The more money a charity raises, the more it can do. More money means helping more people, saving more lives, and solving more problems.
Yet many fundraisers wish for nothing more than a small group of extremely loyal donors. The more loyal the better. 100% retention is the ideal, anything less and there’s something wrong. No donor should ever quit, for any reason.
Large and expensive fundraising programs that generate lots of one-off gifts or regular donors who quit early are frowned upon. Often called ‘churn and burn’, the whole business of mass market fundraising is not just imperfect, it’s sometimes conflated into a sin and labelled unethical.
So is it better to have a small group of very loyal donors, or a much bigger group of less loyal ones?
Let’s start with the perfect ideal:
Charity A’s donors are 100% loyal. The last time the charity asked these donors for money, every single one responded. And each donor gave a whopping $500 average gift.
That kind of charity is seriously donor-centric. And talk about best practice, there would be case-studies galore — and quite a few awards — in store for any charity that accomplished what so many fundraisers can only dream of — perfect donor relationships. No attrition, whatsoever.
And let’s contrast that with a charity that has 50% retention. Half their donors never gave again. What’s more, the donors who did give gave much less, only $100 on average.
It sounds like a meat grinder. Every year the charity has to get new donors to replace all the ones they’re losing out of this leaky bucket calling itself a fundraising program.
Subtract the rhetoric and add up the numbers
It would seem like higher retention rates are better. A higher donor lifetime value must be good. And attrition must be bad. If half your donors are leaving, there must be a problem.
But scale matters too. And scale is often overlooked in this type of discussion. You might have really loyal donors who are each worth a lot, but how many of them do you have? And is that really raising you the most money?
In the example above, Charity A has 100% retention and an average gift of $500. But how many of them do they have? Let’s say they have 1,000 donors.
Charity A raises $500,000.
And let’s take Charity B with it’s revolving door of donors. A measly 50% retention rate and a paltry average gift of only $100. Let’s say they have 20,000 of these people they call “donors”, cough, cough…
Chartity B raises $1,000,000.
Now factor in economies of scale
Scale, or how many total donors you have, makes your income higher, but it also reduces your costs, by spreading them out across a much larger number of people. The bigger you get, the less it costs to ask each donor.
Let’s say it costs $100,000 in staff and administration costs to run each of the programs above.
Charity A raises $500,000 a year. So $100,000 takes out 20% of the money raised. Dropping them down to net income of $400,000.
Charity B raises $1,000,000. So $100,000 reduces net income by only 10%, down to $900,000 — more than double the other charity.
Let’s say that admin costs are actually higher for Charity B. Even if admin costs were double ($200,000 a year), the charity would still end up with $800,000 net — still double the other charity.
In fact, even if admin costs were $500,000 a year, Charity B would still raise $500,000 net. And that would still be more money than what Charity A raises.
Test, Measure and Reinvest Profits — Grow Even Faster
Some people look at a 50% retention rate and see red. They hear “lower average gift” and roll their eyes. But think of these as just numbers, that’s all they are. Instead of making value judgements about them, use them as the financial measurements and tools they were meant to be used as.
A charity has a 50% retention rate. So what. That’s not good or bad. It’s just a number. The average gift is $100. Costs are $500,000 and total income is $1,000,000.
That means that every dollar you spend on this program turns into two dollars by the end of the year. It’s like a bank account that pays a 100% interest rate. If you were presented with the opportunity to open a bank account with a 100% interest rate, what would you do?
You would put as much money into that bank account as possible. In fact, you could mortgage your house to the bank for, say 8%, and put that money into the account earning 100%.
The same thing happens with a “high-volume” fundraising program that can reliably and measurably generate an attractive return on investment. As you put more money into the program, it gets bigger, it gets progressively cheaper to run, and is increasingly profitable over time.
Never doubt that a small group of caring people can change the world. But a much bigger group can change a lot more, much faster.