way to retain your nonprofit’s donors. Let’s explore donor-retention strategies and how DRM methods can aid these strategies.

DRM might be referred to as relationship marketing. At its core, it’s about establishing one-on-one relationships with your donors. You can enhance donor-retention by making loyalty more convenient. To implement this method:

Identify your donors,

Differentiate them by need and value,

Interact with them cost effectively, and

Customize products and services to meet their specific needs.

These are just the basics, but one California marketing firm has expanded upon them. They identified six key strategies necessary to meet the challenges of DRM:

Focus on current donors and prospects rather than attracting new ones. Also, spend less time and resources on your less-profitable donors so you can cultivate better relationships with your more-profitable donors.

Customize offerings based on the relative value of different donors to the entire organization, including divisions and affiliates. To increase donations, you must work harder to understand the differences between donor segments.

Have a clear donor-relationship strategy. This critical strategy will determine which donors you want to attract, retain and cultivate. It also helps build a balance of systems and processes necessary to improve donor relationships.

Create a system to collect and retain donor feedback to help eliminate internal barriers that often obstruct relationship-building activities.

Create a set of metrics to not only help determine if your DRM program is working, but also to show the program’s cost.

Empower your staff in donor interactions. Interacting with donors on a company Web site will reduce costs, but is no substitute for human interaction.

DRM can be an effective tool for your nonprofit. But you must first learn how to use it. Here are some tips to consider when implementing your plan:

Have a profile of donors. Your DRM system can personalize its solicitation efforts by combining past giving history with external demographic, psychographic and behavioral information. By viewing a donor or prospective donor’s complete picture, you can create targeted and more effective fundraising opportunities.

For example, one of the most profitable giving programs is the monthly sustainer — those who give each month via check or credit card. By setting up a monthly sustainer program for donors likely to make an automatic monthly gift, you can dramatically reduce your cost-per-dollar-raised and increase retention.

Know your most profitable donors. The donor is always right — but not every donor is right for your nonprofit. Without a complete profile of your donors, you run the risk of not knowing who is most important. Unlike commercial enterprises, nonprofits are often named in a donor’s will or estate plan. While some donors give only small annual gifts, they may bequeath your nonprofit quite a bit more in their wills. In 1999, donors bequeathed almost $15 billion to charity.

Provide a varied product mix. All donors differ, as do their reasons for giving money to charity. The more you know about your donors, the better equipped you are to provide giving opportunities that suit their needs. Create a matrix of giving components that customizes a giving program for each donor.

For example, gifts of appreciated stock can easily be combined with charitable gift annuities to create a potent mix of capital gains tax relief, income tax savings and lifetime income for older donors with significant investment portfolios.

employees. The front line is the bottom line. Your key employees must have access to donor databases so they can build personal relationships with important donors. Every donor interaction provides an opportunity to learn more and encourage other giving opportunities.

Know your donor share. This refers to the percentage of a particular donor’s lifetime charitable gifts to your nonprofit. Most nonprofits receive 90% of their gifts from 10% of their donors. Competing for a greater share of each current donor is far more profitable then finding new ones.

Like most business theory, DRM probably isn’t particularly impressive on paper. But, many nonprofits have benefited from implementing this program. For example, a large Washington, D.C. nonprofit was spending a great deal of time and money marketing its planned-giving program to anyone who requested information by direct mail. The cost to respond to these inquiries was well over $60,000 annually. Let’s look at how this nonprofit used the four-step DRM process to increase top-line revenue.

The nonprofit searched their donor database for their most generous donors. What they found was a large group of loyal donors who had supported them for many years. The most common demographic among these donors was that most of them were single or widowed women over the age of 60. Although they had significant assets, they did not view themselves as wealthy. Most of these donors had invested in CDs or owned shares of stock in one company. They had requested planned-giving information from the nonprofit and supported nine or 10 other charities.

The nonprofit gathered the available information on these donors and supplemented this with demographic and psychographic information they bought from various vendors. This allowed them to quickly identify who should be part of this group (more valuable) and who should go back into their direct mail program (less valuable). Once differentiated, the nonprofit built a charity within a charity that specifically addressed this group’s needs. The nonprofit treated members of this group differently and designed tools to measure the success of the program.

To learn more about these group members, the nonprofit arranged a series of telephone calls, personal visits and seminars. After each interaction, the nonprofit recorded each donor’s interests and responses. By asking appropriate questions and recording the answers, suspects turned into prospects, and prospects turned into donors.

The collected information allowed the nonprofit to customize products and services to meet these donor’s needs. By giving them what they wanted, the nonprofit ensured that these donors were far less likely to defect to another nonprofit. The nonprofit designed products and offered them to individual donors based on their profile. Donors over age 70 who owned a CD or money market received a gift annuity package — including creative suggestions on how to increase annual income and reduce income taxes. A free educational estate planning course was organized for donors in their 50s and 60s.

This nonprofit’s DRM results were dramatic. DRM increased not only their revenue, but also donor retention. Satisfied donors encouraged their friends to get involved.

Although the organizational and technological challenges associated with DRM can be daunting, nonprofits can launch a DRM program by putting their most valuable donors first. But the program must be instituted one step at a time. Fortunately, this process can generate significant early gains and ensure ongoing profitability. For help setting up a DRM program for your nonprofit, please contact us today.

(c)2001-06 Fraser CPA - Last Updated 05/01/2006