The meeting started out negatively, when the finance person said that a personal donor relationship doesn’t really count – it doesn’t positively affect the retention or contribution of that donor.
Now to be fair, he didn’t exactly say it that way. What he said is that the investment in an MGO was not worth the result in revenue in the first two years of the MGO’s tenure – and that those donors were better off just being communicated with by direct mail.
Here’s the logic of this finance person’s argument:
- The new MGO’s caseload will be a group of qualified donors who gave, let’s say, $300,000 last year.
- The current cost to “service” those donors, via direct marketing with all costs in, is $75,000 – or a return on investment (ROI) of 1:4. (I am being generous with that ROI. It is likely 1:3.)
- Now we add in the MGO’s costs: salary, benefits and operating costs. Let’s put the annual cost of this MGO at $100,000 and let’s leave the donors IN the direct marketing communication, because we do not want to change any current communication strategy until we have a for-certain replacement.
- Now the total cost to service these donors is $175,000 which, from the finance person’s point of view, just worsened the ROI to less than 1:2. $175,000 to secure $300,000.
This is what is in the finance person’s head. No wonder he’s questioning the investment!
But here are the facts.
That $300,000 from the group of qualified donors last year? It will only be $150,000 this year, if these donors are left in the direct marketing program. Value attrition will take that big a bite out of the revenue. It could be less than that, but, regardless, it will be substantial.
But with the MGO in place, personally relating to these donors, that $300,000 from last year will likely only drop to $270,000 in a worst-case scenario. This means that the value RETAINED by the MGO is $120,000 more than it would have been with just a direct-response strategy, which is $20,000 more than the average first-year cost of the MGO! Even if the value attrition is not as high as my estimate, the value of the MGO relating to the donors and positively affecting donor retention and value retention IS worth the expense of the MGO.
The interplay of fact versus fiction in this area is widespread in the non-profit community, which is why Jeff and I write and speak about this often. The fact is that donor relationships DO matter in fundraising, and major gift programs that are run well ARE economically profitable.
Here is why major gift fundraising must be centered on the donor relationship:
- Donor attrition and value attrition from the same donors is at an all-time high. All of the research points to this fact. Value attrition (for most non-profits) is usually in the range of 40-60%. This means that a group of donors giving $100,000 last year will give only $40,000 to $60,000 this year.
- Qualified donors on MGO caseloads have value attrition (if any) of between 6-11%.
- As donors on MGO caseloads mature, they upgrade their giving, contributing more net value than they would if they stayed in direct marketing programs only.
- A few donors in every MGO’s caseload will give transformational gifts if the MGO and the organization properly align that donor’s interests and passions to a need that the organization is addressing. These transformational gifts will begin to happen from year 3 and onward in the life of the relationship between the donor and the MGO.
These outcomes are only possible when the MGO is relating personally to the donor and helping them express their philanthropic objectives. ROI increases substantially as the MGO’s caseload donors mature in their relationship to the MGO and the organization. This is the bottom line – the net result of a good major gift program.
Relationships do matter.
PS – If you wonder what your level of donor value attrition is, click here to request a free confidential analysis of your donor file. There’s no obligation.