What Customer Lifecycle Management Can Teach Us about Fundraising

Transcription

1 What Customer Lifecycle Management Can Teach Us about Fundraising By Allison Lewis Lodhi, Vice President, Client Strategy When the doorbell rings 20 minutes after we ve ordered something online, an irrational but hopelessly optimistic voice in our heads says, Could it be here already? In the course of buying a product, there are many opportunities to be delighted and disappointed. The emotions involved can be complex, ranging from eager anticipation of the arrival of a box, to annoyance over a faulty product, and even jubilation (possibly shock) at the discovery of a real, compassionate human being on the other end of a customer service line.

2 Effectively managing customer expectations at each step of the purchasing process can inspire loyalty and make even a bad experience feel good by the end. Failure to do so breaks trust. As consumers, we know this. As fundraisers, we rarely put it into action. Giving requires more trust than most retail experiences do. Yet, shopping experiences are oftentimes more carefully crafted than the donor journey. Development models and the metrics to evaluate them are woefully inadequate illustrations of the true complexity of donor relationships. If only creating an endless loop of cultivation, solicitation, and stewardship were as easy to do as it looks on paper. Managing models and metrics that are disconnected from the donor experience prevents fundraisers from gaining critical insights into fundraising effectiveness, which can then lead to misinformed decisions about where to invest their efforts, how to maximize results, and ultimately how to create the best experience for their donors. It s time for nonprofits to get a better perspective on planning and measuring their fundraising strategies by conducting customer lifecycle management connecting fundraising strategy and evaluation to the donor lifecycle, to be precise. The donor lifecycle goes beyond the development cycle. It takes into account key milestones within the larger stages of cultivation, solicitation, and stewardship that are all essential to progress. The donor lifecycle reflects the donor s relationship as expressed by the donor s behavior. And once defined, it can be measured. Fundraising is not linear. It isn t one-directional or one-dimensional. Dollars raised, number of donors, and percentage of donors retained year to year are the three most common measures that organizations evaluate consistently. However, these measures have little to do with why a donor first chose to take action or not. Furthermore, these measures can mask significant problems within a fundraising strategy, as well as hide success stories. Even worse, they can lead to faulty decisions about how to adjust that strategy.

3 Take, for example, the organization that grew 16-fold from 420 annual donors to 6,800 in three years. Retention, as a percentage of donors retained year over year, was one of its core fundraising metrics, and it had crashed from 46 percent to 18 percent during this explosive growth period. Digging a little deeper, it was discovered that the organization s retention of donors had improved; it was retaining 10 times more donors than it had before. Its universe the denominator in the equation had simply grown more dramatically. Donor retention, as a percentage of the available donors, was smaller; but it represented significantly more donors each year. So while retention wasn t keeping pace with the growth, it wasn t a failure either. Without further inquiry, this organization might have stopped its acquisition efforts in order to focus on shoring up retention. Or it might have thrown out its stewardship program and started over. Those both would have been serious mistakes. The decrease in the retention rate might have been an indicator to look further; but alone, it said nothing about the donor experience. Performing an analysis of retention by the donor lifecycle would be more instructive. Indeed, further analysis revealed that the program was driving significant retention among key multi-year donors (loyal donors in year three of giving). A new strategy had been put in place the year before to target first-time donor retention. And while second-year giving showed increases, new donors who had experienced this strategy also had a higher giving frequency their same-year giving had improved as well. So which donors were dragging down the retention average? Those who hadn t gone through any welcome strategy and hadn t yet made it to three years of loyalty. That s where strategy improvements were needed. Breaking down this organization s donor lifecycle was essential to understanding not only which aspects of their fundraising strategy worked as intended, but also where more effort was needed. Evaluating the total donor lifecycle is critical to understanding what s really happening in a fundraising program. It also illuminates the key milestones where donor relationships fundamentally change and therefore different approaches are required. Donor lifecycle management requires that we first map the key milestones in a pathway toward a chosen destination. And the intended journey must anticipate any challenges as seen from a donor s perspective that may be encountered along the way. It must plan for side streets and shortcuts, wrong turns and deviations, while still driving toward the expected destination. Aligning the brand, channels, expectations, and messaging to this map of the donor continuum provides one coherent, consistent experience. Then, tying appropriate measures to each stage to help gauge progress will provide an accurate definition of what success looks like and the necessary insights into what s working and what isn t just in time for course corrections to be made.

