In his session, Jay explored the current state of donor retention and examined how and why nonprofit leaders should transform their organization’s culture into one of donor-centricity, rather than acquisition.
You can listen to the full interview below:
Kirsten: Thank you, Jay, for joining me on the Nonprofit Leaders Network 2016 Telesummit. I’m really looking forward to the information you’re going to share and I’m sure our listeners are as well. So, welcome, Jay.
Jay: Thank you, Kirsten. I’m looking forward to chatting today.
Kirsten: Great. You can read Jay’s full bio and see contact information at the Telesummit page at NonprofitLeadersNetwork.com, but here are a couple of key highlights. Jay has spent 33 years serving the nonprofit sector and is a frequent speaker on critical issues related to nonprofits. He also serves on the board of Conner Prairie and if you’re a listener of the Nonprofit Leaders Network Podcast, you might remember episode 12 with Ellen Rosenthal, who recently retired from Conner Prairie.
And as a side note, Jay, I had forgotten that you used to work for Master Software Corporation. Fund Master was actually the first donor software system I ever used.
Jay: Well, we are both dating ourselves by saying that in and of itself since it was more than 25 years ago.
Kirsten: Oh dear. Now, of course you also founded eTapestry, which many of our listeners are also familiar with. I can’t believe I just dated myself that much. Oh my goodness. So, why don’t we just jump into some of the questions? We’re going to talk about donor retention, how that’s a leadership issue and how we can engage our board leaders more effectively in that. So, the first question for you is what is donor retention and why is this a key leadership issue?
Jay: Well, donor retention is really the foundation for the funding of most nonprofits’ missions because those individuals, some of the research that’s been done, we know that in 2015, 88% of the dollars for the average nonprofit came from 12% of the donors. Most of the time, those are not first-time donors. So, those are donors that have been retained going into more than one year for that.
So, the donor retention is basically how many donors or what percentage of your donors are you able to keep from one year to the next? So, it’s a pretty simple mathematical formula, sort of like a fraction. If, for instance, you had 1,000 donors in 2014 and you were able to retain 550 of those in 2015, then you would have 550 over 1,000 or a 55% donor retention rate, which by the way, compared to the national average, would be considered to be quite stellar.
Kirsten: Great. Now, for many boards and nonprofit leaders, they like to focus on larger gifts, 12%. How does retention look different for major donors than it does for some of the annual donors?
Jay: Okay. That’s a very fair question. The difference is that most major donors don’t begin as major donors. If you set a bar of saying that a major gift is above $1,000 or it’s above $5,000 or maybe if you’re a university and you’ve got even a bigger bar of $10,000 or $50,000 as being a major gift for that, most of the individuals and households that are going to be involved in that level of giving began at a smaller level. They may have attended an event or they became associated as part of a direct mail appeal or something of that nature.
So, the first step of obtaining a major gift, not only one year or in later years over again, is the fact that they are retained and are aware of your mission and are giving to it year after year. There is some wonderful research done by the Lilly School of Philanthropy talking about how many nonprofits the average household in America supports on a year to year basis to do that. Even households above $100,000 in annual combined income only support three to five nonprofits year after year and that’s where you almost have to become one of those to fall into that major gift category for most nonprofits.
Kirsten: That number of total organizations supported, hasn’t that been going down for several years now?
Jay: Yes. I think so, especially when you consider — let’s even be generous and say that the average household above $100,000 supports five organizations. Well, the majority of the time, one of those will be their church or a church-related religious organization and/or the school they attend or their children attend, or in my case right now, that my grandchildren attend. So, by the time you eliminate the school and the church giving, you’re down to just three, two or three organizations that they support outside of that circle.
Kirsten: So, it’s safe to say that fundraising is getting more difficult.
Jay: I believe so. There’s a lot of competition. There are a lot of things happening now that some organizations have figured out how to make big mega events become part of the picture. In this day and age of all the electronic media and online media that people have and electronic messages, it’s pretty easy for even a major donor to feel a bit inundated by the requests coming from not only the organization they support but from other organizations that are aware that this person is a donor.
