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Donor Retention Trumps Acquisition, Study Notes

(Aug. 18, 2008) “My organization’s fundraising revenues are growing year to year … so my fundraising program is successful, right?” Perhaps, but it is just as critical to devise a plan to trim your losses over the long-term, a new study by AFP shows.

The Fundraising Effectiveness Project (FEP), established by AFP and the Center on Nonprofits and Philanthropy at the Urban Institute, finds in its second yearly report due in September a steady trend in the amount of donors and donations lost for every new donor and donation gained.

For every $6 that organizations raised in new gifts, approximately $5 was lost through donor attrition, notes the 2008 FEP Survey Report. A lot of effort and resources are going toward getting new donors, despite the fact that most organizations have an easier time (and spend less) retaining the donors they already have.

The FEP study defines losses as lapsed donor contributions as well as the decreased donations of downgraded donors. Gains are defined as new, upgraded (gave more this year) and recaptured donor contributions.

Studying Gains and Losses

To understand what is really happening in a way that is useful for planning and budgeting, it is necessary to analyze both the fundraising gains and the fundraising losses from one year, notes the study. That is because significant losses can substantially reduce or eliminate the gains altogether. For example, the average respondent to FEP surveys has gains in annual giving of 63.6 percent from one year to the next but has annual giving losses of 56 percent, thus achieving a net increase of only 7.6 percent.

Further, it usually costs less to retain and motivate an existing donor than to attract a new one. Consequently, for most organizations—and especially those that are sustaining losses or achieving only modest net gains in gifts and donors—taking positive steps to reduce gift and donor losses is the best strategy to increase net fundraising gains at the least cost. This is especially true in a difficult fundraising year when the economy is uneven at best.

The overall, bottom-line, year-to-year growth in giving reported in 890 responses to the pilot 2004-2005 and second 2005-2006 FEP surveys was 7.6 percent. That is, as a group, the organizations raised $1.01 billion in the first study and $1.09 billion in the second study for an overall increase of $76.7 million. This equates to an overall annual growth-in-giving ratio of 7.6 percent. Growth in the number of donors showed virtually the same gain/loss pattern as growth in amount of gifts.

About the Study

The Annual Fundraising Effectiveness Survey, now in its third year, enables participating groups to measure and compare their fundraising gain and loss ratios to those of similar organizations. Participants can use this industry data and a downloadable FEP Gain/Loss Performance Analyzer, which AFP offers free of charge, to make better-informed, growth-oriented budget decisions to boost donor revenue.

As of February, 2008, nonprofit organizations in the United States had provided 890 responses to the annual FEP surveys—275 responses for 2004-2005 and 615 responses for 2005-2006. Most participants in the surveys are small to midsize organizations—averaging $1.3 million in annual gifts.

Additional Nonprofits Invited to Participate

The annual Fundraising Effectiveness Surveys are ongoing and open to all nonprofit organizations. There is no charge to participate, and participating organizations receive access to the survey performance data. All information supplied by survey respondents is kept strictly anonymous and confidential, and results are reported in aggregate form only.

The data provided by the Fundraising Effectiveness Surveys and FEP Gain/Loss Performance Analyzer make it possible for fundraisers, management, and boards of nonprofit organizations to compare the performance of their organization from one year to the next and with the performance of other organizations in terms of total dollars raised and total number of donors in a variety of categories.

NOTE: The results reported here are not representative of the entire nonprofit sector, since the data collected for the FEP surveys are collected via voluntary submissions, not from a representative sampling of all nonprofit organizations.

Members of AFP’s Donor Software Workgroup

The donor software firms listed below are participating in the FEP.  They are developing software that makes it possible for their clients to respond to the FEP surveys “all electronically,” thereby providing fundraising data to the FEP and participating nonprofit organizations with very little effort, for gain/loss and comparative analysis.   

AFP Donor Software Workgroup

  • Blackbaud (The Raiser’s Edge™)
  • Donor2/Campus Management Corporation
  • DonorPerfect Fundraising Software 
  • eTapestry
  • FundTrack Software (PhilanthrAppeal®)
  • Heritage Designs LLC
  • (MatchMaker FundRaising Software)
  • Metafile Information Systems Inc. (Resultsplus!)
  • Mission Research (Giftworks)  
  • ROI Solutions
  • Sage Software
  • Telosa Software (Exceed!)

The Fundraising Effectiveness Project (FEP) report is expected to be available in full in September. A list of resources on donor attrition and donor retention is available here on the AFP website.

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