Empower Your Nonprofit Organization with Meddic Metrics for NPOs

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foreign [Music] hello everyone and welcome to another harness webinar my name is Simone I am director of marketing here at harness and your host today chiming in from Tampa Florida today's session is how to raise more money using donor metrics led by certified non-profit consultant Joanne Opel founder of Joanna Pelt Consulting LLC and author of six books and co-author of 14. during Joanne's 30 plus years working in the nonprofit Arena she has held positions from volunteer to executive director turn consultant integrating fundraising with strategic planning marketing operations and financial systems she builds up organizational revenue streams creating sustainable funding structures she specializes in helping non-profits improve their return on investment and realize continuous net surpluses she currently provides consulting services multi-module online courses with private coaching person-to-person fundraising advice annual Summits virtual get-togethers and weekly newsletters so without further Ado I'd like to welcome Joanne to the stage Joanne welcome we're so glad to have you here today thank you Simone for having me I appreciate being here today we're going to talk about how to raise more money using donor metrics this is a little bit about me Simone has already told you about this stuff but just to let you know I've worked in both small and large non-profits and um I've worked in a variety of non-profits as well and these are my two latest books that I have they're about uh getting sustainable funding a little bit about what we're going to talk today they do have the donor metrics that we're using today uh in them um one is an overview of the system the sustainable High RI fundraising system the other is more about how to reduce costs and get started if you don't know where to start near a small non-profit next and these are more books next and these are more books next and these are the last slotted books I believe all of these books can be found on amazon.com so you are in the right place if you are an executive director a development director in the role of a fundraising coordinator an evaluation Specialist or a board member you'll all get something out of it today that you'll be able to apply in your role in your organization and our goals today are to learn how to increase revenues learn how to lower costs so that you improve your return on investment today's objective is to learn how to calculate analyze and use the three donor metrics to improve the results of your nonprofits fundraising program evaluation is important I like using objective measures to evaluate because then your data is objective and it's harder to argue with but today we're going to talk about three donor metrics and the questions we'll answer is what should we track when it comes to fundraising campaigns how are we supposed to show that we are successful especially to our board and are there certain tactics that have better return on investment than others hint there are and the metrics that we're going to use today are donor acquisition cost donor retention rate and return on investment and what these are important to do with is the donor acquisition cost you want to to either go down or to compare with your donor retention rate to see that a donor it costs generally six times more to acquire a donor than to retain a donor so oftentimes it's better to work on your donor retention rate and retain new donors rather than trying to acquire them because if you're acquiring more donors than you're retaining you're going to spend more money than if you're that if you focus more on donor retention and therefore your return on investment goes up so what do you do with the information well number one you use the information to set benchmarks where are you today and where are you going in the future you also want to utilize them as objective measures for decision making we talked about that and you want to invest in the most cost beneficial activities leveraging your resources and increasing your net income it is net income that counts not gross gross income is how many revenues you bring in net income is how many revenues you bring in minus the costs it took you to do it and I talk about total cost rather than direct cost we'll get into that a little later so what should you track as far as your donors go you need to know who your new donors are who your repeat donors are and who your last donors and inactive donors are you do this so that when you're sending out materials and Communications you can Target your Communications to each of these subsets and you are not wasting say a direct mail piece on your inactive donors your last donors fall into two categories live on some cybuns that's just a fancy fundraising way of saying last year but not this year or some year but not this year usually if I'm doing the lap Stoner mailing I go back five years some people go back too but I always seem to catch somebody if I go back five years if they're older than five years and they haven't given and they haven't had any interaction with the organization it's best to put them in the inactive list as far as revenues go what you want to track is gross revenues the amount of money that you bring in net revenues which means you're tracking costs and you want to track them overall your fundraising program overall or your development department overall plus you want to do it by activity in other words what is the revenue of your annual appeal of your special event of your direct mail of your whatever grant writing whatever it is that you are doing you want to wrap track both overall and by activity and as far as your expenses go to get your net revenues we're