Are You Properly Nurturing Your Donor Pipeline?

Jeff Schreifels 

For your organization to grow, it’s not enough to just attract new donors. You also need to strengthen the connection you have with your existing donors. So what is it that inspires donors to engage at a deeper level with you? And how do you invest properly in each stage of the donor pipeline to make that engagement possible? Well, on today’s episode, Richard and I are talking about how to manage your donor pipeline, so that you’re nurturing donors at every point along their journey with your organization.

Recorded

Welcome to the Nothing But Major Gifts podcast from Veritus Group, featuring Richard Perry and Jeff Schreifels. Twice a month, we bring you the latest and best thinking about major gift fundraising, so you can develop authentic relationships with your major donors. Here are your hosts, Richard and Jeff.

Jeff Schreifels 

Welcome to the podcast today. I’m Jeff Schreifels. And I’ve got Richard Perry here with me. And over the last decade, we’ve analyzed hundreds of donor files for organizations of all sizes. And a problem we see so often is that organizations aren’t properly investing in each part of the donor pipeline.

Richard Perry 

You know, that’s right. I mean, this can be catastrophic for an organization. If you’re over investing in donor acquisition and cultivation, but not investing enough, like in the upper end of the pipeline, then the donors you know, that you’ve acquired can’t be properly cultivated into mid-level, and major gifts and planned gifts and so on. So, you know, the pipeline is this really, really delicate ecosystem in a non-profit, and it requires very, very careful attention and management, for it to operate effectively.

Jeff Schreifels 

Yeah, it really is important. And so that’s why we really wanted to dedicate this whole episode to discussing the donor pipeline, and why you must properly nurture it at every stage. So to get started here, Richard, can you share an overview of the donor pipeline for our listeners here?

Richard Perry 

Sure. So the reason we call it a pipeline is because it actually has an entry point a donor comes in. And then they go through a whole system of cultivation. And it is sequential. I mean, it kind of goes from one to the other. So you start with acquisition, which is mostly direct marketing of some sort. And what we say is, it’s like one-to-many, like you’re sending out one message to many people. Right. And that return on investment is usually, it’s a loss. Usually, it’s a loss.

Richard Perry 

Yeah. Anywhere from 0.3 to 0.7.

Richard Perry 

I mean, you lose money in acquisition. That’s the point. Yeah. Remember, the days when we didn’t have that? That was awesome. But anyway, in acquisition, you lose money, yeah. Then there’s cultivation, which is also mostly direct marketing. Could be direct mail, could be email, that kind of thing. But it’s direct marketing. And it’s also a one-to-many approach, you have one message to many people. And that ROI is usually you spend $1, you get $3, $4 back is the general range. Then you’ve got mid-level, which is some direct marketing, and then some relationship fundraising. And that’s a mixture of those things. And we basically call that like one-to-some, so one message to more than one person. Yep. And that return on investment can also be $1 out, $5 or $6 back. It has just a slightly better return on investment once it’s mature, than say the general cultivation, right. Then you go to major gifts, and that’s strictly a relationship fundraising strategy. It’s one-to-one, very personalized.

Jeff Schreifels 

Now, hold on for a second, just so that we’re clear. There may be also direct response marketing appeals and things that are going out to major gift donors.

Richard Perry 

Yes.

Jeff Schreifels 

But you’re right. It’s mostly a one-to-one relationship. So just wanted to clear that up, that you don’t get rid of that.

Richard Perry 

No, you don’t. In fact, well, that’s a good point. I’m glad you brought that up. Because, you know, you keep that whole system going. But now the relationship has graduated to this very personalized, very intimate relationship between a frontline fundraiser and a major giver. And that return on investment can start off at the beginning of the program, as you know, $1 out $4 back, $5 back. But then it grows to $8 back, $10, $12. I mean, we’ve seen it as high as $23, $33. Huge, huge, huge returns in major gifts. And then you go to planned giving, which is sort of the next level. And it’s sort of like a cousin to major gifts, where it’s also a one-to-one relationship, right. And that return on investment can just be enormous, depending on the estate that comes in and so on. You could add capital giving at the end of all of that, but that’s the pipeline: acquisition, cultivation, mid-level, major gifts, planned giving, and then capital gifts.

Jeff Schreifels 

Okay, so why don’t you explain how these stages that you just described of the donor pipeline relate to one another? How does that work out?

