ARTICLE
Why Isn't Donor Retention Rate As Important As Customer Retention?
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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.
Learn How To Thank, Engage, and Retain Your Online Donors.
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