Why Your Nonprofit Should Make Advanced Donor Segmentation a Top Priority

By eleventy marketing group

Advanced Donor SegmentationRecently, our own VP of Strategy and Development Angie Moore was one of the speakers on the NonProfit PRO webinar, “Power Targeting: Segmentation Strategies That Raise More Money”. In the webinar, Angie and other nonprofit experts discussed ways to amp up fundraising appeals and increase donations through power targeting.

In today’s post, we’ll look at some key takeaways from Angie’s presentation on why you should make advanced segmentation a focus of your strategy moving forward.

Opportunity Knocks: Is Your Nonprofit Answering the Call?

For nonprofits of all sizes, the opportunity for growth is there. Americans are giving at high levels—and it’s not just major donors either. A lot of regular U.S. consumers are giving mass-market average gifts every year.

The number of nonprofits in the U.S. has also been growing every single year. That’s a good thing. That means that charitable giving is returning to a comfortable place.

  • Over 1.5 million nonprofit organizations in the U.S.
  • Americans donated an estimated $358.38 billion to charity in 2014
  • 72% of charitable giving comes from individuals

The Risks: Retention Remains a Major Hurdle to Nonprofit Growth

“Nonprofit revenue has become somewhat unpredictable,” Angie said in the webinar. “That means that we as nonprofits are not doing the best job possible at reaching donors at the right time with the right messages in the right channel.”

A big part of that has to do with donor retention:

  • Retention rate for first year donors is 23.7%
  • Retention rate for multi-year donors is 58.4%
  • The cost to acquire a donor can be $30-$70
  • $25 billion in donors that are not loyal to a nonprofit and switchable to another charity

“If you think about national statistics and the amount organizations spend to acquire new donors, the fact that three out of four are walking away is inherently a problem,” Angie said. “We’ve got to get better at talking to our donors with the right messaging, putting them in the right segment, and creating that best experience for them.”

Advanced Segmentation and Meeting Expectations Are Key

“A lot of people talk a lot about retention. But perhaps our focus has been on the wrong area. If you look at the pyramid (below), I think most of us spend the majority of our time in the bottom of this pyramid,” Angie said.

Donor Retention Pyramid

“In my opinion, probably the two biggest areas of influence and impact for retention are in segmentation and really focusing on what are the expectations of our donors and our members. Yet it’s the smallest amount of time that we spend in that area. To me that is an opportunity for advancement.”

Driving greater retention happens through:

  • Targeted messaging
  • Informed cadence and scheduling
  • Integration of channel plans
  • Optimized segmentation
  • Managing the donor experience & expectations

Looking at ALL the Data to Create New Ways to Group People

RFM (recency, frequency, monetary) are three data points that are always going to be important. They represent what a donor, member or volunteer has done in the past with your organization. But that’s not enough anymore. It’s an important part of the formula, but it’s no longer the entire formula.

Donor Segmentation Advances

“What we have to do as an industry is we have to push ourselves outside the comfort zone. We have to be as informed as possible. Being informed about what someone has done in the past is not the full picture. We have to be able to add all the data points.

How would you group people in similar ways outside of the fact that they might have given in the past 12 months and they might have given 2-3 gifts and they might have given in the $20 range? How would you group people based on their attitudes, personalities, how they feel about charitable giving, and what their interests are?

Some of this comes from asking your donors. Some of this comes from getting external data and applying it to your segmentation. The goal is to say here’s what they have done and here’s who they are as people, and how do we look at all those attributes together to find a new way of grouping people together?”

  • RFM is not enough—and hasn’t been for a while
  • Applying data is critical
  • It is about being informed as possible
  • Success is based on digging deep and doing more than just counting numbers and analyzing behavior

Progress Has Been Made… But There’s a Long Way to Go

While nonprofits are making advances in the areas discussed above, there’s still a lot of work to be done. These statistics illustrate the strides that have been made and where we still need to see improvement:

  • 2015 NP Communication Study: For the first time in five years, donor retention has jumped ahead of donor acquisition as a major communications goal. The number of nonprofits saying donor retention is a top goal rose from 30% to 53% for 2015.
  • Abila 2015 Donor Engagement Study: Only 52% of donors feel that their top charity takes their preferences into consideration.
  • IBM Big Data Study: Every day we create 2.5 quintillion bytes of data—with 90% of that coming in the last 2 years. Yet many nonprofits still resist using external data sources to enhance their segmentation.
  • Money for Good 2015: A $47 billion opportunity exists to increase and shift charitable giving IF we better understand donor preferences and interests. Yet nonprofit leaders still debate the value of market research.

While it’s great that 80% of organizations are using donation amount data, the problem is all the tiny numbers inside the red box below. They show how important aspects of segmentation like interests, demographics and channel preference (where people are actually engaging with your organization) are being overlooked.

How Nonprofits Are Using Data

Using Advanced Segmentation to Drive Revenue and Retention

The commercial world has done a phenomenal job using “power targeting”. They can’t get their hands on enough data. They’re creating really segmented experiences based on interests, preferences, etc. Problem is, this has created an even bigger gap between what the everyday consumer has become accustomed to and what they’re experiencing with nonprofits.

Today’s donors want nonprofits to:

  • Know me, remember me
  • Have a dialogue with me
  • Offer me things that are of interest to me
  • Recognize the value of our relationship
  • Recognize the value of my past behavior

Preferences, expectations and segmentation must be a priority for your digital and direct mail marketing and fundraising

Moving forward, make sure as you think through your segmentation strategy, you are discussing preferences, expectations, interests, and all the things that need to go into a deep-dive segmentation strategy to drive more revenue and improve retention.

the two biggest areas of influence and impact for retention are in segmentation and really focusing on what are the expectations