Kirsten: So, that’s where retention comes in.
Jay: Yes, making sure that they are with you year after year. We also know that stewardship, usually the stewardship of bringing others to knowing about the charity, usually begins somewhere around the third year. There’s not a lot of stewardship in the first two years unless you’ve really got that special donor that becomes really associated with your mission right off the bat.
Kirsten: So, what would you say the current state of donor retention is in the sector? You alluded to that a little bit earlier.
Jay: Right. I was hoping you would come back and ask me a little bit about that, Kirsten. Well, this last year, the state of donor retention dropped again and it’s now only 43% of the donors are retained from one year to the next, which the converse of that is the attrition rate is 57%. But I think what is even more striking to people they don’t realize is that for the first time ever this last year, the new donor retention rate, the number of donors that have given the first time in the most recent year, only 19% of those gave again the next year. So, less than two out of ten are staying in the fold are becoming a second-time donor with your organizations.
Kirsten: Wow. And if any corporation had that kind of retention rate for staff, that would be a bit of a problem.
Jay: Staff or customers. It would be a pretty dire situation. Now, I’ll give a little bit of a caveat. If you’re an organization such as a hospice or a hospital and they’ve got a large number of donors that are memorial and tribute donors, cut yourself a little bit of slack there. Those are the hardest to retain and then secondly, if you’re an organization that derives a large amount of your funding from special events, first time special event donors are hard to keep in the fold too versus people that are giving through other means.
So, those are a couple little caveats that might make the retention rate when you figure it for your organization a little bit easier to take the first time you view it.
Kirsten: And why should we care about donor retention? I know at Bloomerang you’re doing a lot of different studies, questions, trying to invest a lot of time and effort into helping us understand this. So, why do you care about donor retention and why should the rest of us care?
Jay: Well, let’s think about it. Even a movement of 5% or 10% – let’s take the more generous one — if you move your retention rate from 43% to 53% in the next couple of years, so you’re retaining 10% more, let’s say you’re a fairly small organization and you’ve got 1,000 donors and your average gift is $200, a 10% move means that you’ve got 100 more $200 gifts coming in in the first year alone.
If they stay with you at that higher retention rate, over the course of a lifetime, something we refer to as lifetime value, which is the total amount that somebody gives to your organization during their lifetime, that can increase that lifetime value by 150% to as much as 200%.
Sort of a case in point, you take a company like Amazon that knows that because of the small margins they have and how much they use on advertising and promotion, that it’s not until that customer buys a product the third or fourth time that they even make a break even analysis of that. That’s sort of the same scenario that comes into play for the nonprofits, that if you can move that retention rate up, that overall lifetime value for all of the donors and all of the corporations and foundations you work with can really be greatly influenced over the course of their lifetime.
Kirsten: How does that relate to new donor acquisition? A lot of times people might see it as an either/or proposition. What do you see as the right order? Let’s say there’s somebody who’s trying to ramp up their fundraising. What’s the right order to do that?
Jay: Well, I think you’re always going to have new donor acquisition. I don’t think you want to leave that. What people want to make sure of is that the folks that your acquisition brings in the door and they donate, if it’s a first-time donor, is it worth perhaps doing a couple extra special follow ups to see if you can turn them into that repeat donor? This all starts with as personalized as possible thank you letter or acknowledgement.
For certain individuals, you can setup your own categories or a matrix or something of that nature. Let’s say that a first-time donor comes in that’s equal to what your average gift amount is overall. Perhaps that would always get a phone call from your executive director or from your head of fundraising if you have a phone number that you reach out to them. Maybe it would help with a handwritten note. Maybe we want to send a welcome kit or a newsletter with a Post-it note on it — anything that we can do.
One of the theories that I’ve heard that’s worked very, very well for most organizations is to try to have three touchpoints with a brand new donor in the first 90 days. See if there’s some way or another that you can go beyond the standard thank you later that sounds like something an IRS agent would write to something a little bit more personalized and then maybe two additional touches beyond that thank you letter.
