Plugging the Leaks: Losses Now Outpacing Gains in Latest FEP Study
(Aug. 17, 2010) Are you missing out on increased income growth year to year because of donors who are falling through the cracks? Research shows that keeping tabs on your losses, as well as your gains, could mean the difference between simply staying on course and blazing ahead.
The idea that both gains and losses matter when examining total dollars raised and total number of donors is the central focus of the Fundraising Effectiveness Project (FEP), published yearly through a partnership between AFP and The Urban Institute. What constitutes a loss? Losses are defined as the money lost from downgraded donors (donors who gave less in the current year than the previous year) and lapsed donors (new and repeat donors in the previous year who did not give in the current year). Gains are thus defined as the money gained from new, recaptured and upgraded donors.
The newly released 2010 FEP report reveals a troubling trend. For every $4.50 gained by nonprofit organizations in the study, a little more than $6 was lost in downgraded and lapsed gifts in 2008-2009. This growth-in-giving ratio of -8.1 percent is a drop from previous years. On average, the past five years of this study have shown that gains exceeded losses (for every $6.60 gained, about $5.40 was lost as a five-year average).
In addition to dollar totals, the FEP also calculates the number of gains and losses in donors. While better than the net giving ratio, the ratio is still negative (-0.8 percent). The 2010 report finds that for every 5.4 new donors recruited, slightly more than 6 donors were lost through attrition. On a five-year average, the numbers are flipped: For every 6 new donors recruited, 5.4 donors were lost.
Priority One: Your Existing Donors
Research shows that it usually costs less to retain and motivate an existing donor than attract a new one. Your organization may have raised more money this year, but have you sacrificed larger, exponential growth by constantly churning through donors, losing just as many as you have gained? "Real" fundraising growth comes about by not just raising more money this year than the year before, but rather building and upgrading your donor base in the long term and minimizing your losses from lapsed or downgraded donors.
By focusing on retaining existing donors, there is less money that you have to spend recruiting new donors to replace your losses. As the FEP report notes, taking positive steps to reduce gift and donor losses is the least expensive strategy for increasing net fundraising gains.
Plus, the longer you keep your donors and cultivate them effectively, the more they will give over time. If people stay for longer they can upgrade their giving, give to a capital campaign, become a regular (sustainer) giver, volunteer, recommend a friend and perhaps even offer a bequest.
About the Study
The Fundraising Effectiveness Project (FEP) was launched by AFP and the Center for Nonprofits and Philanthropy at the Urban Institute in 2006 to help nonprofit organizations measure, compare and maximize their annual growth in giving. The Fundraising Effectiveness Survey is a web-based questionnaire that collects fundraising data from participating nonprofit organizations beginning with data from 2004-2005.
The survey enables participating groups to measure and compare their fundraising gain and loss ratios from year to year, and to compare their performance to that of similar organizations. Participants can use this industry data, which AFP offers free, to make better-informed, growth-oriented budget decisions to boost donor revenue.
You are encouraged to contact your donor software providers and inquire if they will be able to assist you with measuring your organization's performance by gain/loss categories, with comparing your performance with the FEP survey results, and with responding to the annual FEP surveys.
If you would like to learn more about the FEP project, please contact Bill Levis, FEP Project Manager, by email at firstname.lastname@example.org.
Participating Donor Software Firms
Donor2/Campus Management Corporation*
DonorPerfect Fundraising Software*
GiftWorks (Mission Research)*
MatchMaker FundRaising Software*
PhilanthrAppeal (FundTrack Software)*
The Raiser's Edge ® (Blackbaud)*
Telosa Software (Exceed!)
* Charter member of the AFP Donor Software Workgroup
Association of Fundraising Professionals (AFP)*
Center on Nonprofits and Philanthropy at the Urban Institute*
Association of Donor Relations Professionals (ADRP)
Center on Philanthropy at Indiana University
Council for Advancement and Support of Education (CASE)
Council for Resource Development (CRD)
National Committee on Planned Giving (NCPG)
* Founding partners, providing resources for the project