For most of us, when we hear the word "audit", our gut instinct is to run and hide. We have been trained to think an audit means a review of the finances and sometimes that can be downright scary!
But there are other types of audits out there that can be a lot less stressful and have a big impact on your bottom line. To help evaluate the annual performance of a direct marketing program, for example, two basic audits are often done: a Creative Audit and a File Audit.
For nonprofits with large mail programs (programs that raise over $1 million or so), these types of audits are fairly well known. For these organizations, a systematic and more formal approach to assessing their mail programs each year is needed and both of these audits fit the bill. In most cases, however, with a modest investment of time and money, almost all nonprofits can work with their direct marketing agency to conduct these types of audits.
Great direct mail fundraising campaigns are usually the marriage of sound strategic thinking and good creative execution. You need both to be successful. A well-run Creative Audit should help uncover new creative approaches that ultimately can lead to improvements in both donor acquisition and retention.
In a Creative Audit, staff at the nonprofit and its agency partner must work closely together. In general, the process involves three steps: the Exploratory Phase, Brainstorm Phase, and Judgment Phase.
In this step, the agency working with the nonprofit should gather and display all of the organization’s direct mail packages for the year in a conference room. Results of each campaign should accompany the samples.
Over the course of several days, everyone at the agency involved in the Audit (typically key senior creative, client service and production staff) should be reviewing each direct mail campaign carefully. They should be reading through the letters and taking note of how the donors responded to each appeal. Test and control packages that are working well for the organization should be analyzed as well as those packages that are not performing well. Audit participants should scrutinize everything ... from the look and feel of each package, to the production quality, to the overall effectiveness of the writing and design.
In this phase, key nonprofit and agency staff members get together for several hours in one room for (hopefully!) a fun, freewheeling exchange of ideas, recommendations and commentary. Each campaign is reviewed one at a time, as a group, with a designated facilitator to help move the process along. Audit participants are handed 10-20 sheets of paper each and are encouraged to write down any test ideas or new campaign concepts that come to mind. The objective at this point in time is to draw out as many ideas as possible and get them written down.
Once the brainstorming session is over, a master list of ideas is developed that can be reviewed with the nonprofit and agency staff and used throughout the year as strategies are being developed.
Since Creative Audits can generate a hefty amount of ideas, a system is usually put into place to prioritize. Typically nonprofit and agency staff use rating scores (low, medium, high) to rank the idea along several parameters: revenue potential, costs, and degree of difficulty to implement. This rating method can help develop a short list of high-priority ideas that really should be implemented fast and also point out the strong ideas that may take several months or more to implement.
Points to Ponder
When conducting a Creative Audit, it is important that those involved consider some fundamental questions as they go through the process:
- Is the organization’s "brand" prominent in the packages? How is the brand used graphically - or not - in packages? Is the brand consistently portrayed in terms of size, color and tag line?
- Is the main message or theme for a particular mailing clearly presented? Is it clear what you want the donor/member or prospective donor/member to do?
- In new donor acquisition -- does the copy "grab" the donor/member or does it meander? Does it stay on message? Does it include the right emotion, passion, and supporting data to inspire a contribution?
- Do the graphics fit the organization and the appeal theme? Or is something missing?
- What are the elements of each test package? Are they "actionable?" What were the results from previous test packages versus the control package?
- What postage tests have been done?
- Have inserts been used? If so, in what segments and at what time of the year?
- Is there an acquisition test package that would warrant use in the donor renewal program? Same for the opposite approach - a donor renewal package that, with slight modification, can be used in new donor acquisition?
- Has there been any premium tests conducted?
- Is the organization donor-focused? Is there the basis for a relationship or does the conversation seem one-sided?
This entire process may all seem subjective, but coupled with results from each mailing, this actually becomes an audit of the numbers from the creative point of view. There are many more questions that will surface during the audit, and you will be able to add your own questions prior to the start of the audit.
Creative Audits can establish a baseline with which nonprofits can audit their competitors too. Once a Creative Audit is complete, sample packages of organizations with a similar target audience can be obtained and then assessed. Even without results, a competitor’s branding, copy, graphics, use of premiums, positioning strategy, thematic emphasis, and other key elements within the program can be benchmarked.
