Nonprofit organizations are increasingly struggling to meet financial objectives in a more competitive marketplace. Donor retention and longevity are falling, forcing nonprofits to rethink their donor development strategies. Don Ryan, a longtime analytic consultant and strategist who works with organizations in the private, nonprofit, and government sectors, explains why an emphasis on experiences could be a way for charities to build trust, commitment, and long-term loyalty.
Transcript:
You're listening to see CX Pod by TTEC and the Customer Strategist journal.
Judith Aquino: Welcome to the CX pod. I'm Judith Aquino and today we'll be talking about nonprofit organizations.
The challenges behind things like donor retention and meeting financial objectives are not new to nonprofits, but increasingly there are trends that are undermining nonprofits abilities to raise money and expand their programs and services. Joining me today to discuss those trends and what nonprofits can do is Don Ryan an analytic consultant and strategist who has extensive experience in the private, nonprofit and government sectors. Welcome to the show, Don.
Don Ryan: Oh, thanks very much, Judith.
JA: So first, could you give me an overview of the nonprofit world and the changes that are affecting nonprofits?
DR: Sure. Just by way of background, I spent, early part of my career working in the nonprofit sector, back in the eighties and early nineties. And then I spent maybe two to three decades on the commercial side of the equation. And I'm now back consulting with the companies in the nonprofit world. And, so I'm seeing, these large scale trends that you alluded to in the beginning, but to answer your basic question, you know, the nonprofit sector in the U.S. Is really big, individuals account for about 70% of the $420 billion that are contributed to philanthropic organizations every year in the United States. And that number is staggering if that were, an economy, it would be the 26th or 27th largest economy in the world, which is pretty remarkable. In addition, about 25% of the population volunteer time during the course of the year.
And, various analysts have calculated that the value of that time approximates about $200 billion as well. So it's a big sector. It's growing very fast. Back about 20 years ago, there were 630, registered not for profit organizations in the United States. Now there are 1.8 million, so there's a lot more competition for the dollars out there. About two thirds of the U.S. Population contribute each year. But, one of the trends that we've seen is that number has been falling slightly. In fact, the last statistic I saw for the last 12 months is that it's under 60% now in the high fifties.
There are some other challenges that the non for profit sector is facing. In terms of just the competition for dollars, there has been a large growth in donor advised funds by organizations like fidelity investments and Charles Schwab, et Cetera, et Cetera, who are encouraging individuals like you and me to open up accounts and place, funds in those accounts in lieu of making immediate, contributions. And last year, almost $30 billion was added to those donor advised funds. Another trend that's very interesting is that crowdfunding is growing more and more popular and Americans, about 40% of the donor population have contributed to crowdfunding, activities. This is where people set up an account to contribute directly to some cause or individual they care about rather than contributing to an organization who will then, you know, use the funds. And that's also about $40 billion money stream, every year. So there's a lot more competition going on. There's a shift in the composition of the U.S. Population that's having an effect. Millennials and Gen Xers are now about one and a half times the size of boomers and, and seniors in the population. And those folks, and I can attest to this cause I have three daughters that are in that millennial and gen x category.
They have different views about not for profit organizations and how they want to interact with them. They're much more digitally oriented, so nonprofits have to be very sharp about their digital marketing and communication programs much more so than in the past.
In addition, and this was fairly disturbing, but, trust in the nonprofit sector is falling much like trust is falling in all major institutions that we're seeing in our society, whether it's the media, Congress, corporations, et Cetera, levels of trust in the U.S. Has fallen about nine percentage points in the last year to under 50%. And so people are a little bit more leery about which organizations they contribute to. Disturbingly, they, they don't feel, individuals don't feel that their attitudes around trust in these organizations is going to improve in the short term. So these are some of the headwinds that the not for profit organizations are facing. And as a consequence, they're beginning to see a decline in response rates to their promotions. There's lower retention rates of donors year over year. And as I may have mentioned earlier, volunteering, which is a big part of what happens every year is also been falling. So, you know, they're very definitely facing challenges that they didn't say five to 10 years ago.
JA: Wow and so in you're working in your research, are you seeing these changes impact a particular category of nonprofits in particular, say like, nonprofits that champion, climate change versus say, social good.