4 Retail businesses understand these milestones very well. A shopper must first experience a need or an attraction to a product, and then consider or evaluate it further before the moment of purchase. There may also be a delivery step, which means a period of anticipation and waiting. And finally, there is the use phase. Customer dissatisfaction during any one of these three stages could potentially lose a customer. This begins a multidimensional process of recovering the relationship and/or sale, which is focused on returning the customer to the prescribed pathway. Similarly, a prospective donor s process of becoming aware of an organization s mission is also a journey. A first impression will inform everything else the donor perceives. A donor who takes a first action to supply a name and address, or to complete a survey is now more aware and engaged. The experience has changed, forever. When setting our goals and crafting our strategies, we must remember there will only ever be one first gift. And when it happens, it reflects the culmination of a multidimensional, cross-channel experience that we must influence. Driving that new donor to achieve a loyalty status has to be a planned, thoughtful strategy not just left to happenstance. Simply having more donors, more dollars, or higher retention percentages is insufficient. Too frequently, focus and planning begin with solicitation, which then gets bookended with afterthoughts on cultivation and stewardship. It s a strategy that s out of balance with the true nature of the donor experience. Then, success measures tend to get tied to the transaction, rather than the relationship. Many gift officers have experienced being handed a portfolio that s brimming with unqualified prospects who are mismatched to the organization s fundraising goals based on a percentage increase over whatever we did last year. Whether the goal is met or turns out to be a colossal failure, there will be little measurable insight as to why. Not every gift will completely transform the way a donor experiences an organization, but the first gift certainly does, and the second and third gifts will in some way as well. In addition, a donor s first major upgrade is a milestone. And a visit from a gift officer changes the expectations for both the donor and the organization. Are you planning your fundraising strategy so as to anticipate and measure progress toward each step in the donor lifecycle? Are you measuring your fundraising effectiveness by the donor lifecycle? Donor lifecycle management can begin by simply adding a few milestones to the traditional donor stages. Rethink the following four basic stages of the development cycle during your fundraising strategy planning, and set some goals in terms of the donor lifecycle. Doing so will help your development team gain insights into the donor experience and the influence that the various strategies will have on it.

5 Identification and Research: Asking Whom will we ask and what will we ask for? What do prospective donors need? Getting into the endless loop of the development cycle is one of the biggest challenges. After all, circles, by their very nature, have no beginning. So how exactly does one jump in? Brand awareness, first impressions, and name acquisition happen here. Name acquisition and initial conversion are required before cultivation can truly begin. Whether building a broad-based pipeline or a major donor portfolio, promises made here must be kept throughout the relationship. For example, a healthcare organization whose marketing team is focusing on attracting new oncology patients is shaping the grateful patients and families philanthropic strategy without necessarily realizing it. What expectations will those patients bring to their donor experience based on the marketing pitch? How does that change the way fundraisers position a first introduction and an eventual solicitation? Do you know? Name acquisition and conversion, whether to build an list or qualify a major donor portfolio, may well be the most intensive stages of the process in terms of time and investment. And yet, these stages are often the most haphazard or unplanned parts of fundraising strategy development. Frequently, the real strategy planning begins once the donor is in the door, which fails to take into account the donor lifecycle s true origin. When acquiring a new name, organizations must consider what journey the prospective donor expects to have, and what he or she needs in order to confidently step forward on this journey that the organization wants him or her to begin. Marketers know the best product doesn t win; the best go-to marketing strategy does. The donor lifecycle begins with the brand awareness plan, and fundraisers should help drive the direction. Fundraisers who are fortunate enough to have a strong marketing team must be active participants and understand how the philanthropic brand is being positioned and what expectations were implied as a result. Target the right prospects, set the right expectations, and measure the quality of the impressions and perceptions prospects have. You must plan for success as an active partner with the marketing team and define what success looks like. Prospect research should inform the marketing strategy just as the market research should inform the prospecting strategy. Cultivation: Building relationships, engaging the prospect, and preparing to make the ask Brand credibility is expressed in many ways. The grouchy receptionist, the annoying phone menu, the archaic website all detract from great customer service great donor service. Deploying mystery shoppers in large nonprofits might help you see things differently. Surveys and focus groups with donors are valuable too.