Richard Perry 

Yeah, so acquisition is exactly what the word means, you’re acquiring a donor. And that donor is then cultivated. And out of that pool of cultivated donors, you’re getting mid-level donors, that’s where you’re finding them. And out of that mid-level tool then, as you’re cultivating, you’re finding the major donors, right. So not all mid-level donors are major donors, not all cultivation donors are mid-level donors. It’s this process of winnowing, culling, finding people that are inclined to move up with the organization. And they’re all related. They’re all connected that way. It’s a very connected, interdependent system.

Richard Perry 

Now, one of the misconceptions is, is that you can go find donors, major donors, outside of the pipeline that you have, right? It’s the strangest thing Jeff, I mean, we’ve been through this so many times. Like why are you doing that? You spend all this money acquiring donors, basically going out to the public square and saying, Hey, here’s What we do. Are you interested in it? And all these people have come in. And we ignore those people, and you go out and you try to go find somebody somewhere else?

Jeff Schreifels 

Exactly. It’s so hard to do. But it’s like leadership doesn’t understand how that donor pipeline works. And so they’re like, Oh, well, we’re not getting enough donors? Well, probably, because they’re not investing enough in the front of it, to bring new donors in at a lower end to build up the case to start giving bigger gifts over time. And so they get they get nervous, and they’re like, Oh, you got to get some new major donors in here. And it’s like, we know, it’s almost impossible to do.

Richard Perry 

Well it’s crazy. I mean, we’ve seen these donor files, I mean, you might have a general cultivation file, say, of 60,000 active donors or 100,000 active donors. Or for a smaller organization, say 5,000 active donors. Yeah. And then here’s this authority figure that’s saying to the frontline fundraiser, you need to go to rotary or go here, go there and find some donors. We’ve got them right there. Those are the people that are most inclined to do something for the organization.

Jeff Schreifels 

Well, and that also goes to the fact you know, how leadership doesn’t understand this is that this is where these silos come in, in the whole development process, where you’ve got an acquisition, cultivation or direct response team over here, mid-level’s in somewhere, and then you got major and planned separate too, and they’re not talking to one another. They don’t understand how their role affects all the entire pipeline. And so they’re not working together. And it’s like, we see this all the time. And then the way they’re structured as a development team is completely crazy, because they’re not structured along the pipeline. They’ve developed some structure, because of personalities and different things in the organization. And it’s just messed up.

Richard Perry 

It is messed up. And we had one situation where the marketing department was managing one section of the pipeline. And the development department was managing another section of the pipeline. And it was an all political thing. I mean, it was just unbelievable. So this whole thing about the pipeline is so important, not only to think about fundraising this way, but like you were just saying to structure the organization so that you’re managing it that way as well. Very, very important.

Jeff Schreifels 

So let’s say someone’s saying, hey, if we’re seeing a lot of success in donor cultivation, should we invest way more in that part of the pipeline, versus another part of the pipeline?

Richard Perry 

No, that should be balanced. I mean, we’ve seen this too, we have a current situation where it’s actually the reverse of that there’s this whole pack of donors on the front end of the pipeline, acquisition, and very little money, very little investment in the major gifts in the mid-level area, where you get a lot higher return on investment. So here’s the way to think about it. The reason it’s got to be balanced is because you get your best net revenue from the upper end of the pipeline: mid-level major gifts, planned gifts. Which means you’ve got to actually balance the investment over, you’re acquiring donors over here and cultivating them, and then you’re moving them through the pipeline up, you’ve got to balance that so that you actually place the proper emphasis on the higher net revenue generating strategies.  And that delivers because that delivers the best net revenue for program. There’s more money for program, right. And your ratios are better, right? Otherwise, you’re just out of whack.

Jeff Schreifels 

I mean, we see this, quite honestly, we see this in some large organizations who’ve been around for a long time, who have grown up building a database, you know, they might have a half a million to a million donors. They’ve done that because they’re really good at direct response, acquisition, and cultivation. They’ve got a file that’s huge. And then you look at their mid and major gift area. And it’s like puny compared to, so they’re getting that four to one ratio, you know, with all these donors, but now what’s happening is that the direct response thing is not doing as well, right? And then they’re like, oh, gosh, we have all these donors. But we need to start looking at the mid and major stuff, because we haven’t been doing much over on that side. And so now we’re starting to see some of these larger non-profits who’ve been around for a long time, start to invest. And they would have been in such a better place. Had they started that 20 years ago right, and realize they needed to invest in the full donor pipeline, rather than just in one area.

Richard Perry 

Well, they’re trying to play catch up. And in those organizations that you’re talking about, when you look at the ratios, that they have to report to the watchdog agencies and the public, they’re way off. You’ve got a cost of fundraising administration of 20, 30, 40%. And why? Because you’ve got way too much going on over on the front end of the pipeline, which is delivering revenue at a higher cost, right, and less net revenue, which is why your ratios are all messed up. So these are things that are important to pay attention to, they really are.