DR: Yeah, that's a great question. The data that I've seen, you know, hasn't shown any particular focus for those kinds of trends. You know, some categories are, suffering a little bit more than others, but by and large, there is generally a retreat in these kinds of performance metrics almost across the board. You know, education and religious charities are the largest out there. And people still contribute fairly widely to those human services and healthcare and, a few others. Environmental causes like you've mentioned are a little bit behind that, but everybody seems to be suffering a little bit. You know, from these symptoms.
JA: Right. So in other words, just modernizing a marketing campaign wouldn't be enough. What would you say are the fundamentals that need to be fixed?
DR: Well one of the interesting things, having been in this field you know, 20 to 30 years ago and then now stepping back into it in the last couple of years is that most organizations still use a metric called the donor lifetime value, much like consumer lifetime value as maybe the preeminent performance metric for their organizations. And you know, lifetime value by its name implies that donors are around for a fairly long time. Most of the organizations that, that are out there soliciting, support from individuals tend to lose money in acquiring a donor. So there's an investment that they're making in a donor to get that first gift to happen. And then what they hope is that in renewing that donor year over year, they'll make back that investment and obviously you know, improve the profitability of their programs and so forth.
And so there's this strong emphasis on kind of a longer term view of the revenue stream that comes from individuals. But unfortunately, the kind of sad facts are that the lifespans, of the donor, not so much, not their own, you know, chronological lifespan, but how long they stay contributing, is not that long. Actually a donor that contributes to a new organization, has largely gone inactive by the fifth year, post their first gift. In fact, most of them in the first two to three years have stopped contributing. You may have heard these statistics before, but only about, maybe, 30 to 40% of new donors actually contribute in the subsequent year after their first gift. So in order to fix this kind of longterm issue, organizations really need to pay much more attention to those types of activities that will expand donor lifespans increase the chance that donors that they've, you know, spent effort and money to acquire will be around contributing in the future. You know, it's not only that if somebody, stays another year, there's another year worth of giving from that individual. But what you see when you look at the donor basis for these various charities is that those people who are giving year over year tend to give more money year over year either because they give more frequently or they get larger gifts. So there's kind of a dual effect going on when you expand someone's lifespan as a donor with the organization. So what I've been talking to organizations about and the group that I'm working with right now do with their clients is we're spending a lot of time emphasizing the factors that really drive longer term relationships with donors.
And so there are a variety of factors building trust between the organization and the donor. And as I mentioned, you know, trust is one of those factors that's been falling of late. And when you build trust, and there are a variety of ways that that can be done and we can talk about that if you want in a minute. But if you build trust, then there's a greater likelihood that the donor will start to feel a more enduring commitment to the organization, that will help them contribute in a year over year type of fashion. And what we've found is that those organizations where donor commitment is expanding, it happens hand in hand with the number of relationships that that donor has with the organization. So think of a relationship as somebody makes a contribution there they have a donor relationship, but they could also be involved in the organization by volunteering for that organization.
Or they could be an advocate and write to someone in Congress about supporting important research for this, medical issue that they're concerned about. They can become a fundraiser themselves and organize activities in their communities to raise money. So there are many ways that individuals can get involved beyond just making a gift. And what we've found is that those people who have multiple relationships have a 50 to 100% greater likelihood of renewing year over year. Their lifetime value over a five year period is anywhere from 40 to 80% higher. So, with those kinds of positive statistics, the idea is, you know, how do we get people more involved in these organizations? It's not easy and not everybody has the time to do it. But, there are some organizations that do a nice job offering ways for people who are interested to get more involved in the organization.
And I think it behooves any charity out there to make it easier for folks to expand their relationships, have, you know, more extensive donor experiences, get more engaged with the charity. And, you know, some of these don't have to be, you know, committing time, like a volunteer. It could be simply like participating in online communities or, you know, posting a comment or sharing an important piece of information on social media. It could be, you know, liking some type of, event or comment that's been posted in social media. So, that's why, you know, I think the path forward for a lot of these organizations is to focus on donor experiences. How can we make them easier and more satisfying so that they lead to greater involvement and relationships with the organization. And then I think they'll begin to see these statistics which are weakening, you know, generally, reverse themselves and start showing a stronger performance, for the charity.
JA: Right. So what would you say is essential to building trust for with a new or first time donor?