talking about direct costs which are costs that are directly associated with the activity that you're producing so for example if you're doing a Gala one direct cost would be your invitations another direct cost would be your Venue indirect costs for those that are allocated indirectly you incur them but they're not directly related to the activity that you're doing for example if you're having a Gala maybe some of your executive director time would be an indirect cost some of your rent office facility space would be an indirect cost if you have an HR um Department that HR would be an indirect cost those sorts of things I like using both direct and indirect costs and those are called total costs of everything I like to be able to compare that because it gives me more information on what I'm doing but it also tells me how much money I have after my total costs are covered and how much net income I'm actually bringing it in cost allocations these are how much time you spend on each activity and your salary or your other people in your organization salary is um allocated to that activity so for example say that your executive director spends 50 percent of their time fundraising that would be a fifty percent cost allocation to all of the activities and to overall you also want to do that with rent or facility costs or whatever if your organization has a general and administrative cost you want to make sure that you're allocated what portion of those to all your activities next donor acquisition costs is the expense you inquire to you acquire to you incur to acquire a new donor and generally speaking there are about six times more than your donor retention costs which is to retain a donor next why is donor acquisition costs important because your costs offset your revenues and it's not and it's not gross income that counts it's net revenue that counts you must want to know your cost I once worked with an agency that made a million dollars every year from their Gala woohoo right no it took them a million point two to raise it so every year they lost two hundred thousand dollars on their Gala but since they were since they were looking at only the gross revenues that we're bringing in and not the costs they lost money and the agency if you looked at their financials could see that they were losing money over the years because they were not calculating their costs and taking into account net revenues next donor acquisition costs this year are the number of donors that you have this year the number of donor recruitment costs you have this year which are your Outreach costs or an allocation of your Outreach costs like Med Website Maintenance Social Media Mail campaigns things like that anything you do to acquire a donor your fundraising time allocation and you may need to go to your Chief Financial Officer or someone who is doing your finances to be able to get accurate time allocations and an indirect cost allocation we talked about indirect costs next so what you do to calculate donor acquisition costs is you divide you divide the expenses used to recruit new donors by the number of new donors so in your numerator is new donor retention recruitment costs and then your denominator is total number of donors this year next so say for example your youth mentoring agency you are very small maybe you have some volunteer driven initiatives and you have a hundred thousand dollar budget you get about six thousand dollars a year in sponsorship and about ninety four thousand dollars a year in individual donations you're doing quite well in terms of spread of corporate sponsorships and individual donations by the way your executive director is works a quarter of the time on fundraising expenses your CRM costs fifteen hundred dollars of which you're using 50 of it to track new donors and new donor activity you're taking fifty percent of your website which is eighteen hundred dollars Website Maintenance a year and you're also you also do a direct Bill printing for a thousand dollars and Direct Mail postage for a thousand for 360 dollars the number of donors that you had this year is 110 and last year is 95. I do want to make a note that it's not that you just that you've just acquired 15 donors usually done a retention rates are lower than a hundred percent much much lower than 100 percent so some of the new donors that you'll have this year replace the 95 donors some of the 95 donors you had last year next so the way to figure that out is to take all those costs and divide them by the number of this year's donors and you will see that there's 110 donors this year and the costs salaries costs come to 16 310 that it's quite expensive for this agency to acquire a new donor 149.18 and this is a worksheet so that you can do it on your own so you're done a retention rate your donor retention rate is important because it tells you the percentage of total donors that make a second gift because donor acquisition is so expensive you really make your money on a second and subsequent gift It generally costs six times more to acquire a donor than to retain one and the cost to acquire a donor is often more than a dollar so for every dollar that you make you're actually spending 1.25.50.49.17 whatever it is to acquire that donor you can see then that you're losing 17 cents or 49 cents or whatever your number is each time you bring a new donor in who who gives you a dollar for each Dollar in their donations donor retention means that you're going to spend less than a dollar on the donor next so the donor retention inputs the number of donors this year the same as it was in our donor acquisition cost the number of new donors this year and the number of donors last year next so you don't retention rate is calculated by dividing the total number of repeat donors this year