Another audit that should be done every year for a mail program is a File Audit. Even the best creative may not be very successful if it is targeted to the wrong segments of the file. Crunching the numbers and having the ability to look at the underlying patterns in the data can help nonprofits create more strategic (and effective) mail packages.
A File Audit will perform an in-depth analysis of an organization’s donor/ member base and develop benchmarks the nonprofit can use each year to assess their mail program. Most agencies that work with nonprofits can provide a basic File Audit or can help find the right company to provide this service for their client.
A File Audit should provide the basic statistics regarding how donors/members have historically responded to various solicitations and communications. This information can then be used to validate the current program and help develop enhancements to improve the program’s performance.
Some key questions that should be answered with a File Audit include:
- When will my donors/members break even?
- What does my core donor group look like this year and what did it look like last year?
- What trends are we seeing - are donors/members upgrading/downgrading this year?
- Has my acknowledgment helped in getting a second gift?
- Which prospect lists are yielding $100 plus donors?
- How long does it take to get a second gift from a donor?
- What is the time frame for donor lapsing - is it 13, 15, 18, 24 or 30 months?
- What is the difference, if any, between premium-acquired donors and mission-acquired donors?
- What segments of the file should we aim most of our testing at?
- How do first-year and multi-year renewal rates compare to last year’s rates?
Organizations can look at their data in hundreds of ways, but a good File Audit needs to focus in on four key areas: New Donor Acquisition, First Year Renewal, Multi-Year Renewal, and Lapsed Recapture.
New Donor Acquisition - Investing In The Program
Bottom line, nonprofits need more new donors every year in order to grow their mail programs AND replace those donors who have lapsed (and yes, donors do lapse!). A File Audit will quantify the number of new donors entering the program each year and, as appropriate, the different types of donors that are coming in (for example, the number of premium-acquired donors versus mission-acquired donors).
A File Audit should also track the donor’s annual giving patterns (number of gifts, average gift, yearly worth) in both the donor’s first year and then over the course of many years. Since very few organizations generate a profit "out of the gate" (some organizations spend up to $2 for every dollar they raise in acquisition), it is critical for nonprofits to understand how valuable new donors are and how long will it take to recoup the initial investment.
Long term value for new donors will vary depending on the organization. Different organizations have different benchmarks for the recovery of their initial investment, but typically the goal is to break even within a 12-18 month period.
First Year Renewal - The Critical Year
Tracking how many donors acquired in one year that give again in the next year is a key indicator of the health of a direct mail program. A File Audit should track this first year renewal rate and show the giving patterns that have been established year over year for each group of first year renewers.
At best, about 40% of the donors acquired in one year will contribute again the next year. Organizations with a first year renewal rate of under 30% are receiving minimal benefits from their acquisition efforts and need to take steps to change this.
The key to maximizing first year renewal is to increase giving frequency of newly acquired donors. Donors who give a second gift within a 12-month period are usually 40% more likely to renew the following year - the sooner the donor gives that second gift, the more likely they'll continue to support the organization.
Strategies to improve or maintain a strong first year renewal rate are typically centered around the treatment of new donors:
- Development of a welcome package
- Implementation of a conversion series - or a group of 1-3 mailings that are targeted toward maximizing response rate of new donors.
- Pre-lapsing strategies - i.e., sending a response enhancing or series of response enhancing offers as a new donor is about to lapse
Multi-Year Renewal - Cashing In
A good File Audit should also track the giving patterns of multi-year donors. Multi-year donors are a nonprofit’s core donors - people who have been contributing for more than two years. Once a donor makes it past that crucial second year, they are highly likely to give in subsequent years.
Usually the renewal rate of multi-year donors will range from 55% to 80% (the high end of this range is typically seen in organizations with a strong spiritual or membership component). Donors who fall into this group represent about 20% of the donor base but are responsible for about 80% of the revenue.
In addition to a higher renewal rate than the newer donors, multi-year donors tend to have a higher giving frequency - they are more committed. To maximize the revenue stream in this group, it's important to vary the offers - give donors multiple reasons to give, as well as continue to show them how much you appreciate them by building a dialog. In addition, this is a segment that you want to learn more about their motivations - why do they support your organization? This is also the group of donors to introduce planned giving opportunities, monthly giving programs, and major donor gift programs.
