In Measuring Overall Fundraising Performance we talked about the two factors that you can influence to bring in the most money: the amount of dollars raised and the number of people giving. Today, we are going to go into more depth about how to influence more people to give and how to influence current donors to give more money. Formulating the goals you set for doing so starts with knowing where you are right now.
Average Gift Per Donor
The overall average gift per donor is calculated by dividing total revenues by total number of donors. For this metric, use gross revenues. For example:
$1,000,000 gross revenues/2,000 donors = $500 average gift per donor overall.
The average gift per donor overall is useful in year-to-year comparisons. You want to see the average gift per donor increasing and on an upward trajectory.
The overall average gift per donor can further be broken down into average gift per donor by fundraising activity. It is calculated the same way overall average gift per donor is. For example:
$250,000 total grant revenues/25 funders = $10,000 average grant donation,
$800,000 total individual donor revenues/1,275 donors = $627.45 per donor,
$150,000 special event revenues/750 participants = $200 average donation per event participant.
In this example, we can see that the highest gift amounts are given through grant funders, the most amount of donations are through individual donors, and in between lies the special event participants. At this point you know that you how much you raise through each channel, how many donors give through each activity, and the average gift per donor per each activity. You can now take our preliminary analysis from our last chapter one step further. We can now say that we may want to try and increase the number of grant funders because they yield the highest average gift per donor. Or, we may want to invest in our individual giving program because that is the most popular. Or, we may want to emphasize improving our special events so they realize a higher average gift. However, know the story does not end here. You still need to analyze costs and how well your resources are working for you.
Just a note on working to improve fundraising activities that aren’t working for you as well as you’d like: rather than working on your overcoming your weaknesses, use a strengths-based approach and work with your strengths. It will take a lot less effort to see more positive results. And your staff will be more productive and feel more satisfied. Which means they may stay longer. The average tenure of a development professional today is about fourteen months. If you don’t want that kind of revolving door, you need to make sure expectations are reasonable and staff feels supported. And part of that formula is working with their strengths as opposed to against their weaknesses.
To drill down on the average gift per donor by category even further, you can take subgroups of the categories and see each how each subgroup is performing. Let’s face it – time is your most precious commodity because there is only so much of it. Although we would like to do everything, we and our staff cannot, no matter how much of a superhero we all are. The time staff spends in analyzing results on order to better plan for the future will pay off in the long run, so no using the excuse “we don’t have time for all this evaluation!” To know how to raise the most dollars using the least resources, one strategy is focus on implementing the specific fundraising activities that yield the highest gift per donor.
For example, how do foundation, corporate foundation, and community group grants compare to one another? If you want to concentrate on grants, what type do you want to concentrate on?
Or your individual donors. What are the average gifts for the holiday appeal, Giving Tuesday campaign, and major gift efforts? Are the average gifts in each subgroup still rising? What is working for you and what needs to go?
The same can be done by comparing special event to special event. Most special events have multiple components to them, such as tickets, sponsorships, donations, auction, raffles, and the like. Make sure you drill down to those individual components to know what part of the special event you want to spend time on.
Most fundraising activities have a shelf life. Have you reached that point yet? You will know it is time to retire a certain activity if you see a multi-year downward trend of number of donors and average gift per donor.
Donor Acquisition Rate
We all know that we need to recruit new donors. We need new donors to replace the ones lost through attrition and to grow our donor base. After all, a bigger donor base should result in a larger pool of overall donations. Remember the price and volume sales analogy? Acquiring new donors is, hopefully, increasing the volume of gifts you receive.
To thoroughly analyze your acquisition efforts, you need both the actual number of new donors you acquire each year as well as your donor acquisition rate. Your donor acquisition rate tells you your rate of growth. Your goal is to maintain a constant rate of growth, maybe even improving it. Knowing your trends in donor growth can help you forecast donor base growth when you are setting goals.
You can calculate your donor acquisition rate by dividing the difference between the number of donors this year minus the number of donors last year by the number of donors last year. For example:
(1,275 donors this year – 1,260 donors last year)/1,260 total donors last year = 1.2 percent
The current industry average donor acquisition rate is 0.8 percent. More detailed statistics by size and type of agency are collected by fundraising software agencies, combined, and then then released by the Fundraising Effectiveness Project. The Fundraising Effectiveness Project is a free product of the Association of Fundraising Professionals.
