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Say goodbye to premiums and hello to higher net revenue

I’ve often said that getting people to give to a charity is one of the toughest sells anyone can make. That’s because you’re not offering a product or service—you’re selling a feeling.

Sure, plenty of retail brands sell a feeling. Apple sells simplicity and style. Mercedes sells luxury. Nike sells success. But at the end of the day, you also go home with a phone, a car or a pair of shoes.

In the world of philanthropy, you’re convincing someone to part with their hard-earned money, and all they get in return is the idea that they made a difference, that they did something right.

That’s why some nonprofits provide a physical item—or premiums as we call them—in return for a donation. These can range from stuffed bears to tote bags to calendars and everything in between.

Premiums can be a valuable tool in acquiring donors, but they can cause trouble down the line in your fundraising program. Not to mention how expensive they can be in general.

We’ve found that premiums can distract from an organization’s true mission and lead to more one-and-done donors. In fact, our research shows that mission-based donors—those acquired without premiums—have higher retention rates, and their long-term value is roughly double premium-based donors after four years.

Tips on moving away from premiums

The problem is, once your organization starts offering premiums, it can be difficult to stop. That’s why I’m here to share a few tips on how to move an acquisition program away from premiums.

1. Take your time

Rome wasn’t built in a day, and you can’t simply switch off premiums without harming your direct response program. Make a gradual shift toward higher-value supporters in acquisition as you reshape your core donor file over several years. It’s worth it in the long run.

2. As acquired, so retained

Likewise, those donors who have been acquired through premiums can’t just be shut off cold turkey. Keep your renewal program in place for these legacy premium donors as you slowly shift directions in acquisition.

3. Focus on long-term net

RKD Group developed our proprietary long-term net (LTN) analysis to measure and uncover the net value of a donor five years from the point of acquisition, looking beyond the initial ROI at first gift. The primary goal of LTN is to assess the cost to both acquire and renew donors, which lets you invest more wisely to achieve a higher net return.

4. Test, test and test again

As with any change to your direct response program, you should test. This goes hand in hand with “taking your time,” but it’s critical to point out the intentional effort you should put into testing new creative and messaging.

With a dedicated, methodical approach that focuses on these four aspects, you can reshape your donor file and grow your net revenue as you move away from premiums. But I’m not just going to tell you about it—I’m going to show you proof in action.

Success in shifting toward mission-based donors

One of our clients, a national health and disease organization, wanted to move away from premiums starting in FY11. Over the next decade, we slowly shifted their acquisition program toward mission-based donors.

So, how did we make this shift? Data and analytics played a critical role:

  • Investment in co-ops: Cooperative databases (better known as co-ops) are a valuable tool for acquisition because they give you access to highly customized and valuable donors. Co-ops are consumer databases built from direct-response transactions, and many nonprofit organizations contribute to them. (Learn more about co-ops here.)
  • Predictive modeling: Our analytics team developed customized models based on core donors already on file. Then we used these models to reach audiences with similar behavioral and demographic traits.
  • Multivariate testing: The standard approach to testing is slow and methodical—make a small change, test against the control, evaluate, rinse and repeat. Multivariate testing uncovers the optimal combination of elements among a variety of attributes—all at once. This process can essentially allow you to test 32 different mail packages for the price of 8.

Over time, these changes led to tremendous success in acquiring high-value donors and boosting net revenue.

In this chart below, you can see that the number of donors for our client grew by 15.3% from FY12 to FY21. Yet the growth in gross (113%) and net (227%) revenue soared during that time as we moved away from premiums and toward mission-based donors.

This speaks to the cost efficiency of volume vs. value. Premiums are great at bringing in lots of donors, but they’re not as efficient in renewals over time.

But don’t abandon those legacy premium donors!

There is one caveat to note here: Don’t give up on those legacy premium donors as you make this change. Remember, these are the donors who had previously been acquired through premiums and who must still be retained with premium strategies.

Legacy premium donors can be highly valuable and efficient to cultivate into larger gifts. Our health and disease client saw a group of legacy premium donors that was mostly women over age 65 who were highly educated and preferred direct mail.

As you can see in the chart below, these legacy premium donors consistently made up the majority of this organization’s planned giving revenue:

There is a strong case to be made for moving away from premiums in acquisition. With a dedicated, disciplined approach, you can reshape your fundraising program with a more sustainable foundation built on mission-driven donors.

Believe me—it’s worth the effort.

Andrew Laudano

Andy Laudano has more than 25 years of fundraising experience working for both agencies and nonprofit organizations. As Senior Vice President, Client Service, at RKD Group, he manages integrated, multichannel direct response fundraising programs for large, national organizations and regional nonprofits. Andy speaks frequently at DMA Nonprofit Federation and AFP Conferences, the FundRaising Success Engage Conference and webinars, and has served on the education committees of the Bridge Conference and the DMA Nonprofit Conference.

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