Jeff Schreifels 

So all right, so let’s just say one of our listeners recognizes that this is an issue for their organization, What would you advise them to do to properly nurture that pipeline?

Richard Perry 

Well, I think the first thing to do is to actually get in touch with where your investments are in these areas. And it’s like, for instance, if you take acquisition, cultivation online, all of that bundle of work, that whole direct marketing, right, kind of bucket of work, about 30% of your fundraising budget should go into that function. Whereas the relationship fundraising side, which is mid-level, major gifts, planned gifts, grants, all that kind of stuff, should be about 55% of your investment of your fundraising budget, and then events and campaigns and all that should be about 14-15%. Okay, so I think the thing is to first get in touch with like–

Jeff Schreifels 

What are your ratios right now?

Richard Perry 

Yeah. Where are we? I mean, how much are we investing? And if it’s out of whack, like, for instance, the one organization that we can we’ve been talking about, doesn’t have 30% in the direct marketing side of things, they’ve got more like 50% or 55%. And they’re starving the relationship side, which is actually going to develop better net revenue, right? So once you do your analysis, and you figure out okay, we’re out of whack, then the thing I think to do is to basically realign those investments so that you actually balance things out. The net effect will be higher net revenue for program and better ratios.

Jeff Schreifels 

And a better pipeline flow too.

Richard Perry 

Yes, right.

Jeff Schreifels 

There won’t be these clogs that we often see. They might start to invest in mid-level, because a lot of organizations haven’t yet figured that part out. So there’s a big clog there between back acquisition, cultivation, and major gifts, you know. So that could be really helpful. Now, you created a worksheet actually, that helps non-profit leaders figure out how they’re currently allocating their resources along that donor pipeline, and then helps them see what best practices should be, so that they can make those adjustments. That’s really cool. Why don’t you explain that worksheet a bit?

Richard Perry 

Yeah, the worksheet basically takes the revenue sources, and clusters them into the three big functions. So the three big functions are direct marketing, which is acquisition, cultivation, and online. And then relationship fundraising, which is mid-level, major gifts, planned gifts, and grants. And then events and campaigns. Takes those three big buckets. And it has the space to put your investment, your budget, your total budget. So let’s just say you’ve got a budget for fundraising of $1.2 million. It basically says, This much should go in acquisition, this much in cultivation, this much in online. And basically, you know, 30% of that total budget $365,000 should go into this. And it helps you do a plan and analyze so you can put your numbers into this worksheet, and figure out, are we off? Are we on? What should it be?

Jeff Schreifels 

You call it the diversification analysis sheet that you created. And so it’s really cool, because I’ve seen how it works. And you can just plug in what you’re currently doing, it automatically shows the percentage of that. And then here’s what the best practices are underneath that and then see where your gaps are so that you can say, oh, gosh, we probably need to invest a little more in mid and major, or we probably need to invest more in acquisition here because we need donors to move up that pipeline.

Richard Perry 

Exactly. It’s a very helpful tool. And the reason that I came up with it was because it’s like, we’re getting a lot of questions about well, What, how should we be investing here? Right? And so I thought, Well, I think the best way to go at it is to basically produce a worksheet that people can use, that’ll help folks figure out like, Well, are we on target? Are we generally in the range of these different functions of fundraising? And here’s the thing, Jeff, what you and I have discovered in our team over the years, is that a lot of these decisions are made emotionally, not objectively and strategically. And so in comes some direct marketing person, and basically has a strong personality and a bunch of political capital, and argues for a big chunk of budget, and they get it, to the detriment of some other function in the organization. And we’ve seen this happen over and over again. And the net effect is it hurts the organization. So what we’re suggesting is start with a clean slate, zero-base the thing and say, here’s how much money we have to spend, plug it into this worksheet, and then have your discussions about what kind of alignments and changes you need to make.

Jeff Schreifels 

Yeah, good stuff. Well, thank you, Richard, for joining me today on this episode. And we hope this has helped you better understand how to invest in your donor pipeline in a balanced way. And if you have more questions about understanding your donor pipeline, we’re here to help. We offer a free donor file assessment that will give you a pipeline analysis. Plus, don’t forget about the diversification analysis that you can download by clicking the link in the show notes. So thank you for joining us, and we’ll see you next time.

Richard Perry 

Thank you, see you.

Recorded 

Thank you for joining us for the Nothing But Major Gifts podcast from Veritus Group. Richard and Jeff also write an ongoing blog that you can subscribe to for free at veritusgroup.net. Please join us again next time.