Kirsten: That’s a good rule of thumb. Do you recommend, and I know there’s a lot of dispute in the sector about this, but do you recommend asking for a second gift fairly quickly?
Jay: I think you want to present the opportunity, but I think it should come after the first 90 days. I think it should come within the first six months, not waiting until the year because a lot of times when donors are surveyed and it’s been more than a year and it was a fairly small gift or attendance at an event or something like that, they have sort of totally forgotten that they were involved with that organization.
That’s where I think those three additional touchpoints come into play. They’re sort of general reminders that here’s the thank you later and then maybe in 45 days we send a newsletter out to them or we make a quick phone call and leave a message for them.
Then one of the things I really love to do is, at the end of 90 days, to send a little survey and ask them if there’s a particular part of your mission that they would like to know more about. That request for more information can usually lead to a specific appeal about that portion of your mission sometime in the next three months.
Kirsten: I love that. In fact, I’m jotting that down so I make sure to remember it. Now, do you think that an organizational culture has to transform their culture to be more donor-centric to increase their retention rates?
Jay: I think so. It all has to begin at the top. Now, I won’t say that’s the case for every organization. Some are very donor-centric in the beginning. If you have for instance, an executive director that’s hesitant to make a thank you phone call or to write a note or to make a personal visit to a major donor or a great potential first time donor, then it’s going to be very hard for that culture to be any different for the rest of the organization.
You can just sort of see the difference. An organization that’s donor-centric, whether you’re a donor or you’re there as a volunteer or a visitor, everybody at the organization realizes that we are at the beginning stages of creating a relationship and making sure that there’s some bonding that occurs there.
I think that at some of the donor-centric organizations that myself and my employees here at Bloomerang go volunteer at and you can just sense that when the other employees that are delivering the mission reach out and are very kind and nice and want to answer your questions and want to be of any help they can, you just get the feeling that this is a very donor-centric organization. That feeling permeates everybody, and everybody knows that a portion of their salary and a portion of their benefits are paid by these donors and they pay quite a bit of attention to it.
Kirsten: Related to that, there’s been some criticism lately in the sector that some organizations are being so donor-focused that they’re not being quite as effective in their programs. Have you seen any evidence of that or do you think it’s a little bit of hype?
Jay: There certainly seems to be a lot more evidence the other way that they’re so focused on their programs that they’re almost built in siloes or walls between the mission delivery part of the organization and the fundraising part of the organization. Honestly, I think I would be hard-pressed, even as many nonprofits as I visit and see and talk to every year, finding too many that the donor-centric caused a problem to mission delivery in that regard. How about yourself? Have you found very many instances of that, Kirsten?
Kirsten: I have not.
Jay: I am hard-pressed to think of even a single example because all the attributes and all the characteristics and qualities that make up donor centric also seem to be the values that lead to greater delivery of the mission – taking care of people, bonding with people, building relationships. So many of our nonprofits are centered around helping other human beings or things that touch human beings, those qualities seem to help on both accounts.
Kirsten: I think the point that some folks are trying to make is sometimes the messaging comes across as, “Help these poor people who can’t help themselves,” but it’s almost disempowering to the very people that you’re trying to help.
Jay: Yeah. Well, let’s hope that’s not the case very often and see. But it certainly seems like it’s the old proverbial win/win, that donor centricity, if there is such a word, really comes to help on many fronts.
Kirsten: I think we can coin that a word. We can make it a word.
Kirsten: I’m with you on that. I don’t think there has to be an either/or. I think there can definitely be a both.
Jay: I just can’t imagine someone that cares of people not letting it permeate all of their actions.
Kirsten: Absolutely. Now, what does it take to adapt to a culture that completely focuses on retention? You talked about setting the tone at the top. Were there any other steps that need to be taken?