DR: Right. There are a whole variety of factors that various researchers and psychologists have looked at in terms of, you know, how do you build trust? And there are some basic things like, you know, emphasizing, the organization's reputation and credentials. And a lot of organizations do that. Sometimes it's a matter of pointing out that other respected groups and foundations contribute to the charity as well. It certainly helps to be as transparent as possible about, the monies that are being brought into the organization, how they're being spent and what kinds of results they're getting from that spending in terms of progress on programs and various causes. Even just establishing a dialogue, being willing to have a dialogue with the, with the donor will build trust. And so enabling that to happen, whether it's, you know, through digital communications or other types of events that may be more in person, those ways are ways in which someone can build trust there. And then the organization, obvious self has to you know, demonstrate, that it's very competent in the kinds of activities they're involved with, that they're adhering to certain set of principles that, you know, you believe are trustworthy that the, the quality of the products and services they provide are, you know, high, etc. And, and that they are, you know, using good judgment. They're doing the right thing. They're doing that proactively. They're staying away from anything that would, you know, cast a, a shadow on any of the work that they're doing. So, that's, you know, that's what sort of organizations can do. And then, as I said, you know, individuals can then feel more comfortable about expanding their relationship with that organization.
JA: Right. And I also wanted to ask you about making improvements from a data insights perspective. What's your advice for a nonprofit that I'm guessing could, benefit from greater insights or more maybe more powerful tools?
DR: Absolutely. And, and actually you, you've, really hit upon one of the major challenges for these organizations is I see them you know, having just spent, the better part of two decades in the commercial world where there's been massive investments in, in data accumulation integration and, really activating insights that are gained through the analysis of that data. The nonprofit world is definitely lagging behind, you know, the commercial sector, in terms of being able to bring disparate kinds of data together, whether they're attribute data about the donors, whether it's unstructured data that they might be collecting in surveys, or in chat sessions that they may be having or even phone calls that they might be having with, with an organization. So I think in order to understand better who the donors are, what their behavior is, what their preferences are in terms of how they like to be interacted with, the kinds of communications that they respond to.
There has to be greater investment in the kind of core data repository within these organizations. And that's a big challenge because, you know, obviously their main objective is to raise as much money as they can that can then be poured into the actual programs that they're running. And they're oftentimes on how well they're doing in that and what the cost of fundraising is. So the more money that they divert towards a kind of internal investments that may make some of their statistics look less favorable to the outside world. But I think it's really incumbent upon them to try figure out ways of not only bringing together various silos of data that might be forming within their own organizations, but, you know, experiment with obtaining outside third party data, which is, you know, done very frequently in the commercial world. Or as I mentioned, trying to integrate some of this new type of unstructured data, or at least mine that in a way that they can understand, you know, what's the chatter out there? What are donors saying about our organization? What do they seem to like, what are they are disliking that maybe we can, we can attend to and you know, so that's kind of the first step is getting that data repository there and then obviously applying various analyses and modeling exercises and other types of things that are being done widely in the commercial world to mine that information, looking for insights that will enable them to have a more personalized and relevant experience with their donors.
JA: And with that in turn lead to more targeted I guess outreach efforts or what, what would you say in terms of how this data could be used? Like how, how would it create a better experience?
DR: Right. Yeah, that's a great follow up. You know, when you think about it and you know, I give to a handful of charities every year. In fact, the average American gives to about five charities a year, so I'm kind of right in that range. But when you think about interacting with the charity for the first time and you make a gift those first interactions that you have with the charity in that, let's call it the onboarding stage, are very, very important and can either put you on the right path or maybe the wrong path for this longer term trajectory that you're hoping that the donor will have with you. And you know, what most of us experience, and Judith, you've probably experienced this as well, is that oftentimes the first thing that happens after you make your first contribution is that you get another solicitation.
And it comes very quickly. And that's because, you know, people have learned over time that it's easier to get a second gift from a donor than it is to acquire a new donor. So, what ends up happening over time is that the existing donors start getting solicited more and more heavily. And, it's not uncommon to see organizations that, that contact, whether through direct mail or now through email or other means. They could be contacting their donors, you know, anywhere from 16 to 24 times a year. Now, I don't know about you, but that's not necessarily the kind of relationship that I want to have with an organization. You know, I make a contribution and in return I get solicited 24 times a year. So I think the extent to which data can be used to help understand what is the kind of optimal, contact strategy that you have with a donor.
