Tag: Segmentation

Get To Know Your Segments!

Steven Screen  |  Repeat

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!

Super Simple Segmentation

Steven Screen  |  Ask
Segmentation list.

You can save a lot of money by segmenting your mailing lists.

I’m going to make a couple of super simple recommendations here, then I’ll unpack why:

Only mail your appeal letters and newsletters to donors
who have given you a gift in the previous 18 months.

Of course it gets more complex than that, as your donor file grows.

But if you’re new to segmentation, here’s where to start: mail only to donors who have given a gift in the last year and a half.

Why Just Those People?

Two reasons:

  1. The longer it’s been since a person gave your organization a gift, the less likely they are to give you another gift. (This has been tested, analyzed and proven again and again.)
  2. The dropoff in a donor’s likelihood to give you another gift is not a straight line. There’s a real “cliff” 12 months after a donor’s last gift.

When sophisticated organizations analyze the success of their mailings, they notice something: it often costs more to mail their lapsed donors than the income they receive from those donors.

Here’s what that means for you: if you’re sending your mailings to more people than “donors in the last 18 months,” you’re almost certainly throwing some money down the drain.

So the savvy organizations stop mailing those folks – with a couple of exceptions.

Should You Ever Mail Your Lapsed Donors?

Absolutely. But do it smartly:

  1. Mail them only a couple times a year. Pick those times carefully; they are usually your Holiday / Year-end Appeal, and your other best-performing appeal.
  2. When you do, create a version of your main appeal just for your lapsed donors. That version should, right at the beginning, tell the donor that you haven’t heard from them in a while. It usually goes something like, “Dear [NAME], I haven’t heard from you in a while, but I’m writing today because [URGENT REASON].” Then use the rest of your original letter.

Nerd Nerd Nerd

Please forgive me, the Teacher / Explainer / Nerd in me is making me say something.

Most nonprofits with large mail files do not follow my recommendation above. Instead of mailing to donors in the last 18 months, they mail donors who have given a gift in the last 12 months.

You know that “cliff” I mentioned earlier? It’s real. After it’s been 13 months since a donor gave you a gift, their chances of giving you another gift really drop. Fast. So most larger organizations don’t waste money by mailing donors who are unlikely to give a gift.

But I recommended 0 – 18 months above because, through testing, we’ve found it fruitful for smaller nonprofits.

Why? Because smaller nonprofits aren’t mailing their donors often enough. They just aren’t giving their donors enough opportunities to give. So when we mail to donors 0 – 18 months, we give the 13 to 18-month donors another chance or two to give a gift. And those gifts (plus the additional revenue from reactivating those donors) make the investment to mail them a good one.

What Should You Do?

The next time you pull a mailing list, critically think through who you are selecting.

If you’re mailing more people than “donors 0-18 months,” you can save real money by cutting your mailing costs!

Super Simple Segmentation

Steven Screen  |  Ask
Super Simple Segmentation

Most likely you can save a lot of money by “mailing smarter” – mailing your appeals and newsletters only to the people who are most likely to respond.

Put another way: a lot of nonprofits waste a lot of money by sending their appeals and newsletters to people in their database who are unlikely to respond.

Donor Segmentation

The idea of ‘donor segmentation’ is pretty simple at heart: separating your donors into groups and treating different groups differently.

Most smaller nonprofits basically “mail everybody” in hopes of raising more money and acquiring new donors. But in my experience, they almost always waste money by doing this, and have a smaller impact as an organization because of it.

Why? Because there are people in your database to whom you should not be mailing, because it’s a waste of money.

My Default Segmentations Settings

What follows is my “default mailing segmentation settings” – what I recommend most nonprofits do for appeals and newsletters.

Donor segmentation can get super-complex, but I’m keeping this purposefully simple. (In other words; for you Nerds out there using sophisticated RFM segmentation and ongoing testing results to refine your mailing selects, this is not for you.)

For almost all printed appeals and newsletters:

Each mailing should go to all donors who have given a gift in the last 18 months. This is commonly abbreviated, “all donors 0-18.”

However, if you mail your donors less than 4 times a year, each mailing should go to all donors who have given a gift in the last 20 months.

“But What About Non-Donors?”

I can hear people asking already, “But what about all the non-donors, names and volunteers on our database? We have to mail them!”

No, you don’t.

Or more precisely, No, you shouldn’t. You almost always lose money sending a regular appeal or newsletter to non-donors: the returns don’t justify the expense.

I’ll talk more about what you should do for non-donors, down below. But for now, let’s talk year-end…

Donor Segmentation at Year-End

At the end of the calendar year more donors are more likely to give gifts than at any other time.

So it makes sense to mail your year-end appeal to more of the people on your database.

Note: this could be your “Christmas” or “Year-end” or “Holiday” appeal – whatever your biggest appeal at the end of the year is.

Here are my default settings:

  • All donors giving in the past 0-24 months
  • All donors $500+ farther back, 25-36 months
  • All donors $1,000+ from 37 to 48 months
  • Additionally, year-end is basically the only time I regularly counsel smaller nonprofits to mail to the “non-donors” or “names” from their database. But even then, I’d only mail to people who were added in the last 24 months.

To Acquire New Donors

Instead of “mail everything to everybody,” here’s a better strategy to turn those “names” on your database into donors:

  • Mail them only a couple times a year
  • If they have been in your database for two years and never donated, stop mailing them
  • The only “normal” appeal you should send them is your Holiday/Christmas/Year-end appeal
  • Send them an appeal specifically designed to acquire new donors. That appeal should:
    • Directly ask them to make their first donation.
    • Ask them to support one specific, compelling part of your organization. Don’t ask them to “become a supporter” or “partner with us as we…” Here’s why this approach works better in test after test: it’s easier for a non-donor to understand one powerful part of your organization than it is for them to understand the whole of your organization.
    • Pro tip: if this mailing works, you can use it every year without changing it!
  • Never send newsletters to non-donors

Follow this advice and you will likely save a lot of money that you’ve been wasting by paying printing and postage to send letters & newsletters to people who won’t respond.

And you’ll turn more of your “names” into donors by sending them targeted mailings.

So you’ve just increased your Net Revenue quite a bit: you’ve saved money, and you’ve acquired more new donors.

Resources for You

We just released our brand new eBook to help nonprofits get better at Asking. It’s free, go download it.

Our previous eBook, Storytelling For Action, is also a free download. It has the helpful “Story Type Matrix” that shows the research-based guidelines for what types of stories you should tell, and when you should tell them.