Does Your Direct Mail Program Need an Audit?
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!