For every $100 in new donations nonprofits gained in fiscal year 2014 over the previous year, they lost $95 in lapsed or reduced donations, according to a new survey.
While that 5-percent net gain in gifts is "disappointing," said Nathan Dietz, senior research associate at the Center on Nonprofits and Philanthropy at the Urban Institute, the news regarding donors themselves is even worse: For every 100 new donors gained in 2014, participating nonprofits lost 103.
Charities also were asked what percentage of their 2013 donors made repeat gifts to charities in 2014, and the median was 43 percent, the same as from 2012 to 2013. Or, as Mr. Dietz put it, "more donors leave than stay."
The study also reveals a large amount of "churn in the donor universe," Mr. Dietz said. "It’s hard to predict for any individual donor in general whether they’re going to be still on the rolls next year, donating money next year."
These poor donation- and donor-retention rates matter because it usually costs less to keep a current donor than to find a new one, the report says, so reducing these losses is the cheapest way to increase fundraising gains.
Penelope Burk, president of Cygnus Applied Research, which conducts the annual Burk Donor Survey, agrees. Her research shows that individual donors are giving to fewer nonprofits — although not necessarily giving less money over all. That means nonprofits that rely on acquiring large numbers of donors are going to find it increasingly difficult to make money from direct marketing or major events.
"Big efforts should go into assuring whoever we do acquire has the best possible opportunity to be retained long term," Ms. Burk said. "Getting them to give again and getting more generous gifts from people who do give again is where the most important money lies anyway."
Small Charities’ Challenges
This year’s Fundraising Effectiveness Survey, conducted by the Association of Fundraising Professionals and the Center on Nonprofits and Philanthropy at the Urban Institute, is based on results from 8,025 nonprofit respondents that use one of a dozen donor-software providers. The survey sample does not include many of the country’s largest charities, Mr. Dietz said, and the number of participating nonprofits has increased from year to year.
Last year’s 5-percent net gain in new donations was smaller than 2013’s 10-percent net gain. That’s the largest since before the recession but still well below 2007, which saw a net gain of 14 percent. Last year’s donor-attrition rate was worse than in 2013, when there was no net change.
The survey also found that growth rates varied by organization size. Charities that raise at least $500,000 saw an average rate of growth of 10.4 percent, while charities that raise 100,000 to $500,000 saw 3.1 percent, and charities that raise less than $100,000 saw an average loss of 7.8 percent.
Mr. Dietz attributes the difference to a disparity in fundraising resources.
Larger charities "have more resources they can bring to the task of trying to raise funds," he said. "I think small nonprofits tend not to spend too much time or resources or energy publicizing themselves; they focus on helping people and meeting community needs."
Ms. Burk says there is hope in the survey’s numbers: The percentage of donors who made repeat gifts to charities in 2013 and 2014 is the highest it’s been since before the recession.
"I can see that tide start to turn now, and that’s really great," she said. "There is potential to hold onto a much larger number of donors in the end."
Ms. Burk’s research indicates that retention boils down to three donor preferences: prompt, meaningful gift acknowledgements; opportunities to give to specific programs rather than unrestricted funds; and hearing reports about what their gifts accomplished. She advises against trying to retain donors by amping up the frequency of solicitations.
"Donors are migrating away from programs like direct mail because they look like they cost a lot of money," she said. "If you made a gift and got an appeal the month later and keep getting them every month, it doesn’t take long for you to assume that the entire value of your gift was swallowed up in the unnecessary solicitations that came afterward."
To make fundraising more effective, the report recommends that nonprofits make incremental increases to their fundraising budgets, measure the return on those investments by gain and loss categories, and make additional investments based on those results. Nonprofits can use the free Fundraising Fitness Test and Growth-in-Giving Report" available for download.
Although the high rate of donor turnover makes it difficult to discern giving trends, Mr. Dietz said, one lesson is clear: "Make sure you don’t neglect the people who have been there, who have supported you. They might not be there for you next year."