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

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

 

23 January 2024

 

By David Allen, Development for Conservation

 

As I mentioned last week (See On Metrics, Data, Information, Science, and How We Use Them – Part 1), we spend a good deal of time counting stuff without ever really changing what we are doing based on the results. We have data, but we’re not using the information. This week, in a much longer-than-usual post (sorry!), I want to offer up the five metrics I look at to help me evaluate what’s going on with an organization’s fundraising.

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. Something that is created, something that is erased, or something that increases or decreases over time.

Metrics are valuable in relation to a baseline state. Something that didn’t exist before and does now (like a website page devoted to Planned Giving), something that existed before and doesn’t now (like invasive weeds), or something that is growing or shrinking (like the number of $250+ donors).

Metrics can be used to help us predict what might happen in the future and influence or even control what happens.

 

And let’s talk about Source Codes

You should know where your donors come from. 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 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 mailing list, you should attach a source code to their membership that tells those who follow you from now to eternity that that particular donor came from mailing to the Audubon list.

Note that this particular source code should be attached to the individual donor’s record as well as to the gift record. There may in fact be other source codes that you attach to other gifts, but this is their first gift, and it’s different.

 

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 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.

And 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.

 

What can this tell you?

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

• If you have a goal of acquiring a specific number of new donors, this metric can help you budget appropriately to be successful (most failing recruitment strategies are failing because they are undercapitalized);
• 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 (are events more effective than direct mail, or vice versa?); and
• This metric can help you determine whether a specific activity is scalable. (If I invest twice as much time and money, will I will get something approaching twice the result?)

 

For What It’s Worth …

In my experience, these numbers vary widely with the methodology used for recruitment. Direct Mail is the most studied, and even there, I’ve seen costs ranging from $85 for well-established programs to more than $300 for programs just getting started.

There is also wide variation in the cost of recruiting a first renewal. Email, event, and crowd-funding donors tend to give once and then disappear. The cost of recruitment may be low, but the cost of recruiting a first renewal may be much higher.

The best advice is not to compare your results with some theoretical standard, but rather to focus instead on improving over time (driving down costs or recruiting more first renewals for the same investment of time and money).

 

 

Metric #2 – Number of Individual Donors

 

What to count and how to count it

Sounds simple doesn’t it? But it isn’t 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?
• When one person makes gifts in other people’s names (gift donations), how many donors will you count? What about memorials? Crowd funding sponsors? Do they count or not?
• A foundation grant or corporate gift might actually be an “individual” gift 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 should probably still be considered a gift from an individual Board member.

 

There are many more.

However you end up actually counting donors, 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 8th for this purpose, but you could choose January 1, February 27, or May 13, or whatever just as easily. 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.

Consider 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?

As I said in the previous section, 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. 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.

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? Like economic recessions? Or localized needs like for hurricane relief or food banks – will they help or hurt our other fundraising? (Think COVID or Hurricane Ian 2022.) 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? Understanding this metric can help you decide.

 

For What It’s Worth …

Average gifts for land trust organizations vary from community to community, but a fairly reliable benchmark in my experience is $400. Organizations with average gifts less than $400 can probably help themselves by being more aggressive in asking. Asking more often, starting donor circles, and raising money for specific projects are all strategies that can help.

 

 

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. Using my January 9 to January 8 dates, one donor gives on January 10th and gives again on January 7th virtually two years later and is counted as a renewal while another donor giving on the 7th one year and the 10th the very next year is not. (This is the reason I use January 9 and January 8 – the potential for overlap is much greater across the end of the calendar year.)

Regardless, 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 is 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.

 

For What It’s Worth …

The percentage of new donors (in their first two years of giving) will influence this number. Organizations with a large influx of new members will see the renewal rate drop accordingly the following year. Organizations with very little recruitment may see renewal rates well above 80%.

I use a benchmark of 70% in my work. If a land trust’s renewal rate is 70-75% with average recruitment, it’s a sign their renewal systems are operating at a high level.

 

 

Metric #5 – Five Year Value of New Donors

 

What to count and how to count it

Again, pick a specific date in January 2019. Again, I use January 9th to January 8th. Isolate the donors who made first gifts in the 365 days following that date, and add up all the money those donors gave 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 donor recruited in in 2019.

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 Donor, it can provide a powerful argument for spending money on recruitment. If I told you that for every $200 you spend this year recruiting new donors, you will have $1,000 in 2028, you would probably have no problem spending tens of thousands on recruitment. And again next year and again the year after that.

This is especially true in the context of a Strategic Plan, because donor base building has an ROI over a period of 3-5 years. 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.

 

For What It’s Worth …

For the past six or seven years, I have asked Blog readers for data on exactly that metric. I’ve heard back from nearly 50 different land trusts with memberships ranging from fewer than 100 donors to more than 1,500. The range has been from $180 to more than $4,500. The average has been $1,000, and the median $800.

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 (after five years) and most had ROIs of 400-600%. In my opinion, there are most likely two reasons: First because we do not track how much it costs to acquire a donor (only how much the recruitment effort costs in the abstract), and partly because we never get past looking at the ROI for year 1.

The five-year value can also be calculated for the donor base as a whole. Doing so will provide an interesting look at the overall health of the fundraising program because it incorporates renewal rate, average gift, and number of donors. Improving any one of the three will result in an improvement in five-year value. The five-year value for the organizations I have tested range from $1,600 to more than $8,000. $3,000-4,000 is feeling like it might be a good benchmark.

 

 

 

Instead of doing as much as I can with what I have, these are the five metrics that 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 2024 based on that information.

 

Cheers and Have a Good Week!

-da

 

PS: Your comments on these posts are welcomed and warmly requested. If you have not posted a comment before, or if you are using a new email address, please know that there may be a delay in seeing your posted comment. That’s my SPAM defense at work. I approve all comments as soon as I am able during the day.

PPS: I’m on vacation this week. Much of the content in this post was originally posted in September, 2016. It has been updated.

 

Photo by Nennieinszweidrei courtesy Pixabay