Building Donor Loyalty
If donor retention is so important to nonprofits, why are we not doing more to keep them?
by Adrian Sargeant
We continue to lose our donors at an alarming rate. When I last studied retention in the UK I identified that it wasn’t at all unusual for a nonprofit to lose 50% of its cash supporters between their first and second donation and then 30% year on year thereafter. I thought that was bad, but here in the US I discovered that initial attrition rates of 70% are considered acceptable by many organizations. Given that most nonprofits lose money on their donor acquisition activity, this increasingly leaky bucket is costing the sector dear. Even regular giving, where the economics are quite different, sees attrition rates of 30% from one year to the next as the norm.
No business would survive if it routinely lost 30% of its customers in this way, but does retention really matter in the context of giving? The available research shows that not only does it matter, it matters very much. A 10% improvement in loyalty can yield up to a 200% increase in the projected value of a donor base, as significantly more donors upgrade their giving, give in multiple ways, recommend others and ultimately perhaps, pledge a legacy/bequest. Given the scale of the opportunity, it seems timely to consider what we now know about the factors that drive donor retention.
Donor satisfaction with the quality of service provided by the fundraising team is the single biggest driver of loyalty. There are close parallels here with the commercial sector where? corporates discovered a long time ago that there is a world of difference between customers who indicate in customer satisfaction surveys they are very satisfied and those that indicate they are just satisfied. On average, across a whole range of different contexts, customers who say they are very satisfied are six times more likely to repurchase than those who are merely satisfied. In the context of fundraising the multiple isn’t quite so high but research still tells us that donors who are very satisfied are twice as likely to be giving next year as those who are merely satisfied.
The upshot here is that charities need to measure donor perceptions of the quality of service provided to them. In doing this it is necessary to develop a measure that is properly tailored to the organization. It will need to reflect the existing pattern of communication, the content, style and tone of that communication, the different ways in which donors can interact with the organization, the manner in which any issues or complaints may be dealt with and (in a membership context) perceptions of the package of benefits that may be offered. An aggregate satisfaction score can easily be created by calculating the average rating across all the various dimensions, or preferably by calculating the total score. An alternative would be to pose an additional question asking donors how satisfied they are overall. In this latter case, however, it would still be necessary to pose the additional questions, since there is otherwise no mechanism for determining how to improve.
More recent work has looked at the role of donor commitment in driving loyalty. Another piece of learning from the commercial world is that sometimes even very satisfied customers will quit. One day they will just decide to do business with someone else. What this tells us is that some customers will quit because although they are satisfied they lack commitment to the organization.
Commitment is defined as a genuine desire to maintain a relationship into the future. In the giving context it is a genuine passion for, or belief in what the organization is trying to achieve. It differs from satisfaction because satisfaction is an amalgam of past experience while commitment is a forward looking construct.
It turns out that in the nonprofit context there are actually two types of commitment, passive and active. Active commitment is the enduring passion for the organization just described. Passive commitment refers to individuals who continue their support not because they feel strongly about the work of the organization but because they feel it is the ‘right thing to do.’ The work doesn’t excite them, but they know it’s important. Passive commitment can also manifest in regular or sustained giving. Donors can look as though they are highly loyal, but in reality they are continuing their support only because they haven’t got around to cancelling, or had actually forgotten they were still giving. Quite a few nonprofits with regular gift programs will notice a spike in attrition immediately after sending out a mailing. What they’ve done through the communication is to remind some that they are still giving, and a small but significant percentage will rush out and cancel.
So how do we prevent this? In a large-scale empirical study I identified the drivers of active commitment as:
- Service quality – although satisfaction with the quality of service provided by the fundraising team has a direct impact on loyalty, it also has an indirect effect with favorable perceptions also driving the sense of commitment.
- Risk – donors who believe that if they cancel their donation, no-one will suffer harm as a consequence were found to be significantly more likely to lapse. To illustrate, if a donor is supporting a shelter for the homeless they are more likely to develop commitment if they forge a close link in their mind between their gift and the impact on the beneficiary. The stronger the belief that if they cancel their gift someone somewhere will be without a bed tonight, the more likely they are to develop commitment and through that, loyalty. By contrast, if they believe that canceling their gift won’t make the slightest difference to the work the organization does the less likely they are to remain loyal. Fundraisers can therefore think through the messages they use in their appeals and the way in which they thank donors, to engender loyalty. Thank you letters too can do a lot more than just acknowledge the gift, they can impress on the donor the difference their donation has actually made.
