Premiums are more than just “stuff”.

I was lunching yesterday with a fundraising executive at a large charity that works with intellectualy disabled children, and she was lamenting the “tactical” nature of premium direct mail.

To her — and I think she speaks for many people — it feels like a never-ending series of seemingly frivolous decisions about greeting card designs, photography vs. illustration, glitter vs. die-cutting, and what should the matching envelope look like?

Lost in all the discussions about monograms, shopping bags and t-shirt sizes is a meaningful “engagement” with donors, she said. What does early intervention education services for intellectually disabled children have to do with tote bag fabrics?

They have a lot to do with each other. And not just on a shallow superficial level, but on a deeply strategic level as well.

Like many charities working in the disability sector, her charity is facing big funding cuts with the rollout of the National Disability Insurance Scheme (NDIS) over the next several years. Millions of dollars in government funding that used to flow to disability service providers is going directly into the hands of disabled individuals, to spend on services as they see best for themselves.

That means disability charities need to find new sources of income — such as individual giving and regular giving programs. They will also need to actively market their services to the general public.

Mass marketing vs. niche marketing

Stategically, every disability charity in Australia has to shift away from a narrow focus on services to a small population of people, with large amounts of government funding supplemented by a small group of committed and loyal donors.

In the future, these charities will need a much larger number of donors to generate a bigger percentage of their income, and they will need to build market leading brands that will attract the most number of potential customers.

The charity that attracts the most customers will be able to grow and expand and will eventually displace or absorb smaller charities with less popular services and less donors.

And all this premium “stuff” plays a key strategic role. A premium direct mail donor acquisition program is the fastest way to acquire large numbers of new supporters.

Once on board, you have to make the most of them.

It’s easier to sell people what they want, than what you need.

Several large disability charities have started out with a small group of donors, 1,000 maybe 2,000, who each loyally give about $100 at either Tax time or Christmas, raising a supplemental $200,000 a year for the charity.

Then, they launch a premium direct mail donor acquisition program, and get 20,000 or even 40,000 donors, at a much smaller average gift of about $40. If you can get each one of them to give that amount again, just once, you can raise an additional $800,000 to $1.6 million every time.

And then the charity puts these donors on a “journey” involving “donor care” and direct mail house appeals. In other words, a series of self-reflective newsletters and fundraising letters, one after the other. You’ll be lucky if a quarter of those donors give again.

Next, charities put these donors through telemarketing “conversion” programs to cross-sell them to regular giving. And the conversion rate is terrible.

Your donors don’t want to be weaned off premiums.

You can acquire thousands of new donors with a premium. And it should be no surprise that using a premium is the best way to get them to give again.

Take a group of premium acquired direct mail cash donors, and mail them a thank you letter with a t-shirt inside with your logo and their name. Tell them it is a thank gift for their first gift, and ask them to give again.

You will get a 20% to 30% response rate, all of whom become 2-time frequency donors before you’ve even sent them their first house appeal.

Repeat this process and add premiums to your house appeals, and the response rates will rise. Every time you increase the response rate to a house appeal you are also increasing your 2nd gift rates and your retention rates rise in tandem.

Introducing Premium Regular Giving

And if you want to convert these donors to regular giving, take a careful look at what kind of regular giving product you have and how you are selling it.

Offer these donors a monthly incentive to become a regular donor, and many morewill do it.

Guide Dogs offers a regular giving product at $199 a month. That’s right, $199 direct debited each month. It’s called the Guide Dogs Wine Club. And it comes with a case a wine delivered to your door each month. Guide Dogs makes $50 net each month, and the attrition rate is half the attrition rate of face-to-face acquired monthly donors.

If you are finding it hard to convert premium direct mail donors to regular giving, it probably has a lot to do with what you are offering them, and how you are offering it. What kinds of incentives could you offer?

Premiums create Influencers and Advocates

You can do a lot with 40,000 supporters beyond just getting them to give more money. You can use premiums to turn them into an advertising channel.

All that “stuff” can convey key messages. Turn these premium donors into walking, talking influencers in their community and advocates for your brand and your services.

They will attract customers, and they will bear witness and tell your story in a way that money alone simply cannot buy.

Love your premiums and your donors will love them too.

Strategically speaking, the most important thing you can do is select premiums that reflect quality and value. Show how much you care by presenting the premium in as appealing a way possible. Love what you are sending your donor, and they will see that and respond in kind.

Too many fundraisers loathe the premiums they are mailing. They select the cheapest thing possible, the easier thing to produce, and then they insist the premium must be all about the charity and have nothing to do with the donor or their tastes or preferences.

The worst thing you can do is regard the whole premium decision-making process as tactical and completely beneath you.

These donors are motivated by material objects. And they can smell a premium with low self esteem from a mile away and will drop you like a rock.

Take pride in what you are mailing, and donors will take pride in supporting you in return. A thoughtful and carefully considered decision about tote bag fabrics can make a million dollar difference down the track.

All About the Data — Term Deposits at 30% — deposit NO money. Click here!

Last week I attended a very interestesting breakfast presentation hosted by the Fundraising Institute of Australia. It was held at the Commonwealth Bank’s headquarters in Sydney’s CBD. The presentation was called something like “All About the Data“.

