To Gift or not to Gift?

In a recent post, I mentioned an interesting new section on the use of “Token Gifts or Premiums” in the latest Cygnus Donor Survey, “Where Philanthropy is Headed in 2011.”

It’s a consideration at the outset of virtually any fundraising effort: do we include a gift in the mailing – or the offer of a gift in return for a donation – to encourage response?

This study takes a clear stand. “…63% said they do not want to receive token gifts of any kind so that as much of their gift as possible goes to the purpose for which they gave; only 18% commented favorably.”

And yet, in mailing after mailing, the addition of a premium seems to pay for itself. 

So, which is right?

Unfortunately, it’s not as simple as “yes” or “no.”

I think there may be many reasons that premium packages succeed, but two factors stand out.

First is initial impact; the “lumpy” package is more attention-getting, which means the envelope is more likely to be noticed and opened.

Then there is the “guilt” factor … the basic human tendency to feel the need to reciprocate (one of Cialdini’s primary “weapons of influence”).

But, that doesn’t mean a premium package is the right solution for every appeal.

Every organization needs to assess the impact both in terms of “package economics” and the “lifetime value” of the donor.

Package economics is relatively straightforward. What is the net return on the mailing?

For one client that uses a mix of both premium and non-premium packages, over the past year the premium packages delivered a 4.96% response rate compared to the 3.33% response rate of non-premium appeals. However, the average gift from the non-premium packages is 45% higher.

In total, the organization mails about the same number of premium and non-premium packages. On a net basis, they come out about the same.

Considering cumulative value of the donor adds another dimension. There are several issues that tend to work together to make this even more complex.

1) Donors tend to maintain the giving habits they start with; someone with a lower initial gift is more likely to make lower subsequent gifts as well. Lower gift levels decrease lifetime value.

2) Premium responders are less likely to convert and renew than non-premium responders. This is even more of a challenge as the gifts become more expensive and have less of a direct tie to the organization and/or its mission. Lower conversion and renewal (higher churn) decreases lifetime value.

3) Overuse of premiums are weakening their effectiveness as a weapon of influence. Personalized address labels are a convenience, but how many does one household need?

4) Adding a premium will increase the cost of a package; adding higher cost gifts increases costs proportionately. Today's donors do notice. And, as the Cygnus study notes, “the high cost of fundraising is a major consideration for donors and a reason contributing to donor attrition.”

Bottom line?

You do have to get someone’s attention before you can tell them your story.

Premiums or token gifts may help you do that.

But to keep a supporter long term, you will have to build an understanding of and appreciation for your mission. That may or may not involve a premium, even if it does appear to deliver lower immediate results.

Because no matter what the package economics deliver, it’s the lifetime value of donors that hold the key to your organization’s success.

Till death do us part?

"Not-for-profits can only spend the profit derived from fundraising, and profit is increased by improving the retention of existing donors and influencing higher level gifts, and not by increasing volume of donors."

That’s not a revolutionary concept; some of us have been preaching it for years.

But let’s state it another way: many non-profits who think they have an acquisition problem, may instead have a retention problem.

The quote above is from the Executive Summary of the recent Cygnus Donor Survey, “Where Philanthropy is Headed in 2011.” This is the third year for the study and it provides some interesting insights into donor behavior. (One caveat: the survey was administered online, which may bias results toward online behavior and away from direct mail.)

But the key findings are not channel specific.

For example:
• Primary factors in keeping donors loyal are “reputation and trustworthiness” and “achieving and communicating measurable results.”
• Donors leave because “my priorities shifted” (41%) or because of “oversolicitation” (32%).

Note: overcsolicitation, not over-communication. Donors want to know what you’re doing; that’s key to keeping them in the fold.

Or, as the studies authors cite (in an interesting new section on the use of Token Gifts or Premiums) “…to fulfill the objective of all fundraising, which is to hold onto donors indefinitely.”

Is that how you treat your supporters?