6 Cultivation is reflected in the donor lifecycle by time. How long after a first impression does it take to get a donor to the first action? You must measure that so you ll be able to start honing your strategies in order to shorten the time frame or improve the donor relationship while you wait. Meeting and exceeding expectations will build credibility. Cultivation is an opportunity to collect behavioral data (how prospects and donors respond to communications and engagement strategies). This is your chance to zero in on interests and build strategies that actively prioritize this necessary data collection. Solicitation: Meeting donors where they are and with an ask The moment of purchase must be broken down into relationship-driven segmentation. A first gift is not the same as a second or a twenty-second gift, but certain milestones are more significant to your strategy development than others. In Pursuant s work with analyzing donor lifetime value for its nonprofit clients, many organizations are surprised to learn that their major donors who begin with a first gift at an entry level of giving (typical of direct-response type acquisition campaigns) go on to have dramatically higher lifetime value than even those donors whose first gift was a major gift. This means their journey through the donor lifecycle has been meaningful to the relationship and maximized their investment in the organization. Stewardship: Recognizing and continuing to engage donors by the donor lifecycle milestones they ve achieved So far, your first-time donors have had a different experience than your lifelong loyal donors. They also have different expectations and needs. Most organizations will speak differently to their lapsed donors based on the recency of their last gift. How you respond to new and current donors should be no different. Segment your donor base into three core groups: New Donors, Current Donors, and Loyal Donors (or Key Multi-Year Donors, which typically means three years of giving, reflecting both a consistency on the donor s part, as well as the turning point for ROI on the organization s part). Track them through the next solicitation, at least. New Donors: For first-time donors, measure first gift conversion in terms of the number of impressions or solicitations it took to earn a gift, by channel, so optimization can take place. Welcome first-time donors and appropriately chaperone their experience through to their second gift (at a minimum) and their third gift (if manageable). Track retention as a measure of time to a second gift during the same year, as well as time to a second gift during the next year. You should also evaluate gift frequency and revenue per donor. Capture multi-channel data too. Donors bring passion to the causes they support, and the start of the relationship is when that energy is most unbridled full of potential and excitement. Touch the

7 right nerve and they ll be bouncing off the walls with enthusiasm for the mission. Fail to channel that energy effectively, though, and you ll let them drop into a state of boredom, frustration or worse, anger until they lose their pep. Enthusiasm fades fairly quickly when it isn t managed. But managing the donor lifecycle keeps the focus on the complete donor experience. Somewhere in the development cycle, stewardship fades into cultivation once again, and the pursuit of the next gift begins. Brand credibility can help earn a first gift, but relationships must earn a second. Just as solicitation must meet donors where they are, so too must stewardship. Create a pathway for New Donors, Current Donors, and Loyal Donors, and then measure donor retention, average gift, revenue per donor, and frequency within each subset. The donor pyramid suggests that donors enter (who knows how) and progress to larger gifts, with some donors exiting along the way or never quite making it to the pinnacle. Of course, not all donors will become major or planned givers, but the pyramid approach assumes an upward mobility that few organizations effectively maximize. In truth, donors enter the pyramid at many different giving levels, then drop down, move up, move out and back in through name acquisition campaigns, firsttime solicitations, referrals, and many other means. What remains consistent is that each donor will make a first gift only once, the second gift always follows the first, and without a way to measure and manage a donor s progression toward the top objective the major donor destination there is no strategy in place, just hopefulness and maybe even luck. In the course of making a gift, there are many opportunities for donors to be delighted and disappointed. However, if fundraisers effectively manage donor expectations at each step of the giving process, they can inspire loyalty and instill trust in their donors. But to do so requires mapping the donor experience and connecting the appropriate fundraising strategy and evaluation to each step. Bottom line: fundraisers must plan the donor lifecycle and manage it.