originally posted: July, 2007
Ironically, all “not-for-profits” still have to realize a surplus. That’s what most people call profit. And, in fundraising, one of the most useful ways to monitor profit is at the level of the individual donor.
My interest—passion, as it has become—in donor-level profit began when I responded to a Swiss client who said, “You’ve done some great work for us, John. What do you want to tackle next?”
I said, “I want to look at some of the Big Questions. How about donor-level profitability?”
“Gehen Sie bitte so vor!” said the client (“Go right ahead!”). Carte blanche to dive into their data and examine profitability. And with pay!
What I found astonished me. Remember George Orwell and his famous book Animal Farm? In it, the pigs say, “All animals are equal, but some are more equal than others.” So it is with donors. But just how much so has been an eye-opener.
First, let me tell you what I mean by donorlevel profit. It’s what you get when you subtract the costs to acquire, service, and maintain a donor from the gross revenue that donor produces. Counting the gross revenue is easy—it’s what turns up naturally in the database. Counting the costs—not so easy.
After a wait of nearly two months for the information on costs to arrive from Switzerland, I divided them into three groups: C1 for direct costs (chiefly postage, production, and the like). Then C2, the salaries of the staff involved. Finally C3, the overhead— the share of heat, light, insurance, and so on. C1 costs are by far the largest.
The overall profit margin for the most recent year, I found, was 65%—pretty respectable, I think you’ll agree. But behind this happy number there was a deeper truth: Only half the year’s donors were profitable. The rest were loss-making.
Picture this: The organization was supported by around 66,000 donors that year—but half of them cost money and only half made money!
It gets better: Among the profit-making donors, a few—the top 10%—contributed 90% of the net profit.
What happened next? Well, it seems that Orwell really did know a thing or two about donors even though he wrote about politics.
My immediate recommendations were:
- Corral off the super-profitable donors and get someone—a real, living, breathing person to look after them. Or as you Americans do more fluently than we Europeans, steward them
- Deal politely and compassionately with the many thousands of unprofitable donors, but recognize where the real money is coming from, cut back on your large-scale appeals, and focus on the real money-generators
This was my first donor-level profit study, but not the last. I’m up to seven now, with more in the pipeline, and in general the results are always similar.
A caveat: Monthly givers of more than trivial amounts are usually profitable, varying little. It’s among the non-monthly, non-direct debit donors where the greatest savings (and greatest growth) are to be found.
The moral of this story is this: Remember what every businessperson knows—that there are high-value, high-profit customers who should be courted and on whom you should focus. Then there is a middle ground of donors who are marginal in net value—and a long tail that loses you scads of money.
Be realistic. Be smart. Make donor-level profit a principle of your fundraising. And tell me how you get on.