Lapsed Recapture - Be Selective
Tracking lapsed donors and is also an important part of a File Audit. As we all know, not all donors give every year. Those that don't give fall into the lapsed donor pool. Organizations with mature direct mail programs can have very large lapsed donor pools that are constantly growing, while organizations with newer direct mail programs would expect to have fewer lapsed donors.
The size and quality of the lapsed donor pool is directly related to the success of first and multi-year renewal efforts. Organizations that have a low giving frequency of new donors, and subsequently a low first year renewal rate (under 30%) will see a very high percentage of lapsed donors with just one gift. Within the lapsed donor pool the challenge is to determine which donors are the most likely to be recaptured, and focus energies on these segments.
Typically, donors with high loyalty - as defined by a combination of annual giving frequency and years of giving - and more recent donations are easier to capture and more valuable once recaptured than the donors with lower loyalty and a longer period of lapsing.
Lapsed donors are an extremely valuable source of support for an organization and therefore it is important to analyze this group thoroughly. Typically, it's more cost-effective to recapture a lapsed donor than it is to acquire a new donor. More importantly, a recaptured donor is more likely to renew her support the following year than a new donor - the renewal rate of recaptured donors is typically 45-50%, compared to 30-40% for newly acquired donors.
So Don’t Forget Your Audits...
Both the Creative Audit and File Audit are important ways to assess a nonprofit’s direct mail program and help make a big impact on the bottom line. Nonprofits should perform these audits as often as they perform that pesky financial one. Remember, next time someone mentions the word "audit" ask questions first before you run and hide!
MOST NONPROFITS TODAY are struggling with the similar program trends including declining New Donor retention rates, softening retention rates of Multi-Year contributors and less than stellar subsequent revenue and retention from reactivated Lapsed Donors.
These statistics are likely impacted by external factors (economy, the election, war, national and international emergencies, etc.). However, competition for charitable dollars plays a large role in whether or not a charity can turn a New Donor into a loyal contributor.
In order to retain donors, it is important to build a relationship, from the very outset, which is predicated on a charities distinctives, brand, ability to collect and effectively use donor information and understand the donor's interest in the organization.
OPTIMIZE YOUR DISTINCTIVES TO GAIN LOYALTY!
Every charitable organization has 'distinctives' or unique qualities that set them apart from their peers. When repeated, your distinctives will foster loyalty in both prospects and long-term supporters.
In taking a 'distinctives' inventory consider the following:
- Does your organization provide unique services?
- Do you provide more services than others in your field?
- Are your fundraising ratios better than most?
- Has your organization won any recognizable awards?
- Are any well-known and respected people involved in your charity?
How are you presenting your distinctives?
- Is the uniqueness of your program and services stated clearly in your Mission Statement?
- If you've outstanding ratios, awards, well-known figures involved, how and how often do you express it?
Donors like to be reminded why they are giving their dollars to you, so remind them why repeatedly to best reinforce that they've made the right choice!
REINFORCE YOUR BRAND(S) - ALL OF THEM!
Many charities are very good at building their core brand through consistent use of text, graphics and logos.
However, many charities create 'sub-brands' or giving clubs to increase revenue and donor retention including Monthly Giving Programs and Major Donor Clubs. Often considerable time is spent on developing club names and logos, which are used in annual prospecting and renewal efforts. But, donors who enroll in these programs often never see the brand/logo of the new club they joined in any other communication during the year!
By reinforcing that the donor belongs in a special club through consistent references in text and logo usage, donors are far, far more likely to renew and/or upgrade within the club by year's end.
The feeling of belonging and recognition of belonging are basic human needs!
KNOW YOUR DONORS!
You know you are mass marketing to raise money and most of your donors know you are mass marketing to raise money, but your donors don't really want to feel that way!
Minimally you must heed your donor's stated preferences, "Mail me once a year in December", "Do not call me, ever."
Data storage and usage has become increasingly less expensive and the more you know about your donors and the more you apply what you know to your marketing program, the more revenue and higher donor retention you will experience.
Collecting and using the following types of data points, will greatly enhance your program results:
- Offer Responsive
- Club Status
- Affinity to Your Organization
- Channel Responsiveness/Preferences
- Lifetime Giving Information
Knowing your donors and leveraging what you know about them within your program can truly change the feel of mass marketing to a one-on-one relationship.
