Get To Know Your Segments!

I wrote earlier this week about why you shouldn’t mail your ‘reports’ (newsletters or donor reporting letters) to your lapsed or non-donors because it’s not worth the money to do so. 

There’s a core idea in that post that I want to name, and then go deeper on.  

The core idea is that your database is made up of different groups of people with different characteristics, and each group responds at a different (but predictable) rate to your fundraising. 

The professional name for this is called “audience segmentation,” and if you already report fundraising results by audience segment, you can skip the rest of this post.  But if not, let me give you an easy example:

• If you mail an appeal to 100 people who have given your organization a gift in the last year or so, perhaps 5 people will respond with a gift.
• If you mail that same exact appeal to 100 people who have volunteered at your organization in the last year or so, perhaps 1 person will respond with a gift.

Knowing that different groups respond differently (and predictably) has obvious implications for your fundraising plan.  And I hope you’ll walk with me through an example from one of the nonprofits Better Fundraising serves.

The nonprofit is a Christian missionary-sending organization.  If you’re not familiar with the model, there are two layers of fundraising.  Each missionary raises their own financial support from friends and family, people who give because they know and believe in that specific missionary.  The organization itself has donors too, but these are people who support the cause or the institution itself as opposed to any specific missionary.  The money the “organizational” donors give to the organization funds things individual missionaries can’t provide for themselves: training, emergency care, recruiting the next generation of missionaries, etc.

When sending out fundraising, the organization used to lump the results of the two groups together.  Here are the results for their June appeal a couple of years ago:

When reviewing these results, you’d think something like the following: “This appeal did OK but not great.  We drove $17k in net revenue with an ROI of 2.36.”  But that’s from over 9,000 donors, and our response rate was only 1.91%, which isn’t great for an appeal to current donors.

However, because we know that the 9,000 people who received this appeal are made up of two distinct groups (missionary supporters and organizational supporters) we should review results from this appeal broken out for each group.  Now here’s what we see:

Look at the difference in performance for the two groups!

Breaking out the results like this, we see two completely different stories that were hidden when the results were lumped together:

• For organizational donors, the appeal was a huge success.  It resulted in almost $20k in net revenue with an ROI of 6.8 and a response rate of 6.06%.  That’s a win that we’d take every time.
• For missionary supporters, the appeal was not a win when judged by conventional cultivation metrics: it lost over $2,000, had an ROI less than 1, and a response rate of just .62%.  Ouch.
  • However, it did result in 44 new organizational donors at a cost of $215 per new donor (the “cost per response”) which is an acceptable cost per new donor for this organization.

The organization learned a handful of lessons from this exercise that has helped them grow since this mailing was sent two years ago.  For instance: 

• They used to think their appeals were only working OK.  Now they know that their appeals are working great for organizational donors.  This makes the organization feel much more confident in their fundraising.
• They now know the tradeoffs of sending mailings to Missionary donors.  Today, for most mailings, they include few or no Missionary donors, which saves the organization tens of thousands of dollars a year. 
• And when they do send a mailing to Missionary donors, they judge the mailing’s success by the number of new organizational donors acquired.
• There’s also a political reason for all of this: now, whenever a stakeholder or Board member says something like, “Hey, why are we mailing missionary donors” or “Hey, why are we not mailing missionary donors” the person in charge of fundraising points to the spreadsheets, says “this is what happens when we do, this is what happens when we don’t, and here’s why.”  The stakeholder or Board member usually walks away impressed.

So, what different groups is your database made up of?  And can you start analyzing your fundraising results by group (“by segment” is the technical term) so that you can make your fundraising operation more efficient and effective?

For instance, many nonprofits that we start working with have been sending their appeals to basically everyone: anyone who has given a gift in the last 5 years, plus their volunteers, plus the non-donors that are on their list.  But when we evaluate the performance for each group, the organization usually discovers they’ve been losing money by mailing to some of their groups.

So they “tighten up” the groups they’ve been mailing to, start saving meaningful amounts of money, and then use that money to either raise more money or do more mission work.

My advice to you, if you don’t already, is to start getting to know your segments!