- Shared beliefs – Believing in the work of the organization is one thing, but altogether more powerful is convincing a donor to buy into its values. With many thousands of nonprofits all doing related things donors have a plethora of philanthropic options. The issue in loyalty is therefore not only what do they do, but how do they do it and with what in mind. In other words in building loyalty it is important to convince the donor not only of the quality of the work, but what the work will deliver for society. If a donor shares the vision of the world the nonprofit wants to see and shares the vision of how this world will be delivered he/she will be a great deal more committed to the organization. Nonprofits thus need to be clear about their beliefs and use all their powers of persuasion to explain why they hold the views they do.
- Learning – Donors who perceive that they are being taken on a journey that deepens their understanding of the organization and the work it is conducting will exhibit higher levels of loyalty than those who perceive only a series of transactions for a series of unconnected needs. Fundraisers should think through the journey that supporters will take as they deepen their understanding of the organization and the mission it is trying to accomplish. It is with good reason that some fundraisers now talk about planning ‘supporter journeys.’ Research suggests this is key.
- Personal link – For some causes some supporters will have a personal link to the organization. Many medical research charities, for example, gain the support of those whose life has been touched by the disease or disability. It is no surprise that the existence of strong personal links is a determinant of loyalty.
- Multiple engagements – This factor has two levels; one intuitive, one less so. The intuitive level is that donors who are also campaigners, who are also volunteers, who are also service users etc will be a good deal more loyal than those who are only one of these things. A good strategy is thus to encourage donors to support the organization in multiple ways. With the advent of the internet and e-mail this is now beautifully simple to accomplish and at almost zero incremental cost.
The second level is not so obvious. This work tells us that each time an organization has a two-way interaction with a donor it builds a little loyalty. This could take the form of a piece of research asking donors for their views. It might be offering them some choice over how they are communicated with (e.g. mail, e-mail, text) and how often. It might even be allowing donors choice over the content of these communications, allowing the donor to tailor them to their specific interests. Each time a donor has to think through a choice, or the provision of a piece of information they have to ‘rehearse’ in their mind the fact that they have a relationship with the organization. Each time they do this a tighter bond begins to evolve between them and the organization concerned. The increases in loyalty each time are not huge, but over time they can become quite substantive. Investing in an ongoing dialogue with donors is therefore a smart strategy to adopt. The more two-way interactions there are, the higher will be the level of loyalty achieved.
The final key driver of loyalty is trust. Donors who trust that the organization will have the impacts it says it will have on the beneficiary group will be significantly more loyal than those who lack this trust. The provision of regular feedback is therefore important in driving loyalty, as is being able to justify the pattern of performance achieved. In seeking to build trust organizations need to:
- Communicate the impacts achieved on the beneficiary group.
- Honor the promises, or rather, be seen to honor the promises made to donors about how their money will be used. Most organizations do in fact keep their promises, but if donors aren’t provided with evidence of this fact, their level of trust will not be enhanced.
- Being seen to exhibit good judgment and hence communicating the rationale for decisions taken by the organization in respect of its overall direction and/or the services offered to beneficiaries.
- Ensuring that communications match donor expectations in respect of content, frequency and quality.
There is therefore much that a nonprofit might do to build loyalty but until there is a radical change in managerial emphasis I’m less than optimistic that we’re going to see a meaningful improvement in our figures. It is well past time to follow the lead of our commercial counterparts and make loyalty the issue for managers to address, rewarding them not for the dollars or pounds they raise, but rather for the improvements in loyalty or any of its drivers, they are able to deliver.
Adrian Sargeant is Robert F Hartsook Professor of Fundraising at the Center on Philanthropy, Indiana University. He will be presenting a session entitled ‘How to build donor loyalty – new research that will drive your fundraising strategy’ at the 29th International Fundraising Congress in the Netherlands, opening today.
Copyright, The Resource Alliance; posted with permission.