[JPL] Donor drain: As mistrust grows, loyalty goes

Arturo arturo893 at qwest.net
Mon Dec 17 18:47:50 EST 2007

Charities lose lots of money replacing departing benefactors

By Tracie McMillan

Anne Senft spends her work days raising money for the National Wildlife
Federation. It’s not an easy job, and lately, it’s gotten harder. According
to Senft, the Reston, Va.-based charity has been losing some 300,000 donors
each year — nearly one-third of its nearly 1 million members.

For most of the early 2000s, Senft says, the group was only able to replace
most of the donors who walked out the door. “We pretty much broke even,” she
says. Late last year, though, the nonprofit had to make a tough decision:
spend more money to make money, or risk falling behind. The Wildlife
Federation ended up spending some $2 million more on fundraising than the
previous year, according to its tax return, sending out 20 million donor
letters and nearly as many e-mails.

It worked — but just barely, bringing in 50,000 more members, says Senft,
and bumping up donations and membership fees by 6 percent. “We were able to
get ahead of the curve because our acquisition was so aggressive,” she adds.
“But we didn’t gain ground until this year.”

Call it the donor drain. Raising money for a cause these days has become
much like trying to walk up a “down” escalator while it is accelerating. It’
s getting tougher just to break even and much easier to fall behind. “The
problem is not that [charities are] not getting new money; the problem is
that they’re losing an enormous amount of money,” says Bill Levis, the
author of a new pilot survey by the Urban Institute that documents the

Levis’ survey shows that most nonprofits post an average gain of just 10
percent each year: they lose 52 percent of their donations, which is then
offset by a 62 percent gain in new or upgraded donations. In short, says
Levis, nonprofits are losing almost as much as they’re gaining, pouring a
river of money into a nearly open drain.

‘Donors don't want to be funding fundraising’
The result? A looming financial crisis in the sector as the number of new
donors starts to wane, says Adrian Sargeant, a professor of fundraising at
Indiana University’s Center on Philanthropy. If organizations fail to keep
donors on board, says Sargeant, “they’re going to be spending a lot of money
on donor recruitment that could be spent on programs.”

Indeed, analysis by Blackbaud, a fundraising research group, shows that over
the past five years, there’s been a gradual but steady decline in the number
of nonprofit donors, in general, and particularly in the number of new
donors to the sector. It costs more to acquire new donors than to retain
them, experts say. But churning through donors also makes it harder to woo
benefactors. “Donors don’t want to be funding fundraising,” says Sargeant.
“They want to be funding the work you’re trying to do.”

And they’re demanding much more accountability from the nonprofits they
bankroll. If they don’t get it, they walk, says Penelope Burk, president of
the fundraising consultancy Cygnus and Associates. In August, Michael
Steinhardt, the hedge-fund philanthropist, dropped 18 grantees from the 100
he supports, citing disillusionment with their work. Donor Susie Buffett,
speaking to nonprofit management students at Manhattan’s New School in
September, said: “Sometimes, when people ask you for $50,000 and you give
$35,000, it’s amazing how people react. A simple thank-you would be nice
’d be amazed at how many charities simply forget to say thank you.” David
Rockefeller, Jr., the great-grandson of oil magnate John D. Rockefeller,
Sr., says many charities “just don’t keep donors informed enough of how they
’re having an impact.”

Indeed, about one-third of nonprofits report that donors want more detail
about how their donations are used, according to Blackbaud’s annual survey
of the nonprofit industry. That proportion has held steady since the first
survey in 2005, says Amy Comer, a manager of market research at Blackbaud.
Even if the numbers aren’t rising, says Comer, “the fact that nonprofits say
they’re continuing to see increases [in concern] signifies a problem that is
not going away.”

While faltering financials top the list of donor concerns — when Burk
surveyed donors, 37 percent said they stopped supporting groups because of
“mismanaged funds” — simple appreciation is important, too. Of the donors
who withdrew support, 47 percent did so because they felt uninformed or
unappreciated. Yet when donors leave, the funding clock resets to zero, says
Burk. New donors are expensive to get and rarely give much the first time,
she says. Donor churn, she adds, is “the most serious problem in fundraising

Yet even a small improvement in retention can yield a windfall over time,
says Indiana University’s Sargeant. Boosting the retention rate by as little
as 10 percent, he says, can increase the lifetime value of a nonprofit’s
donor base by up to 200 percent. “A lot of nonprofits lose money on donor
acquisition,” he says, “so if you’re not losing them, you don’t have to
replace them.”

Just ask the International Rescue Committee: when half of its donors
disappeared after the Kosovo crisis, IRC retooled its efforts. By the time
the 2004 tsunami hit, IRC had a “welcome kit” on hand to send to donors with
thank-you notes and other forms of followup — and this time contained its
post-crisis donor loss to just 3 percent of total membership. The secret:
more time and money was spent on retention. Donors, says Burk, “don’t hang
around hoping they’ll get [what they want] in the future.” If a nonprofit
doesn’t get it just right, “[donors] are off to the next one

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