September 15, 2015 Douglas Shaw & Associates

It’s been said by people smarter than me that “we measure what we value and we value what we measure.” I think there’s a lot of truth to that. The problem is that we often end up focused on only part of the equation.

Our part.

Unfortunately, that often doesn’t equate with organizational success. Too many departments want to claim the “credit” for the gift. This often leads to competition and division within the organization. In today’s world, gift attribution can be one of the most difficult efforts any ministry undertakes. The big question on many people’s minds is, “what triggered the gift?” Was it the email or the mail piece? Was it the radio advertisement or the website that motivated that gift? Inquiring minds want to know.

That’s why I always start with the big picture—what is happening on an organizational level. From there I focus on the audience, the channel, and the project in order. I do that so I can see the overall impact all of the tactics and strategies are having on the donor file. I have my own top five list of key performance indicators I constantly monitor. These metrics will provide the pathway toward developing effective strategies and tactics to increase your Mission’s annual revenue. I’ll address each one in order.

The Top 5 Metrics Your Mission Should Be Measuring

  1. Donated Income
  2. Percentage of Donated Income from Major Donors
  3. Donor Performance by Life Stage
  4. Analysis of Donor Movement
  5. Lifetime donor value

Let’s start with Donated Revenue. I often am less concerned with the amount of donated revenue than I am with the trending. This also provides an opportunity to benchmark against other organizations. There are a variety of ways I review donated revenue. First of all, I look at donated revenue on a rolling 12-month basis (that is, at the conclusion of every month I measure the revenue from the previous 12 months). This approach allows me to take seasonality out of the picture.

One of the greatest lessons I learned in my career was to focus on the main thing. I learned it by stepping back and not just looking at “my” part in raising the revenue, but in seeing what happened overall—in this case the project performance was 30% below the previous year, but the overall revenue was almost three times more than the previous year.

When looking at trending I often review five years of performance (on a monthly basis). In this case the baseline is set five years ago and I observe the growth over the full 60 months. This also provides an opportunity to benchmark against the Target Analytics Index of National Fundraising Performance. It also provides a clear indication if your Mission is moving forward, falling behind, or just treading water. And by reviewing this on a monthly basis, you’re not surprised when trends start to head in the wrong direction and you can take corrective action.

I also like to benchmark donated income with The Blackbaud Index. This index compares the percentage change on a rolling three-month basis from the previous year. In fact, they even have a way in which you can enter your monthly income and your monthly online income and match it to other organizations by size or sector. Once again this not only helps you identify where there might be opportunities to improve your strategies and tactics; it also provides a good idea of what’s happening around the country and how your Mission compares.

While both of these indices look at all revenue, I find it helpful to also look at the revenue you have control over. That usually means bequests and one-time large gifts are excluded from the trending as they can’t be repeated.

The next critical piece of information is the Percentage of Donated Income from Major Donors. This is so important in determining how much opportunity your mission has to grow. While having too much of your Mission’s donated income in the hands of a few dedicated donors can make the Mission vulnerable to their situations, not having enough revenue from these dedicated donors limits the growth opportunities for your Mission.

Typically I look at major donors as those who have given a single gift of at least $1,000 during the previous year. Every Mission has a different definition for a major donor, but I’ve found this to be a strong indicator of overall organization performance and growth over the last 30 years working with Rescue Missions around the country. I also find this helpful to look at on a rolling 12-month basis.

I’ve found that the healthiest, most vibrant and growing Missions receive between 55% and 65% of their revenue from these major donors. Too often I find performance at two extremes—where more than 80% comes from the major donors, the Mission is vulnerable to the loss of a single donor, and where it is less than 40% the organization doesn’t have the capability to grow to meet the growing ministry needs.

One of the benchmarks in the past has been that 80% of total revenue comes from the top 20% of your donors. Over the last five years we’ve seen that change toward 90% of revenue comes from 10% of your donors. Knowing where your Mission stands and what the trending has been will direct your strategies either to focus more on your major donors or in acquiring more donors that can grow into major donors.

