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Fundraising communications: Cost or investment?
Tom Ahern

October, 2007

"Dear Desperate Newbie" wants to know: Who's right, my executive director or me?

This issue of my e-news inaugurates a new feature: the advice column. Think of it as kind of a Dear Abby-ish thing for fundraising communicators. I field a couple of dozen queries a month anyway. Let's share some of the answers.

Our first correspondent faces an all-too-common challenge: An overseer (executive director, finance officer, board member) who hopes to trim the cost of fundraising but lacks professional knowledge of how fundraising works.

"My executive director wants to slice our donor database into two tiers," this fundraiser explains. "One tier will be donors who give $250 a year or more. The other tier will be donors who give less. Those in the higher tier will continue to get our newsletter and a personal thanks. Those below $250 get nothing but a form letter acknowledging the gift. I'm sure this is a bad strategy, but I'm new to the job, and she's determined. Any advice?" Signed, Desperate Newbie.

Dear Desperate Newbie: You're not alone. Nonprofessionals often look at the expenses associated with fundraising as mere costs. And mere costs need to be controlled, reduced, or even eliminated if possible. Costs are bad. Cutting costs is good.

That view isn't wholly wrong. But it is inadequate, because fundraising expenses are also investments.

Yes, on an income-and-expense statement, fundraising expenses appear as costs. The conventions of accounting treat the paper and postage for your donor newsletter no differently than the electricity that keeps your computers humming.

But this superficial view misses a lot. Fundraising expenses are also your organization's long-term investment in donor loyalty and support. Investing a dollar wisely today in fundraising activities can yield hundreds, thousands, even millions of times that amount as the years pass -- a promise that spreadsheets and accounting conventions can't capture.

Here's a quick real-life example: a community foundation that risked $20,000 in a direct mail "friend-raising" campaign. Friend-raising is a precursor to fundraising. Friend-raising brings onto your mailing list people with an interest in philanthropy, so they can be cultivated over time.

Trust me: this was not an easy decision for the foundation's leadership. They jumped into unknown waters. Staff was unfamiliar with direct mail, a demanding specialty (they hired a consultant). They had never spent anything close to this amount on any kind of targeted marketing. In fact, their own experience with other forms of advertising had been extremely negative: they'd run what are called "image ads" for years, without any detectable result.

Yet, within a year of launching the direct mail program, a first gift of many millions had arrived; and other large gifts are in the pipeline, also as a result. To accounting, that $20,000 was an expense, pure and simple. To fundraisers, that $20,000 was an investment -- and it paid off big.

Getting it all wrong

Let's return to Dear Desperate Newbie. She has a problem. Her ED wants to set the bar at $250. What's wrong with that? Let's count the ways.

Wrong Way #1: The figure is arbitrary and unrealistic.

Why choose $250 as the magic number? Was some careful cost-benefit analysis done that proved every donor beneath $250 was a waste of time and money?

Unlikely. The average annual gift for U.S. charities, tossing every type and size of organization into the same pot, is probably no higher than $50. I know one national health charity that raises hundreds of millions with average annual gifts of just $12 per donor. Rarely in my workshops do I encounter a local charity receiving an average annual gift higher than $75; most are beneath $50. Baseline: $250 annual donors are few and far between. Which I suppose is exactly the ED's point: she wants to send out 20 newsletters instead of 2,000.

Which brings us to Wrong Way #2: Cultivation is for everyone, not just "major" donors.

To misquote Stephen Hitchcock, from his most helpful book on direct mail fundraising, Open Immediately!

(I am writing this in Bermuda, so I don't have his book handy. I've just attended the Centre on Philanthropy's first "Third Sector Conference," one of the most extraordinary experiences of my career. Every speaker and every attendee focused on one thing: this island nation's unique and serious issues. This was the Bermuda you don't see from a cruise ship: as in other presumed-to-be- paradises, there are potentially explosive social problems behind Bermuda's palm-and-pastel image of stability and riches. And it wasn't just the usual suspects attending: fundraisers and consultants. Participants included donors, board members, executive directors and other staff, plus government representatives up to the highest level: challenging, questioning, questing, planning, and interacting.)

Oh, right, the misquotable Mr. Hitchcock. After many years in fundraising, working for one of the world's best fundraising shops (Mal Warwick and Associates), he came to this conclusion: acquiring a new donor, no matter what size the initial gift, was worth whatever it cost.

His observation: you just never know where this new donor might end up, a view echoed by researcher Adrian Sargeant, who believes fundraisers would do far better by concentrating on a donor's "predicted Lifetime Value" (LTV) rather than "what did you do for me lately." [Lusting for insight into donor retention? Read Sargeant and Elaine Jay's authoritative book, Building Donor Loyalty.]

That's what things like newsletters, and a sophisticated "welcome and thank you" program, are for: retaining and cultivating donors.

A cost-cutting measure that restricts reporting on results and reserves simple courtesy to only those donors willing to ante up at least $250 should come in a bottle marked with a skull and crossbones. Because that measure, all by its lonesome, will poison any chance of a successful fundraising program. Slowly perhaps, but surely. (Dear Desperate Newbie: There's your answer.)

Doing it the right way

Let's be clear on the purpose of a donor newsletter. It has three jobs.

Job Number One: To report to donors on a regular basis what you've achieved with their gifts. A newsletter answers questions like these: "How did my gift to you help change the world?" Donors don't want to know about staff hiring and the weird name of your new program. They want to know about results.

Job Number Two: To convince donors that they are crucial to the mission. To say to them over and over, in whatever words and ways you can, "With you, this organization can do amazing things. And without you, we can't. You're essential." This is what's called "donor-centrism."

Job Number Three: To let your supporters know about your needs. A good donor newsletter is a balanced blend of accomplishment, donor-centrism, and need.

Now let's be clear on the purpose of thanks: It's NOT triggered by the size of a gift, it's triggered by ANY expression of support for your mission. Your thanks is social glue: it helps bond the donor to your organization. A thankless charity has no business in fundraising, because it is shooting itself in the foot.

Unbeknownst to them, I test my clients. I send them a small gift under another name, to see how they treat me as a new donor. Sorry to say, the welcomes and thank yous I get, if I get any at all, are almost always poor-to-mediocre.

Every new donor is a cause for celebration. Let's not forget it.

Tom Ahern is recognized as one of North America’s top authorities on nonprofit and donor communications. His "Love Thy Reader" workshops win rave reviews at fundraising conferences across the U.S. and Canada. Tom's workshops have trained thousands of nonprofit staff and board in the revenue-building secrets of psychology, marketing, writing, and graphic design. In 2005 he joined other world-class experts as a faculty member for the IFC's weeklong conference in the Netherlands, attended by fundraisers from 80 countries. He is the author of The Mercifully Brief, Real World Guide to Raising More Money with Newsletters Than You Ever Thought Possible, released in October 2005 by Emerson & Church. A second book titled How to Write Fundraising Materials That Raise More Money. John Wiley & Sons, the premier publisher of books for the nonprofit industry, in January 2006 contracted with Tom (and his wife, consultant Simone Joyaux) to produce a new book with the working title, Nonprofit Fundraising Communications: A Practical and Profitable Approach. Tom is also an award-winning magazine journalist, for articles on health, women's rights and other social justice issues. Visit www.aherncomm.com.



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