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Office Space: The True Measure of Loyalty
Office Space: The True Measure of Loyalty

Donor retention can mean the difference between a healthy and an ailing development program

By Robert M. Caldwell


Jim Frazier for CASE



From the day I was able to understand concepts, my father told me that he would prefer a customer who bought from him every season over one who made a big one-time purchase. His successful career in shirt manufacturing was based on an important objective: building lifelong relationships with his customers. He cared about these relationships and created loyal customers in the process—people who helped his business grow in good times and weather bad times.

I can hear my father's voice every time I think about the loyalty of my institution's alumni, parents, and friends. A donor's needs are no different from the needs of a customer. Donor retention is based on good relationship skills.

Show donors the love

Donor retention is, simply, keeping a donor. But keeping donors isn't necessarily simple. We want more than a transactional moment on an annual basis. We need to invest in keeping our donors engaged, close, and feeling that their investment is worthy of their attention and resources—and worth continuing.

A vital part of any fundraising program must focus on donor loyalty. At its core, donor retention corresponds to good relationship management practices. We must make our donors feel so good about giving to our institutions that they will want to repeat the behavior.

I view my school's relationship with donors like a courtship that leads to marriage. Think of it this way: Two parties come together around common interests, values, and chemistry. We communicate frequently and with obvious love and appreciation. If this period of courtship (cultivation) goes well, a special bond can turn into a formal commitment (the gift), which arises out of a proposal that is thoughtful, planned, and delivered with conviction and emotion (the ask). If the response is affirmative, great celebration and ceremony follow.

What comes next is where the challenge lies. The relationship that follows the union (stewardship) is just as important as the courtship that led up to it. If donors don't continue to feel the love that led them to make a gift, an institution risks losing the relationship.

Retention is critical for creating long-term donor value. If we can't keep our donors from year to year, we can't maintain a steady dialogue about ongoing support. It's that continuing dialogue that contributes two major elements to a healthy fundraising program: donor loyalty (consistent giving) and increased gift size (upgrade).

At Holderness School in New Hampshire, we carefully track our annual retention rate and its effect on giving. In 2010, Holderness had an overall retention rate of 76 percent, up from 67 percent four years earlier. We have two categories for retained donors: those who have given for five consecutive years or more (our True Blue donors) and those who have given between two and five consecutive years. Those in the former group make up 54.3 percent of our retained donors, but they gave 81 percent of our total annual fund revenue for the year, with an average gift of $767. The latter group's average gift was $190. Compare this with the average reactivated donor gift of $162 and the average first-time donor gift of $141. The 24 percent of lapsed donors that year accounted for $48,931 in lost gift revenue from a million-dollar fund.

As an industry, we spend a lot of effort and resources each year to get as many of our alumni as possible to become new donors, despite knowing that newly acquired donors are the most expensive to recruit, followed by reactivated, long-lapsed donors. While acquiring new donors and reconnecting with those who have lapsed remain important, our data point to the fact that retaining our donors is a stronger investment.

Donor loyalty also affects major gifts. A study I conducted in 2000, when I was executive director of the Dartmouth College Fund at that New Hampshire institution, revealed a high correlation between retained donors and major gifts. We examined the past giving behavior of donors who made their first gift of $50,000 or more and found that a consistent history of giving led up to that major gift. From the donor's first gift, which in two-thirds of the cases was less than $250, to their first major gift, 34 percent had given to the college every year, 61 percent had given almost every year (83 percent of the time), and more than half had given for 14 consecutive years or more. These data reveal the ROI of strong donor-loyalty strategies and programs.

Participation is still regarded as the standard for measuring relative and absolute donor loyalty. Yet this measurement—the total number of donors divided by the solicitable base—is loaded with miscalculations and, to some degree, meaningless data. Participation benchmarking assumes that everyone calculates the data exactly the same way, but we don't. We all play with the denominator—the number of solicitable alumni—differently. It also assumes that whoever is included in giving for a particular year is "loyal," but not all current-year donors are loyal. In any given year, you likely have a mix of donor types (loyal retained donors, single-year donors, long-lapsed donors, reunion year donors, etc.). Like loyal customers, loyal donors are people who return every year. Retention is where it's at when measuring true donor loyalty.

Take the "annual" out of annual fund

While donors will do what they want most of the time, they often behave the way they do because we, through our program-based strategies, have encouraged certain behaviors. Donors begin lapsing within six months of their last gift. Waiting until the one-year (or even six-month) anniversary of a donor's last gift to ask for another one risks doubling your lapsed donor rate. Statistically, donors who make two or more gifts in a year are much more likely to renew their support the following year than those who make one annual gift. The donor most likely to make a gift tomorrow is the one who gave last month, not last year. At Holderness, the donors who have given in three or more consecutive years have the highest frequency of giving (1.6 gifts per year). Once they give that frequently, their retention rate soars to 93 percent.

Donors don't give because our fiscal year is about to begin or end. They give because we successfully address their philanthropic desires and convince them that they can have an impact on something important to them. So, what can you do to build stronger donor loyalty? Our advancement mission is increasingly focused on nurturing donors with good relationship-building programs. We want our institutions to be a lifetime experience for our alumni, not just an experience of a lifetime.

Pay attention to your donors' interests and give them great experiences. Let donors know their gift was received, that it is appreciated, and that it is being used for the purposes they intended. Thank them repeatedly, at different times of the year, and in different ways, such as with notes, letters, emails, phone calls, and personal visits from people including staff members, volunteers, students, and trustees. Demonstrate the impact their gifts have on your institution and tell those stories through your different communication channels. Go beyond the once-a-year mindset by building a program that integrates your alumni communication and development programs. Most importantly, seek a second gift from a donor within six months of receiving the first gift.

The informal education I unknowingly received from my father expresses itself in my own career each day. The word that best describes him is philanthropist. Not by the standards of today's definition, but rather the deeper meaning derived from the word's original Greek roots: deep love of humankind. He demonstrated an altruistic concern for human welfare in the lifelong relationships he nurtured. Not a bad lesson to learn and pass on.

About the Author Robert M. Caldwell

Robert M. Caldwell is the executive director for advancement and external relations at Holderness School in New Hampshire.

 

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