Can we eliminate some of this over solicitation and really figure out ways in which we can, have a meaningful interaction and dialogue with the individual rather than kind of burning them out through a lot of solicitations that are unnecessary and just, you know irritate people rather than make them feel good about the organization. And you know, I've seen programs, in recent years where in some cases donors are being asked by the charity, how often would you like to be contacted or they will plan their solicitation cadence around the actual giving history of the donor. So, you know, looking back and finding out that, oh, Don Ryan contributes in October of every year, then maybe we should solicit him around that time of year when he tends to give and reduce the amount of times or maybe eliminated entirely the times we contact him in other times of the year.
So, there are certainly a variety of tests that can be done coming out of the insights that you see on what are people's patterns of giving that will help you do a better job. Allocating the marketing resources that you have in a way that will not only optimize, you know, net revenue but improve the experiences for the donors. So they feel like, they're not being put out by getting asked for money constantly.
JA: So knowing your customer in other words is key.
DR: Yeah. And you know, you can use the data to find out what, what types of solicitations do they tend to respond to? Are they, programs that involve expanding research in a particular area? You know, maybe you're supporting a health charity and you're really intent because maybe you or somebody in your family or somebody that you know, has, contracted a disease, and you feel very strongly about wanting to support research.
So you could look at the way people are responding to these solicitations and say, well, you know, Judith likes to respond to these types of communications, so let's aim those kinds of communications towards her and less about some other programs that we're doing here. You know, outreach programs or some other things like that. So there are many ways that you can dig in and find out clues around how people are preferring to be contacted. But again, you have to have the data together. You know, unified around a particular donor record to see how they're responding to these different contacts which ones they don't respond to and how you can drive larger gifts with them over time. You know, one of the things too that, that some people prefer is just, becoming a sustainer or somebody who's a repeat donor.
And, oftentimes when you give the individual the option, they might decide, you know, I think I'd just rather give a smaller amount of money, each month, and not be solicited than to give a larger onetime gift. And obviously those people who are on that kind of recurring giving, there's a natural built in tendency for them to become longterm donors. And there are obviously lots of evidence around the fact that sustainers or monthly givers do indeed stay with an organization for a longer period of time.
You know, ultimately what you're hoping is that there is a strong, you know, useful relationship that you have with the donor. And then maybe down the road, that donor would be receptive to a major gift solicitation or to leave a bequest gift, you know, a legacy gift in their will or at the, you know, at the end of their life. So, I think those organizations that can take the longer term view that they are building a relationship that they want to exist over time, you know, will end up performing better and it is a manner of matter of understanding. Really at the individual level as best you can. You know, who am I dealing with? What types of, capacity do they have to give how can I best interact with them to make this a good experience for both of us?
JA: And it's interesting, the parallels between the I guess movement towards customer experience transformation and the donor experience transformation. That really sounds like they're one in the same.
DR: Yes you know, there's lots of commonality there, which, you know, I feel excited about because a lot of these approaches have been proven and refined in the commercial world. And the fact now that I'm kind of stepping back into the nonprofit world makes me hopeful that these organizations will be able to benefit from what has been experimented with, in the commercial world to improve their own programs. And there are certainly, you know, definitely signs of that. I think people, are, you know, being much more cognizant, of donor experiences. There is a growing literature around, this whole area. And, you know, it's not only the organizations themselves that are doing that, but there's quite a widespread, literature, coming out of the academic community and other foundations that are looking into these issues.
And you know, happily what we're seeing is that for those organizations that can establish these types of, relationships with their donors, that there is the financial payoff. Because, you know, one thing, and I think you alluded to it at the beginning of this conversation, there is a attention that you run into with a nonprofit organization that maybe you don't as much in the commercial world. And that is, you know, they have very immediate needs to fund programs. And are very careful about diverting any kind of money away from programs in the present time. They, you know, the folks that run these fundraising activities, they have targets that just like anybody in the commercial world. So, this kind of an approach, this kind of longer term view has to work not only in the short term, but also in the longterm. So there's a balance that goes on there between, you know, proving that by making some of these investments in donor experiences by improving the kinds of, information that they have, around donors that, that will pay off for them and make that investment justifiable.
JA: Thank you so much for sharing these insights with us.
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