Jay: Well, I think it’s got to be part of all of your communications. A real telltale sign that you can see is if an organization provides a newsletter on their website, the material that’s on their website, which in essence is a newsletter in an electronic form in many cases, is reading through that and is the text and the stories and the articles, are they about the delivering of the mission or are they about the people that provided the funding and then those individuals that are donors and funders, their story is about what the mission means to them.
So, it’s all a matter of where the focus is on a lot of the communication and letting that gratefulness and that thankfulness come through your written communications and your electronic website communications so that people can see that it’s a total result of the donors and the funders that are making this happen. You can still have wonderful stories about the delivery of the mission, but you can also say how that was provided too.
A good friend of mine I know you’re aware of, Tom Ahern, always talks about any communication passing what we call the “you test”. Are we talking with more pronouns about the donor and the funder than we are about ourselves or our organization?
Kirsten: I saw a great video. I can’t remember exactly when it was, within the last couple of years, with Jeff Brooks talking about who the hero of the story should be.
Jay: Absolutely. I love that term, the hero or the heroine of making the mission come to life because that really rings true when other donors and potential donors see that.
Kirsten: Yeah, so making the donor the hero rather than the program recipient, the client or the organization itself, putting the donor in that place.
Jay: You can just see the differences in all the communications when it’s done in that matter. It’s almost magical.
Kirsten: It is. Every once in a while I’ll get an appeal letter that I have to show to my husband because I’m like, “Oh wow. This is so great.”
Jay: Not only the appeal letters, but the thank you letters too. There are some people who just do an absolutely marvelous job. That’s also a little hint we can pass on to your audience that’s going to be listening here. I always mention to folks that there’s no law that says that you can’t earn your own little MBA in donor communication by taking a few hundred dollars and donating to several nonprofits, particularly large-scale national nonprofits and see what sort of communication plan and follow up and thank you letters that they do and find out which ones really ring home and perhaps could become models for what you could be doing for your organization.
Kirsten: And one word of caution that I would just add to that, sometimes if we’re looking at materials from the big shops, they’re testing something new. So, we don’t necessarily want to emulate everything that we see.
Jay: Right. And you may want to also be careful of the underlying costs for some of those materials too because some of them have much bigger budgets than a lot of the wonderful nonprofits that we get a chance to work with every day.
Kirsten: Right. And if you can order 100,000 of a pen, you get a much better price on it than for a smaller mailing of 250.
Jay: Isn’t that the truth?
Kirsten: So, how can leadership help make that transition and that cultural shift happen?
Jay: By being part of the donor relationship. We often hear about hesitancy by board members to being part of the fundraising process. I’ve always found on every board I’ve been on, the ones that brought me into the fold by making me part of the thank you process and the follow up process rather than initially asking, then all of a sudden, the asks of that individual down the road became sort of natural because I was there saying thank you. They usually said kind words back or we exchanged something in some sort of communication.
I think that’s one of the secrets for involving board members is to not try to jump them into the fundraising or introducing their friends or something and just saying, “Can we involve you in the acknowledgement or thank you or follow up process?” or invite them to an event that’s really there just to recognize donors or recognize volunteers.
My wife’s been involved for many, many years with the YMCA. My first several banquets I went to were all volunteer and donor recognition banquets. There was not a single ask being made. It was all accolades for the people that had volunteered numerous hours or had been involved with becoming major funders for the organization. It made you feel like the whole world of philanthropy was the greatest thing going and you wanted to be a bigger part of it.
Kirsten: Nice. Now, what do you think about giving choices to board members for what types of things they get involved in? Especially among smaller organizations, there’s so much that needs to be done that sometimes there’s a sense that executive directors are asking their board to do everything.
Jay: Well, I think first of all, no matter how many choices you make, I think so much of this starts by backing up just a step and making it part of the recruitment process. We so often, if someone brings up one name and we think that person would like to be part of our board, it’s like we’re just going to automatically make that the de facto standard and just offer them a board position.