Donor Retention Rate
Donor acquisition, though, does not tell the whole story. Donor retention is equally, if not more, important to calculate. Your donor retention rate tells you the percentage of your donor base that made a second or subsequent gift. An optimal donor retention rate hovers right around 80 percent, give or take a few percentage points.
It is much cheaper to retain a donor than acquire one. In fact, it typically costs six times as much to acquire a new donor than it does to retain an existing donor. Therefore, contrary to popular belief, you will raise more money by increasing your donor retention rate as opposed to your donor acquisition rate. Don’t get me wrong. You need donor acquisition. Life happens and people can’t donate anymore for a variety of reasons – they die, they move, they lose interest, their financial circumstances change, and so on. You need new donors to replace those lost through attrition. But the majority of your fundraising investment should focus on retaining donors as opposed to acquiring donors. Most nonprofits have poor donor retention rates and are spending more money on raising the same amount of money than they need too. If you invest in improving your donor retention rate, your costs to raise a dollar go down, increasing your net income.
Your overall donor retention rate is calculated by dividing the total number of donors last year by the number of repeat donors this year. For example:
600 repeat donors this year/1.260 donors last year = 47.6 percent
The above example means that for every hundred donors that nonprofit acquires, 52.4 of them will not give again. That’s more than half their total donor base. This means you are recreating more than half your donor base every year. That’s a lot of time, effort, and money. Want to raise more money with less resources? Focus on improving your donor retention rate.
The average industry overall donor retention rate is a poor 45.5 percent. The first-time donor retention rate is even more dismal at 20.2 percent. No wonder many nonprofits are struggling. For every hundred donors they acquire, only a little more than twenty will give again.
To show the impact of how improved donor retention affects fundraising results, consider the following example where raising $50,000 actually results in more organizational income than raising $100,000.
|Amount Raised||Average cost to Raise||Total Cost to Raise||Final Results|
|50 percent retained donors||$50,000||$0.20||$10,000||$40,000|
|50 percent new donors||$50,000||$1.20||$60,000||($10,000)|
|80 percent retained donors||$40,000||$0.20||$8,000||$32,000|
|20 percent new donors||$10,0000||$1.20||$11,200||($1,200)|
For practical idea on how to recruit and engage donors, see Donor Acquisition: How to Find People Interested in Giving to Your Nonprofit and Donor Retention: How to Get People to Give Again and Again.
Data Collection, Recordkeeping, and Recording
When you run your monthly reports, always run your average gift per donor, donor acquisition, and donor retention rates. Make sure your data entry is up to date. And make sure that you are comparing this year’s year-to-date to last year’s year to date. If you need to teach your board, executive director, or development committee volunteers what these rates tell you, then do it. Knowing these rates and basing your decision-making on them means you are relying on objective data, as opposed to what you think or feel. Using objective data gives you credibility and objectively supports the decisions you make. It is less risky than following an idea that has no basis in facts.
And if you notice substantial deviation in your trends, note why. For example, a change in executive directors often leads to poorer fundraising results. Or a recession hits and affects your donors’ ability to give. Or you have a fire, or a pandemic hits and operations shut down. On the positive side, maybe you made a change to your holiday appeal that resulted in higher average donations. You want to be able to go back and know what circumstances and/or interventions caused the deviations, good or bad. You want to be able to better for next time there is an unexpected change in circumstances. You also want to know what actions to continue or discontinue so that you can maximally, positively influence fundraising results.
Bringing It Together
Look at your average gift per donor trends. If you have a downward trajectory, change what you are doing. Invest in specific fundraising pursuits that raise the average gift per donor. Use a strengths-based approach when designing your fundraising interventions. Know when to retire specific fundraising activities. Focus on your efforts on donor retention just as much or more than donor acquisition.
Go ahead and run your numbers. See how much more money you can raise by investing in donor retention efforts as opposed to a heavier emphasis on donor acquisition. Tell me what your results are.