Donor Retention: The Key to Sustainable Fundraising
Donor retention and monthly giving are the keys to creating a sustainable financial foundation for your nonprofit. When you retain donors, you save recruitment costs. When those donors give monthly, you greatly improve your organization’s financial stability. Here’s how you can do it.
Donor Retention: What It Is and Why It’s Important
As competition for donors and donor dollars continues to grow, savvy nonprofits are taking a page from for-profit startups and becoming more sophisticated and targeted with their fundraising efforts. One key concept from the business world especially applicable to the nonprofit sector is the value of customer (donor) retention.
Acquiring new donors is difficult and expensive. If those donors only give once, you’ve probably lost money. But if you can retain donors by building a relationship with them so they want to continue supporting your cause, your initial investment continues to pay dividends over time, and your organization spends less time and effort on recruitment.
Acquiring new donors means dollars spent on educating them about your mission and cultivating their interest in your cause. This is money you’ve already spent and don’t need to spend again on your current donors.
Here are some telling statistics from the 2017 Fundraising Effectiveness Survey Report, produced by the Association of Fundraising Professional (AFP):
- Every 100 donors gained in 2016 was offset by 99 lost donors through attrition.
- Every $100 gained in 2016 was offset by $95 in losses through gift attrition.
- The greatest losses in donors came from lapsed new donors in all growth-in-giving categories.
If you can retain new givers by converting them into recurring donors, your financial base will be much more secure.
In order to devise an effective donor retention strategy and measure whether it’s meeting your goals, you need to track these important metrics: donor retention rate and its inverse, donor attrition rate; gift retention; and donor lifetime value.
Donor Retention Rate
Donor retention rate is the ratio of retained donors to donors at risk of not giving again. The inverse (1 – retention rate) is the donor attrition rate.
For example, if you have 1,000 donors in year 1 but only 400 of those give again in year 2, your donor retention rate would be 400/1000, or 40 percent. Your donor attrition rate would be 1 – 0.40, or 60 percent.
Worse yet, if you have 1,000 donors today, you don’t add any new donors and your attrition rate is 60 percent, after five years, you will only have 10 donors left. Or from a positive angle, an organization with a retention rate of 80 percent that acquires new donors at a rate of 20 percent a year will remain flat; the same organization with a retention rate of 90 percent that acquires the same 20 percent in new donors will grow 10 percent a year and will double its donor base in about seven years.
Related to donor retention, gift retention measures the amount donated by your retained donors year over year. Your gift retention rate shows you how much money you are losing through attrition, but its best use may be in determining whether your retained donors are all giving the same amount or more year after year. Segmenting your gift retention by gift amount lets you know whether you are keeping large or small donors. Why is this important? Retaining 100 $50 annual donations has the same effect on your fundraising as retaining just one $5,000 donor. Only you can decide which of these is more of a challenge for your organization.
Donor Lifetime Value
Donor lifetime value, or LTV, is a measure of how much money, calculated over all donors and donations, a donor will give to your organization from the first donation to the last. LTV is an aggregate figure you can use to determine how much money you should invest to acquire a new donor or keep a donor for the long term.
Using retention and attrition rate numbers, you can calculate the lifetime value of a donor in this two-step process:
- Lifetime of a donor = 1/attrition rate. In our example of an attrition rate of 60 percent, the average lifetime of a donor is 1/0.6, or 1.66 years.
- Lifetime value = lifetime x average annual giving per donor. Again, for this example, 1.66 x $500 average annual giving = $833.33 LTV
How important is lifetime value to your bottom line? If you can increase your retention rate by just 20 percent, your donor LTV increases by 50 percent. This is how it works, using our example figures and increasing retention rate from 40 percent to 60 percent (which reduces the attrition rate from 0.6 to 0.4):
- Lifetime of donor = 1/0.4 = 2.5 years
- Lifetime value = 2.5 x $500 = $1,250.00, which is more than 50 percent greater than $833.33.
Calculating and Comparing Metrics
Mining your donor database for the data you need to calculate and track these and other useful metrics can be done manually or using specialized software. No matter how your organization does it, you should definitely be paying attention to these numbers.
Once you’ve determined your own metrics, you’ll find it useful to compare them to aggregate data from all across the nonprofit sector so you can set reasonable and attainable benchmarks for your organization.
We’ve already mentioned the annual report from the Fundraising Effectiveness Project, which contains a wealth of data. Started by the AFP and the Center on Nonprofits and Philanthropy at the Urban Institute in 2006, the project analyzes annual survey data from more than 10,000 nonprofits. Retention statistics from the 2017 report show that:
- In 2016, the overall donor retention rate was 45 percent, 0.5 percent below the 2015 number.
- The overall donor attrition rate was 55 percent.
- Peak retention, which occurred in 2008, was 50 percent.
From the 2016 Donor Retention Report, a supplement to the 2016 Fundraising Effectiveness Survey Report:
- Repeat donor retention is significantly higher than new donor retention; however, both rates have declined in recent years.
- Repeat donor retention declined from 67.88 percent in 2008 to 60.23 percent in 2015.
- New donor retention declined from 29.35 percent in 2008 to 22.93 percent in 2015.
Retain More Donors by Offering a Monthly Giving Program
Now you know why donor retention is the focus of so much attention in the fundraising community. If you can convert those one-time givers into recurring donors, you stand to greatly improve your donor retention rate, gift retention rate and donor lifetime value. Data from AFP shows that repeat donor retention averages in the 60-70 percent range. Interestingly, the data also shows that not only is repeat donor retention higher, but also the longer a donor is retained, the higher the donation tends to be. And conversely, the more a donor gives, new or recurring, the higher the retention rate.
Monthly Giving Program
One particularly effective tool for encouraging repeat donation is a monthly giving program. Monthly donors are retained at an exceptionally high 85-90 percent. Compare that to the average retention rate for all donors of only 45 percent, and the value of a monthly giving program is obvious. Monthly donors also stay with an organization longer, between five and seven years on average.
A monthly giving program is especially useful in retaining current donors who would like to give again or give more but can’t commit to one big annual donation amount. These may be donors with limited incomes who could more easily fit donations into their budgets if the amount is small but recurring.
For example, if you know that, for your organization, millennials have a high acquisition cost and a low retention rate, you may decide that they are the perfect candidates to cultivate as recurring donors. Although they have fewer financial resources now, millennials could grow into long-term supporters if they are given an opportunity that makes it easy for them. Fixed-income seniors is another demographic group that is particularly well-suited to a monthly giving program.
An added benefit is that once monthly donations are started, the donors are less likely to stop giving to your organization. You also gain a fairly predictable cash flow to help you manage your finances better.
What we’ve seen time and again is that many donors welcome the ease of automatic monthly donations. All you have to do is set up a monthly giving program and ask them to join. Make sure the monthly recurring option is easy to select on all of your solicitations. Our starter kit helps you determine what amount to ask for to get the most buy-in. Of course, you will still follow the same best practices for building and maintaining donor relationships as you do for any other type of donor.
DonorPerfect has the tools to process automatic monthly donations from end to end. Download our Monthly Giving Starter Kit and follow the five simple steps to create your own successful monthly giving program.