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The Donor Drain

Donor loyalty drops as mistrust grows

By Tracie McMillan


Contribute • November/December 2007

Anne Senft spends her work days raising money for the National Wildlife Federation. It’s not an easy job, and lately, it’s gotten harder. According to Senft, the Reston, Va.-based charity has been losing some 300,000 donors each year — nearly one-third of its nearly one million members.

For most of the early 2000s, Senft says, the group was only able to replace most of the donors who walked out the door. “We pretty much broke even,” she says. Late last year, though, the nonprofit had to make a tough decision: spend more money to make money, or risk falling behind. The Wildlife Federation ended up spending some $2 million more on fundraising than the previous year, according to its tax return, sending out 20 million donor letters and nearly as many e-mails.

It worked — but just barely, bringing in 50,000 more members, says Senft, and bumping up donations and membership fees by 6 percent. “We were able to get ahead of the curve because our acquisition was so aggressive,” she adds. “But we didn’t gain ground until this year.”

Call it the donor drain. Raising money for a cause these days has become much like trying to walk up a “down” escalator while it is accelerating. It’s getting tougher just to break even and much easier to fall behind. “The problem is not that [charities are] not getting new money; the problem is that they’re losing an enormous amount of money,” says Bill Levis, the author of a new pilot survey by the Urban Institute that documents the trend.

Levis’ survey shows that most nonprofits post an average gain of just 10percent each year: they lose 52 percent of their donations, which is then offset by a 62 percent gain in new or upgraded donations. In short, says Levis, nonprofits are losing almost as much as they’re gaining, pouring a river of money into a nearly open drain.

The result? A looming financial crisis in the sector as the number of new donors starts to wane, says Adrian Sargeant, a professor of fundraising at Indiana University’s Center on Philanthropy. If organizations fail to keep donors on board, says Sargeant,“ they’re going to be spending a lot of money on donor recruitment that could be spent on programs.”

Indeed, analysis by Blackbaud, a fundraising research group, shows that over the past five years, there’s been a gradual but steady decline in the number of nonprofit donors, in general, and particularly in the number of new donors to the sector. It costs more to acquire new donors than to retain them, experts say. But churning through donors also makes it harder to woo benefactors. “Donors don’t want to be funding fundraising,” says Sargeant. “They want to be funding the work you’re trying to do.”

And they’re demanding much more accountability from the nonprofits they bankroll. If they don’t get it, they walk, says Penelope Burk, president of the fundraising consultancy Cygnus Applied Research, Inc. In August, Michael Steinhardt, the hedge-fund philanthropist, dropped 18 grantees from the 100 he supports, citing disillusionment with their work. Donor Susie Buffett, speaking to nonprofit management students at Manhattan’s New School in September, said: “Sometimes, when people ask you for $50,000 and you give$35,000, it’s amazing how people react. A simple thank-you would be nice…You’d be amazed at how many charities simply forget to say thank you.” David Rockefeller, Jr., the great-grandson of oil magnate John D. Rockefeller, Sr., says many charities “just don’t keep donors informed enough of how they’re having an impact.”

Indeed, about one-third of nonprofits report that donors want more detail about how their donations are used, according to Blackbaud’s annual survey of the nonprofit industry. That proportion has held steady since the first survey in 2005, says Amy Comer, a manager of market research at Blackbaud. Even if the numbers aren’t rising, says Comer, “the fact that nonprofits say they’re continuing to see increases [in concern] signifies a problem that is not going away.

”While faltering financials top the list of donor concerns — when Burk surveyed donors, 37 percent said they stopped supporting groups because of “mismanaged funds” — simple appreciation is important, too. Of the donors who withdrew support, 47 percent did so because they felt uninformed or unappreciated. Yet when donors leave, the funding clock resets to zero, says Burk. New donors are expensive to get and rarely give much the first time, she says. Donor churn, she adds, is “the most serious problem in fundraising today.”

Yet even a small improvement in retention can yield a windfall over time, says Indiana University’s Sargeant. Boosting the retention rate by as little as 10 percent, he says, can increase the lifetime value of a nonprofit’s donor base by up to 200 percent. “A lot of nonprofits lose money on donor acquisition,” he says, “so if you’re not losing them, you don’t have to replace them.”

Just ask the International Rescue Committee: when half of its donors disappeared after the Kosovo crisis, IRC retooled its efforts. By the time the 2004 tsunami hit, IRC had a “welcome kit” on hand to send to donors with thank-you notes and other forms of follow up—and this time contained its post-crisis donor loss to just 3 percent of total membership. The secret: more time and money was spent on retention. Donors, says Burk, “don’t hang around hoping they’ll get [what they want] in the future.” If a nonprofit doesn’t get it just right, “[donors] are off to the next one.”

Republished on MSNBC.com, December 2007.

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