On Metrics, Data, Information, Science, and How We Use Them – Part 2

18 Sep On Metrics, Data, Information, Science, and How We Use Them – Part 2

 

By David Allen, Development for Conservation

 

OK, so let’s talk about Fundraising Metrics.

As I mentioned last week(See On Metrics, Data, Information, Science, and How We Use Them – Part 1), I will be doing a workshop on Fundraising Metrics this year at Rally. What to count. How to count it. And how you can use what it tells you. This week, in a longer-than-usual post, I want to offer up the five metrics I will be using in the Workshop. Tell me what you think.

 

But before I do, let’s talk more generally about what a Metric is.

Quite simply, a metric is something that changes.

• It’s something that is created – it exists when once it did not.
• It’s something that is erased – it does not exist when once it did.
• It’s something that increases or decreases over time – a needle that moves.

We want to understand metrics for two reasons: because we want to predict what might happen in the future, and because we want to influence or even control what happens.

 

And let’s talk about Source Codes

You should know where your donors come from – that is, what sparked their first gift to you (or how your relationship began). Mailings to your “house file”? Direct mail to purchased or traded lists? Events? Tabling? Field trips? Volunteer activities? Social media? Board member gifts? Brochures?

The most useful mechanism for keeping track of all this is Source Codes. When people stop by your booth at the Farmer’s Market and give $35 for a membership, you should attach a source code to their membership that tells those who follow you (from now to eternity) that particular donor came from tabling at the Farmer’s Market in a particular month of a particular year. When you mail to someone, whose name you got from the Audubon Society’s list, you should attach a source code to their membership that tells those who follow you (from now to eternity) that particular donor came from a mailing on the Audubon’s list.

Note that this particular source code should be attached to the individual donor’s record, as well as, to the gift record. You will, or should, have source codes attached to every gift, but this is their first gift, and it’s different. Many of the modern software packages such as Bloomerang, Salesforce, and so on, have this functionality built-in and adding a special code to the donor record isn’t really necessary. My suggestion is to test the reporting on this before trusting it. Try reporting out a list of new donors from last year, separated out by Source Code. Did it work?

 

So with that as a starting place, I want to offer you Five Metrics that Matter in Fundraising.

 

Metric #1 – Cost of acquiring a donor and Cost of acquiring a first renewal.

 

What to count and how to count it

Each thing that you do to find and recruit new donors has costs associated with it – design, printing, postage, consulting, transportation, premiums for joining (and fulfillment!), paid ads, event venues, and so on.

Add up all the costs and divide into the number of donors that were recruited from that particular activity.

And then take this one step further and divide these same costs into the number of first renewals you have a year later.

Then, look at how these two numbers are changing over time. Are they increasing or decreasing? Why? – can you explain the changes?

Should you include staff time? – Absolutely, but it might become a second calculation altogether. So, the cost associated with recruiting new members might be expressed as $$$ plus ## hours of time.

A more intangible metric might include whose time. There will be a big difference between an Executive Director’s time, an Administrative Assistant’s time and a volunteer’s time. All represent hours, but they each have different opportunity costs. If that same time were spent on other activities, could we attract more new donors? Would we raise more money in the long run?

What can this tell you?

Cost of acquiring new donors can help you in three ways:

• Setting Priorities: If you have a specific amount of money to spend on donor recruitment, this metric can help you decide among several strategies to get the most bang for your buck;
• This metric can help you determine whether a specific activity is scalable (scalable means that if I invest twice as much time and money I will get twice the result, like mailing to twice as many people versus hosting twice as many events); and
• If you have a goal of acquiring a specific number of new donors (and your activity is scalable), this metric can help you budget appropriately to be successful.

 

Metric #2 – Number of Individual Donors

 

What to count and how to count it

Sounds simple doesn’t it? But it’s not really. Consider these variations:

• Someone who buys a T-shirt, or a Gala ticket, or even a whole table at the event, may or may not be a donor. Is there charitable intent? Or are they just looking for an enjoyable evening? Would they feel good about giving anyway if the event is rained out?
• A foundation grant or corporate gift might actually be an “individual” after all, if the gift comes in as a convenience on behalf of the donor. The easy way to see this is with Board members. If a Board member’s gift actually comes from their family foundation, it’s still a gift from an individual Board member.
• I would NOT recommend counting gifts from individuals whose ONLY gift was a memorial, a bequest, or a gift of land.

There are many more.

Whatever you end up actually counting, record it somewhere so that you (and those who follow you) can count donors in exactly the same way every year.

Now pick ANY specific date during the year. I use January 8^th for this purpose, but you could choose February 27, or May 13, or whatever. The count is then the number of individual donors who gave money in the 365 days ending on that date – in my case, from January 9 of the year before to January 8 of the chosen year.

Again, look at how this number is changing over time. Is it increasing or decreasing? Why? – can you explain the changes?

What can this tell you?

If I know the number of donors and the average gift, I can predict the amount of money I will raise in the next 365 days. And if I know my annual renewal rate and number of new donors coming in every year, I can project revenue for the next several years as well.

Will I have enough? If the answer is no, I have an opportunity to do something different NOW, before it’s too late, to influence that outcome.

 

Metric #3 – Average Gift

 

What to count and how to count it

This one really is simple. In the 365-day period I chose earlier, how much money was given by the donors I counted? Divide that amount of money into the number of donors and I have my average gift.

Again, look at how this number is changing over time. Is it increasing or decreasing? Why? – can you explain the changes?

What can this tell you?

If I know the average gift and the number of donors, I can predict the amount of money I will have available to my organization in the next 365 days. If I know my annual renewal rate and number of new donors coming in every year, I can project revenue for the next several years as well.

