After 43 years in direct-response fundraising there’s one thing I will never understand.
When times get tough, why do nonprofit boards and executives cut – and sometimes even stop entirely – their investment in new-donor acquisition?
I’m revisiting this question today because 73% of charities worldwide say they’ve seen a decline in revenue during the COVID pandemic. And, just as we’ve seen in previous times of crisis, some nonprofit leaders are voicing their support for cutting acquisition.
Obviously, they think they are saving money.
In reality they are costing the organization enormous sums over the long term. How so?
Consider this analogy.
Imagine you are the national sales manager of a commercial company selling widgets. You have 500 salespeople across all 50 states. They are responsible for driving 100% of widget sales and for growing market share.
Those sales are the very lifeblood of your organization. You live or die by your sales force.
Now, imagine sales slump a bit (or a lot) in one year. Your cost of sales goes up. Profits erode. What do you do?
Eliminate or reduce your sales force, of course!
You save costs, which bumps profits – for a little while, anyway. And besides that, sales is kinda tacky. I mean taking clients to dinner, entertaining them, pretending to like them. It’s almost embarrassing. There’s got to be a better way.
You laugh because it’s absurd.
But the equivalent happens all too often in the nonprofit sector for one simple reason.
Because nonprofit boards and top-level leaders almost always have to focus more on reducing short-term costs than on long-term benefits.
Of course, nonprofits don’t have literal salespeople in the field – unless you count major donor or planned giving representatives.
Instead, many nonprofits acquire donors through the mail and online.
Every direct mail package to a prospective donor’s home and every banner ad leading to a landing page and a donation form is the equivalent of a salesperson. The letter, the enclosures, the photos, the call to action all make the case to the reader to “purchase” a share in the nonprofit’s mission through their donation.
Cut your new-donor acquisition, and you fire your sales force.
You’ll save money now, but you’ll create a lose-lose-lose proposition later:
- You’ll lose the influx of new donors now
- You’ll lose annual gifts in the following year
- You’ll lose legacy and major gifts years down the road
The American Cancer Society (ACS) presents the biggest cautionary tale against cutting acquisition.
ACS chose to scrap their direct mail acquisition program in January 2013 as they focused on major donors and corporate giving. It took 18 months to change course and restart direct mail in June 2014.
Over the next five years, that catastrophic decision cost ACS a projected $29.5 million in revenue.
“It’s tempting to look at things through a one-year lens, but the runway for direct mail acquisition is much longer than that,” Catharine Holihan, Managing Director, Direct Mail and Marketing Operations at ACS, said during a 2015 DMA panel discussion.
With tightening budgets and a recession on the horizon, today’s successful nonprofit organizations will be the ones who use data and analytics to take a smarter approach. For acquisition, this means targeting the right donors who will renew to your cause and grow your year-over-year net income.
Acquiring the right donors results in better renewal rates, bigger average gifts, higher long-term value and increased donor migration to mid- and major donors.
It’s not easy. It takes time, testing and targeting. This optimized approach to acquisition ensures you bring in the best donors at acquisition and leverage every dollar spent on future donors.
Tough times are coming, if they’re not already here for some nonprofits. You may be tempted to make a hasty decision to save some money.
But – and I can’t stress this enough – cutting acquisition is a terrible idea. It’s a short-sighted solution that creates major problems down the road.