by the total number of donors last year so in other words you have repeat donors it's going to be less than your 95 um but more than you're 15 and you have total number of donors this year next so if you have a cultural center with a six hundred thousand dollar budget and say these are your revenues membership fees 125 000 admissions of 25 000 grants of a hundred thousand sponsorships of 75 000 individual donations of 225 000 and say you have an endowment so you spot off fifty thousand dollars for investment income this year your foundation you have 13 foundations 10 businesses and 265 individual donors one of the foundations is new three of the businesses are new and 150 of the individuals are new last year you had 12 foundations eight businesses and 250 donors notice that the individuals like 250 donors but of them 150 of them are new that means that a hundred of them dropped off next so the total number of this year's individual donors which was 256 divided by the number of new in individual donors which is 155 and you get it should be uh is a difference of 115 divided by 250 is 0.46 so in other words 46 of the donors who gave last year will give a second gift this year orange donor retention rate the donor retention rate is hovered around 45 46 for years as tracked by the fundraising data of the uh fundraising Effectiveness project a good donor retention rate runs right around 80 percent 75 80 percent so as a field as a whole we have a lot to do to get donor retention rate up next so the cultural centers we did the overall donor retention rate the foundation donor retention rate is there's 13 foundations this year three of them are new so two of the foundations that gave last year did not give this year you divide those and you get an 83 percent retention rate that's a pretty darn good retention rate next and this is a worksheet for you to figure it out on your own it's very interesting to see how that works in um your buy activities your each individual activity I like to compare those I I think it's interesting to see what people like to come to and what people respond to year after year as I said the average donor retention rate hovers right around 40 percent and a good donor retention rate hovers right around 80 percent just to get a donor retention rate higher than 80 percent especially higher than 85 percent is not going to happen because you do have people pass on you have to move away you have them lose jobs you have them whatever this their circumstances they will not give again but if you can get up to about 80 percent you're doing very well so our third is return on fundraising investment and that metric tells you how well your resources are financially performing it expresses what percentage of your gross revenues are devoted to costs it tells you what fundraising activity makes the most money using the least resources and it is a metric easily understood by most business professionals which is what your board is made of usually a lot of business professionals if you talk return on investment you are talking uh business person's language so return on investment inputs are you need your fundraising ever fundraising Revenue revenues overall and by fundraising activity because you want to calculate them both and all your fundraising expenses and I have them listed here as salary donor research software donor database CRM do some prescriptions conversation trainings direct expenses and indirect cost allocations you may have more or less depending on how well equipped your agency is but these are pretty fixed or pretty typical fundraising expenses to have so you calculate return on investment by taking net income which is total revenues minus total expenses and dividing them by your total expenses so for example say that you're a one and a half million dollar Human Services Agency and here are your revenues you have a healthy mix of remedies and here are your expenses as well you have a full-time development director you have a full-time uh fundraising assistant you have a halftime grant writer you have Fringe you have an event coordinator just to help you with events because maybe you're doing two or three or four events a year your software using prescriptions conferences and trainings for your staff and the indirect cost allocation again your indirect cost allocations you may have to get from your finance department and you take all of those costs the net income and you divide it by all of those expenses and what you get in terms of overall fundraising investment using those figures is 400 percent that means that for every dollar that you raise that you spend for every dollar that you spend on fundraising you're going to get four in return in terms of the grant writing we took the grant writing revenues and the grant writing expenses subtracted them out got one million 11 075 we're dividing them by the total expenses that the grant writing had which was 93 925 and you're getting a thousand seventy six percent return on investment that means for every dollar that you put into grant writing for every dollar that you're spending on grant writing you're realizing almost eleven dollars in return and there are different fundraising industry return on investment benchmarks it's about nine hundred dollars through major gifts and capital campaign it costs about 10 cents a dollar to um raise a major gift or a capital campaign gift it's about 400 through grant writing and that's including labor also the major gifts is including your labor through Direct Mail renewal with a 50 or higher return rate about 300 percent these are people who have given and who are going to respond to your direct mail again it's about 300 through planned giving again including labor it's about a hundred percent through fundraising events not including