Third on the list is Donor Performance by Life Stage. All donors are not the same. I’ve found that by monitoring performance in five key donor life stages you’ll be able to focus your Mission’s limited resources toward those things that will make the most impact. For example, if you’re only retaining 15% of all new donors acquired into a second year, your Mission’s focus should be on plugging this leak (in my experience between 35% and 50% are the norms) before investing more in the acquisition program.

The Five Life Stages of a Donor are often defined by:

  • New donors
  • Second Year from New
  • Multi-year donors (two or more years continuously)
  • Renewed donors
  • Second Year from Renewed

More than just looking at the number of donors who renew, I am interested in what’s happening on the larger level with gift frequency and average gift in addition to retention. By looking at the individual life stages, you’ll be better able to address weaknesses in your overall performance. It could be a decline in the number of gifts a donor gives on average. Maybe it’s the average gift. The combination provides a good indication of the annual value per donor.

You’ll find your core donors—those who have given two or more years consecutively—can drive your overall performance. If the number of those donors is in decline, then strategies can be put in place to either add more donors, reactivate more lapsed donors, do a better job of getting new and renewed donors to continue their giving into the second year and beyond.

The fourth set of metrics that I find most helpful in evaluating donor performance is the Analysis of Donor Movement. This set of metrics looks at donor performance by giving levels often determined by the donor’s largest gift in a 12 month time period. This analysis looks at some of the same key metrics reviewed in the Donor Performance by Life Stage analysis, but also digs into how donors are moving in your donor file based on their largest gift amount during the time period. These KPI’s include the:

  • Number of donors
  • Number of gifts
  • Total Revenue
  • Number and Revenue of donors who upgrade their giving
  • Number and Revenue of donors who downgrade their giving
  • Number and Revenue of donors who give the same amount
  • Number and Revenue from new donors
  • Number and Revenue from renewed donors
  • Donors who lapsed
  • Previous new donors who never made a second gift

In a healthy, growing fundraising program, the following is true:

  1. The number of and revenue from donors who increase their giving exceeds the number of and revenue from those donors who downgrade their giving; and
  2. The number of and revenue from donors who are new to the file exceed the number of and revenue from donors who never make a second gift; and
  3. The number of and revenue from donors who renew exceed the number of and revenue from those donors who lapse.

This way you’ll know where you should target your efforts to increase both the number of donors to your Mission as well as the total revenue your Mission receives every year.

Finally, the fifth key metric to monitor regularly is the Lifetime Value of a Donor by Channel and Offer. Not every donor is created equal. There are some ways in which you acquire new donors that lead to more significant lifetime value. In today’s world, donor acquisition is often an investment (you have to spend more than you raise in the initial effort). As a result, knowing how much that investment will return over time just makes good financial sense. If, on average, you have to spend $35 to acquire a donor, the total amount of their donations has to recoup the cost of the initial investment, plus provide additional revenue beyond your cultivation costs. That means if you acquire donors whose lifetime value is less than $35 you lose money on every donor. In my analysis of hundreds of donor files from Missions and other nonprofit organizations, I’ve found that most donors don’t upgrade much beyond their initial gift size.

What I’ve found is that between 60% and 80% of donors never give a gift larger than their first gift. The idea that you can acquire a donor and move them up the donor pyramid isn’t currently happening. Understanding your cost in each channel—mail, newspapers, broadcast media, and digital—along with the donor value will direct you to where you should spend your resources.

Using these key metrics to impact your fundraising program

When your fundraising team understands these key metrics, they become equipped to develop strategies and tactics that make a difference. More often, this data will direct you and your team to ask the right questions. Knowledge is just the beginning. It’s a lot like our faith. It is only fully realized when act on our knowledge. This data helps you to zero in on the key issues. You’ll know where to look first.

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