A delicous buffet was served on the 20th floor. There was a panoramic view of the city out of huge windows across one entire side of the long function room. Then, once everyone was settled in and tucking into their brekkie, not one but four slide projection screens dropped down from the ceiling, blocking out the sweeping vistas and it was time for the presentation!

The individual giving manager of a large disability charity spoke about premium direct mail cash donor acquisition. He reported that in 2013, he mailed 200,000 pieces of mail and acquired 20,000 donors. The mail pieces cost $4.00 each, or $800,000. The average gift was $40, so in total he raised $800,000. In other words, he acquired 20,000 cash donors at no net cost or investment.

Over the next 3 years, those donors contributed an additional $240,000 in response to direct mail appeals. Some donors never gave again, whereas other donors gave several times again, no surprises there. The average donor acquired contributed an additional $20 after their first gift.

The presenter then took the original $800,000 that it cost to do the original acquisition mailing and divided it by the $240,000 in additional income recieved and declared that it was nothing more than a 30% return on investment, and if we factor in inflation, cost of living and the prevailing interest rates for term deposits, he was no better off than if he had deposited the original $800,000 in a CBA term deposit and earned interest off that.

He then paused and sarcastically asked the audience for a tissue. I looked around the room, and there were several employees of Commonwealth Bank in the audience, and we were in a function room at the CBA’s offices. I waited for one of them to raise their hand and point out something very obvious, but no one did. So I’ll explain here.

This fundraiser spent $800,000 to acquire 20,000 donors. But by the time the first mailing was completed, he got his $800,000 back. Then, he made an additional $240,000 over 3 years. In other words, he got $240,000 over 3 years without having to lock up the $800,000 for 3 years.

Now, try getting the Commonwealth Bank to let you open up a term deposit like that. One that pays 30% over 3 years, but you get to withdraw all the money originally deposited in the first few weeks of that 3 year term. How far would you get with the CBA, or any bank?

The problem here is that the ROI calculation is simply being done wrong. He got $240,000 back over 3 years, and his net investment at the beginning was $0.

His ROI was not 30%, it was infinity. Impossible to calculate, actually. But let’s just say he did lose $1,000 on the first mailing, and got $240,000 back over 3 years. That is an ROI of 24,000%.

Or let’s say he actually lost $10,000 on that mailing and got $240,000 back over 3 years — that’s an ROI of 2,400%.

Or let’s even say he lost $100,000 on that mailing and got $240,000 back 3 years later. That’s still a 240% ROI and much better than any bank would offer.

The other thing that is different from a bank is that as you recoup your initial investment much earlier. Instead of locking your money up for 3 years, the initial investment is paid off much faster than the 3 year term.

And as we all know, there are more ways to raise money from these kinds of donors than just asking for repeat cash gifts. For example, regular giving conversion.

The conversion rates to regular giving for direct mail cash donors is lower than other types of regular giving recruitment, but the attrition rate for a monthly donor recruited through direct mail is half the attrition rate of a monthly donor acquired through face-to-face. So while they cost more to convert, they generate twice as much money over time.

The average age of a direct mail cash donor is 70, which also makes them excellent prospects for bequest programs. And emdedded within those 20,000 donors, about 10% to 20% would have given over $100 and they make excellent prospects for mid-level and major giving, and other forms of upgrading.

There’s no need to stop there either. You can convert some of them into community fundraising, events, raffles, merchandise sales, and all sorts of other fundraising streams.

And if all those donors made their first gift in response to a premium direct mail package, then if you want to get them to give a second, third and fourth time, send them more premium direct mail packages.

Send them window stickers, t-shirts, key rings, refrigerator magnets, shopping bags, scarfs, lapel pins, bracelets, necklaces, hats, socks, and tea towels — along with a matching box of tea bags, a teacup, saucer and a vintage-designed souvenir tea spoon monogrammed with their initials.

And all of that “stuff” can be emblazoned with your brand or key messages. These donors will proudly display your message in every way you give them, so give them lots of ways.

They’ll do heaps of advertising, influencing and evangelising for you in a way that money alone simply can’t buy. These branded premiums will also increase the amount of cash gifts they send in as well. They make every direct mail appeal (not just the first) raise more money.

And finally, you can turn this little army of cash donors into some of your strongest advocates. They will write letters to their MPs, they will circulate petitions both online and offline, They will call people whose minds you want to change. They will start or stop eating certain foods, buy or not buy certain products, and partonise or boycott certain companies.

You can also leverage these donors to get better deals from your corporate sponsorships. When a company sponsors WWF, they are not just getting access to a really cool logo. There is a large, vocal, well-organised and influential constituency that company is gaining preferential access and exposure to as well. And most of those people are acquired using direct mail cash donor acquisition.

A premium direct mail cash donor acquisition program makes more money, every which way to Sunday, than any other form of direct response fundraising.

Always remember, just because you have data, you, me or anyone can easily make a simple maths error in how we calculate or interpret that data. Check your maths carefully, and you might find you’ve got a gold mine sitting right in front of you!