I always marveled at the company Google that we’re all aware off, what it takes to become hired at Google, the number of interviews and processes they take you through. I don’t think we need to go that far. But I think we need to treat finding and recruiting board members as a very important job by some of the board members right now.
It should be something that not only is the executive director involved in, but that should be the prime committee the board chairman is involved with is that committee for recruiting new members because if those things are discussed and you know about it and they are fully aware of it and it’s a proper fit, then I don’t think you have to discuss it after they come on board. They’re fully aware of, “This is what I’m expected to do. This is what I would enjoy doing. This is part of the reason why I joined, to make that happen.”
So, I think if the expectations are set prior to asking someone to come on board, then watching it unfold after they’re there is sort of second nature at that point in time. I think so many times it’s almost a surprise that someone is at a board meeting and they figure out, “Wow, I’m supposed to do all this,” so, it really wasn’t discussed in the board recruitment and they probably also skipped the second step, which is a good board orientation, taking a few hours to really make them part of the orientation and understand what the mission of the group is.
This is a way that people that are delivering the mission can be part of getting to know the board members too. I think of the organizations I’ve been on the board of in the last 20 years and I can tell you there are four or five — by the way, Conner Prairie is one of those — that had outstanding board orientations that everything was answered right then and there before I even stepped foot in the first board meeting.
Kirsten: Fabulous. How long was that orientation?
Jay: I have seen them be . . . the shortest that I’ve been involved with was three hours and the longest was pretty much a three-quarters of a day event, probably six hours, seven hours. It gave me the chance to be immersed in some other facility and making that happen. We had lunch that was served and different people coming through. They sort of said, “Can you devote that? This was particularly good for out of town board members. It was held the day before the first board meeting.
Kirsten: So, investing that time up front helps to save a lot of heartache later on, I would presume.
Jay: It’s night and day. You can tell the people that had been through the board organization versus ones that did not attend or were not part of it or came on board prior to it becoming a bigger part of their overall process.
Kirsten: And how long do you think it took to pull that material together for the orientation?
Jay: Honestly, I would guess that they probably, at general staff meetings, first of all, if you go out on the web, there are some great ideas for board orientation. I know I’ve written a couple of blog posts on it and different things with a lot of ideas and then you can take those outlines that you’ve seen other top organizations use and fit it to your own and pulling it together.
So, I would imagine that if you’ve got one person compiling it all and making it happen that they’re going to take maybe a week to make it happen off and on through a few months’ process to see and pull it all together in some sort of an orientation notebook or electronic packet or something of that nature.
Kirsten: And then covering the fundraising responsibilities as part of that.
Jay: Yeah. But I would think that you want to weave that in. Begin by this is our mission. This is how we fulfill the mission. Here are some videos or things from mission recipients before you start talking about all the responsibilities. And then I think the best way to talk about the responsibilities is to have people that have already been delivering those responsibilities as board members be part of the group of folks that get a chance to address the brand new members.
If they’re speaking from their heart how fulfilling and how wonderful this was for them to be doing it and they didn’t think it was any sort of a hardship, I just think it sets the right tone. It’s like talking to a client reference or something of that nature before someone engages somebody such as yourself or myself as a vendor or a consultant. Those references make all the difference in the world.
Kirsten: Absolutely. Do you think this is something the development director should champion or should the responsibility reside with the CEO or executive director?
Jay: What I’ve seen happen is it’s the development director in conjunction with the CEO and there’s usually an executive director or CEO admin person that’s sort of tying it all together if it’s a large enough organization to do that. Don’t expect it to be a smash Hollywood hit movie the first time you do it. I think the very best ones have sort of honed themselves and improved year after year. Many of them probably hold it and they say, “We’re going to do this maybe twice a year and we’re going to round everyone to two starting periods for new board members or maybe only once a year to do that.
As they conduct it the second or third time, they get feedback from the participants. By the third time they’re doing a board orientation of this nature, I think they’ve got it down to a pretty good science and they know what’s working, what’s not working, who to invite back as speakers and who not to and where to involve them in the organizations. I think board members love getting some behind the scenes glimpses at the organization.
