Why Nonprofit Boards Can't Ignore Low Donor Retention

Whenever I am invited to a nonprofit board meeting for any reason, I make it a point to find out how much of an understanding the board as a whole has of donor retention.

We first explore the knowledge level of their organization’s donor retention rate then compare to the nonprofit sector average. This is achieved through a few simple questions to the board often followed by a presentation of the most recent industry data.

For nearly every board I have the honor of addressing, there is absolute shock when they come to the realization that:

“Nearly six out of every ten donors do not give the following year!”

Discussing just what this rate of retention means to the overall achievement of the organization’s mission is very enlightening. Most of the board members are leaders of commercial businesses with customer retention rates of 90% or higher. Therefore, the concept of having a donor retention rate below 50% is almost more than most of them can even comprehend. They often struggle to understand why this is happening, and in the case of most nonprofit organizations, why it has been accepted as OK for years and years!

Many of the boards that have invited me to speak ask two key questions that are well worth repeating here in this blog. They are:

1. What are the ramifications of such a low donor retention rate?
2. What can be done to improve our rate?

Let’s briefly explore both.

The Ramifications of Low Donor Retention

This very subject was recently outlined in detail for an article recently published in England entitled “The Four Hidden Costs of Poor Donor Retention.” Summarizing that article illustrates four of the bigger ramifications of low donor retention to any charity.

The four hidden costs are:

1. Poor retention drives up donor acquisition costs
2. Poor retention means more appeals
3. Poor retention equates to fewer major gift prospects in the future
4. Poor retention reduces donor referral of new prospects

All of the above hidden costs results in having a huge impact on any nonprofit’s budget!

The first two drive up the cost area of the fundraising budget by forcing the fundraising team to spend more time and effort on the least productive aspect of any mailing or email appeal, new acquisitions. The extra appeals to both new and existing donors can also lead to donor fatigue and often lower the retention rate even further.

The second two are huge detriments to increasing revenue. Major gifts and the referral of new potential donors by long standing donors are the backbone of any strong fundraising program. Lower retention rates have a repeating impact on the growth of these revenue streams that is often far underestimated.

Improving Donor Retention

The conversation always turns to this important discussion when donor retention is truly focused on at any board meeting. The board members often assume most donor relationships have been nurtured along in a manner similar to their own relationship with the nonprofit.

(Attention to the amount of scaling that would require is often lost or not considered…)

Most boards are anxious to see what can be done to improve this condition of low donor retention rates. Most conclude it requires some sort of game plan revolving around one key concept:

Improved Donor Communications

This improvement in donor communications can take many pathways in most nonprofit organizations. Just taking the time to truly strategize how donors at every level should be treated rather than just doing what has always been done is a huge step in the right direction. Tailoring your various communications with donors around the strategy is how to bring those strategies to life.

Some key concepts that should find their way into your communication strategies are the following:

• Proper Segmentation
• Personalization
• Proper Feedback Regarding the Use of Funds
• Usage of Human Connectors
• Proper Timing
• Differentiation
• Focus on the Donor NOT Your Organization
• Multiple Channels

All of the concepts above, which every nonprofit can do, when executed in some reasonable manner, result in building donor relationships. In short they show you care!

Such a robust discussion of the ramifications and potential solutions to low donor retention rates inspire most boards to higher levels of understanding and thankfully to insist upon action to be taken to improve.

Has your board explored this important subject? Let me know in the comments below!