As development professionals we are asked to raise funds and build relationships with donors. We do this and then some. We create strategies, work with boards, cultivate a presence in the community, and many other things.
One of the areas where we fall short is measuring results. I know we have reports of total giving, expenses and net income. We also have direct response firms that have taught us how to track a direct mail appeal, newsletters, and other mailings.
But I am not sure we are as good at analyzing a strategy and determining the ROI for each strategy. The ROI is the Return On Investment. For every dollar we invest, how many dollars come in?
While there are many formulas, ratios, and other measurements to consider, I would like to offer some basic targets for our development strategies. I will also try to give some examples to support my claims.
I will be using my Development Strategic Planning by Relationships model for measuring purposes. (After all, it is MY eNewsletter :-) )
Let s start at the bottom of the donor pyramid with New Donors. These are first time donors brought in through acquisition strategies. Some acquisition strategies use rental lists of names and send a direct mail appeal, placing an ad in a newspaper or other newspaper type ads, first time attendance at an event, or from a sign up at a speaking engagement.
As you plan ROI for New Donor acquisition you should project a 1:1 ratio. In other words, you should plan to break even when you add a new donor. It is expensive to find a new donor. Years ago a ministry could make a profit on new donor acquisition. Today it is best to plan on not losing money, rather than making it, one of your strategies.
The next category up the pyramid is Impulse Donors. These donors do not plan when or how much they will give. The strategies used with them are direct mail appeals, newsletters, and special events. Due to the randomness and expense of both mailings and special events, you should project your ROI to be from 1:2 to 1:4. Some special events (galas, etc.) have 50% fundraising costs. Direct mail expenses range from 25% to 30%, thus giving you a 1:3 or 1:4 ratio. So in the best-case scenario, when you send out a direct mail appeal, for every dollar you spend you hope to bring in 4.
The Core Donors (monthly partners) is the next level moving up the donor pyramid. If a well-executed program has donors giving monthly through EFT, credit card, and website, the expenses are low and the pledge fulfillment is very high. (100% in fact!) If you are still sending monthly reminders by mail every month, your expenses are a bit higher and pledge fulfillment a bit lower.
Still, the ROI for Core Donor programs should be from 1:10 to 1:50. This is due to the systems driven aspect of these faithful donors who do not need any frills or fancy correspondence.
The final category, Major Donors, has the best ROI of all. As you may know, you spend more money on a major donor. You might take them to lunch, buy them a book, or even spend more on printed communication for them. But even with those expenses the ROI should be anywhere from 1:50 to 1:200. And you can go even higher when going beyond annual gifts for current ministry needs (i.e. campaigns).
When you look at a comprehensive, integrated development strategy, you can see that if you do not have strategies for all four relationship groups your ROI can be very imbalanced and present a poor fundraising percentage. Organizations who have depended only on direct mail and special events find higher fundraising percentages which donors now look at more often than in the past.
Knowing your ROI as a development leader for your ministry is critical. It is also a great way to bring development strategy and analysis into the picture for overall strategic planning. The best way for the other leaders in the ministry to understand the role of their donors is to demonstrate that we can analyze our development strategies and present accurate measurements as our contribution to the overall stability of the ministry.
Begin to learn your development ROI and you will find it will be an added tool for your ministry leadership!
Till next time, John Dr. John R. Frank, CFRE
Till next time,
Dr. John R. Frank, CFRE