Knowing the average gift can also help me better understand how special projects, such as capital campaigns, affect giving in other ways. Did raising money for that special project result in an average gift spike? If so, did it merely return to normal or did it create a new normal? In other words, does raising money for special projects help or hurt other fundraising in the long run?

And what about factors not in our control? How will localized need for hurricane relief help or hurt our other fundraising? (Think New Orleans, or Houston, or Puerto Rico, or now the Carolinas.) Can we expect giving to return to normal or will we need to adjust to a new normal?

And solicitation strategies. Will a donor club work for us? Should I ask for $100 right away, or wait a few years? This is the metric that will help you decide.

 

Metric #4 – Renewal Rate(s)

 

What to count and how to count it

Again, no rocket science here, but it’s amazing how unscientific some of our data is. If you have a good count on the number of your donors in a 365-day period, count how many of those donors made another gift in the 365-day period immediately following.

Anyone who thinks about this long enough will see how flawed this is. One donor gives on January 10^th and gives again on January 7^th virtually two years later and is counted as a renewal, while another donor giving on the 7^th one year and the 10^th the very next year is not.

I accept those flaws, because any system of counting that produces a more “accurate” result in the purest sense, would be impossible to maintain – and unnecessary. For example, you could perform this calculation every day, and use the trend line as the renewal rate – blech!

What can this tell you?

Quite simply it helps you predict revenue. It helps you control your universe. Knowing how many of your current donors will give again next year, and how much they will give, and how many new donors you will have, and how much they will give, will tell you how much money you will have.

If you need more money than that, you will need to start doing something new.

One more thing – the opposite of renewal is attrition. If you know how many donors you are losing every year, you know how many you will need to recruit just to stay even. And if you know that plus the Cost of Acquiring a Donor, you can calculate what the budget must be to stay even.

 

Metric #5 – Five Year Value of New Members

 

If I told you that for every $100 you spend this year recruiting new members, you will have $340 in four years from now, you would probably have no problem spending tens of thousands on recruitment. And again next year and again the year after that.

Earlier this year, I asked you to provide me with data on exactly that metric. I heard from twelve different land trusts with memberships ranging from fewer than 100 donors to more than 1,000 donors. I asked everyone to isolate donors who made a first gift six years ago and calculate how much money those donors had given in the five years between their first gift and last year. The range was $139 to $1,593. The average was $342, and the median was $473. I plan to ask for the same data for the following years to get some trend lines going of my own.

So with that kind of Return on Investment (ROI), why aren’t we all pouring money into new donor recruitment? No one lost money on recruitment and most had ROIs of 400-600%. There are most likely two reasons. First: we do not know how much it costs to acquire a donor, and partly because we never get past looking at the ROI for year 1.

What to count and how to count it

Again, pick a specific date six years ago, or prior to today’s date five years ago. Again, I use January 9^th to January 8^th of the next year.  Isolate the donors who made first gifts that year – in the next 365 days, and add up all the money those donors have given in the five years (exactly) since then. Divide the total amount of money into the number of new donors.

This is the average value after five years of each member recruited in that first year.

Once again, you’ll want to know how this number is changing over time. Is it increasing or decreasing? Why? Can you explain the changes?

What can this tell you?

This metric tells you two things. When combined with the Cost of Acquiring a Member, it can provide a powerful argument for spending money on recruitment. This is especially true in the context of a Strategic Plan, because membership building has an ROI over a period of 3-5 years. Membership recruitment efforts often cost more than they bring in from donated receipts the first year. These efforts break even after two or three years and net money for years thereafter.

It also helps you decide between recruitment strategies. I often hear that direct mail is dead and that recruitment through email and social media is the wave of the future. Assuming Source Code information is available, this gives everyone the information they need to see for themselves.

 

What questions are you asking of your data? Here are a few of mine that I posed last week:

• If I didn’t change any of my fundraising strategies, but instead kept doing exactly what I am doing now, how much money would I make next year? How much would I make five years from now? Am I doing enough to meet the goals of my Strategic Plan? If not, what else could I be doing? Or better yet, what should I NOT do, moving forward, to make room for something that might have better promise?

Using Renewal Rate and Recruitment data, I should be able model exactly how many members and donors I will have each year, for the next few years, and the Average Gift will help me predict revenue.

• Are my current strategies sustainable? Are they vulnerable? Are they scalable, if I need to make more money?

Keeping track of the Five-Year Value of Members over time and using the Source Code information to differentiate between different recruitment strategies can help me double down in the things that are working and de-emphasize those that are not.

• If I took one of my strategies and doubled it, would I double my net revenue from that activity? What about ten times? What about for each of my strategies?

These questions illustrate where the time calculation comes into play. Doubling or tripling the cost might or might not double or triple the result. Is this the best use of my time?

• Does out-sourcing make sense?

These metrics give me information necessary to answer this question. I know of several organizations that have made more money from their events after outsourcing, than the outsourcing actually cost. It freed up their time to spend on other, more lucrative, fundraising strategies.

• Am I spending enough money on Fundraising?

Instead of doing as much as I can with what I have, these metrics help me figure out how much it will take to do what I need.

 

As I mentioned last week, this year I hope you challenge your own assumptions and test whether there might be a better way. Work at getting data that will help you tell whether you’re on the right track, or not. Count things that matter. Plan for the long-term. And prepare yourself for making changes for next year based on that information.

 

Cheers, and have a great week.

 

-da

 

PS: The Rally workshop is A03 and will be on Friday morning at 10:30, immediately following the plenary speaker. Love to see you there!

 

Photo by Savvas Stavrinos courtesy of Stocksnap.io.

 

Related Posts:

On Metrics, Data, Information, Science, and How We Use Them – Part 1

Fundraising Metrics

The Importance of Recruiting First Renewals