TAILOR YOUR OFFERS AND MESSAGING!
Once you've successfully collected accurate information about your donors, the sky is the limit (well, maybe technology and cost!) as to what you can do with the information within your program.
For example, if a donor or 'warm prospect' has been a volunteer for your organization, you may consider using laser personalization to say:
'As a past Volunteer to our shelter, your work with us has been greatly appreciated. The animals continue to need your support and we hope you can make a financial donation today!'
If a donor is an 'entry level' member of your Major Donor Club, you may consider saying the following in your renewal effort:
'Your 2004 Bronze level membership in Circle of Hope has helped provide millions of dollars to researchers who are working toward a cure for this devastating disease. This year, won't you consider joining at the Silver level?"
Tailoring offers by donor demographics is also becoming increasingly prominent. Consider the following:
- Mailers who have developed Hispanic fundraising programs often translate their offers to Spanish or use both English and Spanish in the same piece.
- As charities seek 'younger' donors to replenish their files, offers and language will be crafted that appeals to 'Baby Boomers' and 'GenXer's (v. the Great Generation.
- Gender can play a huge role in offer responsiveness. Enhanced rates of response by gender can be made by simple repositioning of your core offers such as graphics, extent of emotional language, length of copy and so forth.
When you communicate with donors as if you know who they are and what they've done for you (and you can because you've diligently collected information along the way!) they will remain loyal to your cause for a long time to come!
TAILOR YOUR CONTACT STRATEGY!
The most common question in the nonprofit marketplace today is 'are we over soliciting our donors?' This question has become further complicated by the recent successes of E-Fundraising.
Although there is no single answer for any organization, there are some key factors to consider before you implement a 'Contact Frequency' test:
- Your Metrics of Success. Reduced Expenses, Higher Net Income, Combination. Greater Donor Satisfaction Leading to Higher Long-term Value.
- Is this a Multi- or Single-Channel Effort?
Mail, Telemarketing, Email, etc.
- Is this a Multi- or Single-Revenue Stream Effort?
Direct Mail Program, Planned Giving, etc.
- Your Readiness Level.
Are you and your marketing partners technically ready to design and implement a test so that results are readable?
Based on your overall goals, you may also want to consider the following:
- The Composition of Your File.
Actives v. Lapsed, Majors v. Regulars v. Low Dollar. The more recent and more valuable the donor the higher the short-term revenue risk.
- The Offer Content/Offer Responsiveness.
Mission-Based, Premium, Mix. Can you readily track offer responsiveness and include that information in developing your test plan.
- Channel Responsiveness.
Have you collected enough data to know which channel(s) your donors have responded to in the recent past.
You may also want to exclude New Donors from your test plan, as they've not had an opportunity to 'settle' into the program.
In a perfect world, we would only contact donors when they wanted to be contacted, saving expenses, generating more net income and enhancing our long-term relationship!
The Fund for Animals' jauntily named monthly giving campaign normalizes donations, reinforces mission.
Randomness: "Having no specific pattern, purpose or objective." Could there be another word that strikes greater dread in the hearts of nonprofit fundraisers? Sure, it's nice to get that unexpected, random gift. But how - HOW, you fret - do you get that person to give again... and again... and...?
Such was the question facing the development staff at The Fund for Animals, which runs the 25-year-old Black Beauty Ranch sanctuary for abused and neglected animals in East Texas. A monthly giving program seemed to be the answer, but President Michael Markarian and his staff wanted something that tied in closely with the organization's mission.
There aren't a whole lot of ways to get innovative with a monthly giving program, but pithy campaign names are important - both for the program itself and for the giving tiers that comprise it.
So what are we looking at here? A monthly program to be sure. An Electronically Withdrawn Monthly program that results in an Orderly way of normalizing donations. E.W.M.O.? Oh, come on... M.E.O.W! The Monthly Electronic Orderly Withdrawal program.
There aren't house cats at the ranch, but there are some bobcats and they probably do a little meowing, especially the little ones.
The M.E.O.W. program is broken down into 16 giving tiers, each named for the animal that a particular level of giving will support. Everything from $5 a month for a prairie dog to $10 a month for a horse, $17 a month for an oryx to $50 a month for an elephant.
"We based it on the average amount of money it costs us to care for an animal."