labor this means that for every dollar you spend on a fundraising event all you re all you at on average will realize is a dollar back so they're breaking even and that does not include your labor expenses once you start including labor expenses fundraising events on average lose money they're not your best return on investment it's even worse through Direct Mail acquisition with because you only get a one percent or a higher return rate and it's 50 50 cents meaning that for every dollar fifty that you spend you only get 50 back only do a direct mail acquisition if you're interested in acquiring new donors and you do need to acquire new donors and you do need to do acquisition activities you may want to do them in a different way though this is um how a worksheet a little worksheet for how you can calculate your own return on fundraising investment so how do we show success we're doing all this great work we're getting the most return on our investment our costs are down our revenues are up you know we're feeling pretty great so what we want to show is we want to show decreasing donor acquisition costs there will be a point where you can't decrease them anymore but usually I find fluff in organizations that I work with where there can be some decrease in donor acquisition costs you want to see increasing donor retention rates generally there's a lot of work most organizations hover right around 45 46 percent of an overall donor retention rate increasing that just increases revenues net income by by Leaps and Bounds because they're doing that they see higher net revenues and they see we've turned on an improved return on investment these are some of the some of the metrics that you will want to track for both an annual evaluation that you will do with your superiors and if you're an executive director you may want to show these to your board and have this be your fundraising report in terms of board fundraising reports do it in Trends you want to compare year over year and you want to have like a five-year Trend if you're not five years old yet don't worry you can always start Where You Are your net you want net revenue Trends overall net revenue Trends by fundraising activity this is in case you get the age-old board member who says oh so so-and-so agency raised twenty thousand dollars through their Tricky Tray auction we won't we need to do one too and yet you know that that's not going to raise money um you want these metrics donor acquisition cost Trends Roi return on fundraising investment Trends and Benchmark comparisons use the Benchmark comparisons that can be that that I have already presented to you in this presentation how are you doing compared to an industry so what have we learned we've learned why donor acquisition costs donor retention rate and return on investment are important metrics we learned how to calculate analyze and utilize the fundraising metrics donor acquisition costs donor retention rate and return on investment we've learned what industry donor retention and return on investment benchmarks are we've also seen how to demonstrate fundraising success success including to including to board members using those three metrics it's so what are the common obstacles I see the common obstacles I see is that people don't track all their costs they may track direct costs they may not track their allocated costs but generally I don't see total cost tracked if you do track total costs It's usually the finance department who's doing it but it's really good it's the development department also has a real good handle on costs they use direct constants that are total costs so again it looks like they're raising money when they may not be raising money at all the choice of fundraising activities is based on feelings and assumptions instead of objective data this is your board fundraising say we need the Tricky Tray action or this is their saying let's do the night or it's they they whatever makes them feel good it's based on uh feelings and assumptions and stuff the objective data a lot of people ignore their donor retention rate I hear I hear a lot of executive directors come to me and say if only we could acquire new donors no that's not the case as we've seen to acquire new donor actually costs more money than you're bringing in you want to work on your donor retention rate you want to calculate your overall oh I often see them calculate their overall net metric if they do calculate the metric but they don't do it by fundraising activity so there's no comparison between the activities that they do which means that they don't compare Returns on investment I also see a lot of times that don't produce meaningful board reports they either don't know what information is going to speak to their board or they have too much information in there and the board rolls their eyes and and then says they don't know what's going on even though you told them so the objective by using these metrics is to have meaningful board reports in a um chewable size a chunk of information that they can actually read and remember so to bring it together you use those three donor metrics donor acquisition costs donor retention rate and return on investment to set benchmarks make decisions and invest in the most cost beneficial fundraising activities that will improve the results of your nonprofits fundraising program and you can report on its success if you have any questions I can be reached to Joanna joanna.com I also have some books and courses here's my website uh if you want to subscribe to my website I have weekly blogs that I post you can get it into your uh inbox every week um so and you'll also find uh one way to get your board engaged in fundraising as well and that's it for today thank you for your attention I appreciate it thank you Simone