Kirsten: Absolutely. And it makes it easier for them to talk about it and feel comfortable.
Jay: Yeah. They share that experience with their friends and family and other potential board members down the road to do that. I’ve honestly got to believe if someone’s not willing to invest half a day before coming on to being a board member as part of a board orientation, I would be really worried about how consistently they’re going to come to board meetings and serve on committees and give of their time because would that same person if someone called them to play a round of golf give up a half a day for that? It also talks about the level of commitment that you see from that individual before they become part of the board.
Kirsten: Kind of a gauge ahead of time.
Jay: I think so. I think it’s a little bit of a qualifier.
Kirsten: Any other ideas for how the board might get involved in retention or fundraising or any of the things that we’ve been talking about?
Jay: Well, like I said, my first step is always the thank you or the follow up processes with existing donors to do that. I think another way is to be invited along just in an introductory manner with a lunch or a breakfast or some other type of small group gathering. I think people feel more comfortable if it’s a gathering of two, three, four people versus thrusting them into an event with 100 people or something of that nature to do that.
I think you can also begin with some smaller, more intimate gatherings and let them be part of that, especially if you know you’ve got a lunch, maybe with a donor that’s been with your organization for many years and all and you know it’s going to be a very pleasant, wonderful experience, why not let a new board member come along and be part of that experience.
Kirsten: Fantastic. Well, you’ve shared a lot of good ideas with our listeners and I appreciate that. Now in your role at Bloomerang, of course you help pretty much support this whole process of retention and acquisition and tracking donors and helping to build those relationships. Where can people find more information about Bloomerang and what are some of the key things that makes you different from some of the other providers out there?
Jay: Well, the easiest way is to go to our website. That’s Bloomerang. It’s spelt like Boomerang with an L, Bloomerang.co. If you go to Bloomerang.com, you’ll have a chance to buy some beautiful purple lilac flowers out of a place in Kenosha, Wisconsin. So, ours is .co. But honestly if you go to any search engine and type Bloomerang, we’re the first thing that comes up and you’ll find all sorts of good information there.
I think some of the key differences first of all start with the relationship build. If you want someone to help you that’s used to working with small to medium sized nonprofits, used to helping folks by holding their hand, if you need to convert data or if you have questions that you need to have answered on a daily basis, we’ve got a special project coming up, we’re very careful about spending all the time necessary to do that.
Then as far as focusing on the donor retention, one of the things we do is every single time you use our product, the first thing you see is what your current retention rate is going back for the last 365 days. I think that little subtle reminder helps people move the retention rate up over time. We’ve seen several of our customers make 5% and 10% gains over their first couple of years of using the product. So, that really comes in handy.
Then there’s one magical little tool that I really think helps with this whole major gift process and retaining donors. It’s something we call the engagement meter. What this is, based upon a whole slew of different factors, we have a little algorithm that shows you how engaged any individual or company or foundation is with your nonprofit.
So, how many appeals have they answered? Is their giving going up or down? Do they answer their emails? Do they forward emails on? Do they volunteer? Do they sit on committees? Do they attend events? We even track whether or not they visit your website. So, those come into being and it shows on this little meter whether you have someone that’s moderately engaged, highly engaged and anybody that’s moving from moderately engaged to highly engaged is a prime person to talk to about giving to your organization if they haven’t already or perhaps moving their level of giving up a little bit higher.
Kirsten: And perhaps even raise visibility for a board member to call and say, “Hey, how are you doing?”
Jay: Exactly. It comes in handy there. Those are a couple of little things. I think they’ll find it very easy to use too. So, take a look at it. We’re not bashful. We show you what the product looks like. There are some videos. There’s pricing there. So, if someone’s interested, you’ll be able to get all of your questions answered very quickly.
Kirsten: Great. Well, thank you very much, Jay, for joining us today and thank you all of our listeners for everything that you do to make the world a better place.
Jay: Thank you, Kirsten. Talk to you soon.