Donor Churn: The Hidden Trap

By Ron Fredman

Those responsible for development tend to live and die by the bottom line: number of gifts, number of donors, number of dollars raised by year’s end. It’s what annual budgets anticipate, what staff provides to boards and company leadership, and what organizations tout in annual reports. Growth, the reasoning rightfully goes, is good.

What is buried in those numbers, however, is churn: the lost revenue and donor base you must make up each year to just stay even. This is not evident by a quick look at monthly financials or annual reconciliations. But the reality of turnover is real, rather startling and should not be ignored.

According to the “2016 Fundraising Effectiveness Survey” by the Association of Fundraising Professionals and the Urban Institute, the donor retention rate in 2015 was just 46 percent on average. Gift-level retention stood at 48 percent. Put another way, organizations had to replace more than half their donors and many of their dollars before ever considering moving their numbers up.

Equally telling, according to the research, every $100 gained in upgraded, new or recovered gifts was offset by $91 in losses from downgraded or lapsed gifts. And every 100 new or recovered donors was offset by 96 donors lost through attrition. Both of those statistics do show net growth (not always the case in the past few years), but unnecessarily slight and quite toughly won.

The findings, gathered from nearly 10,000 survey respondents, have remained fairly consistent for at least a decade. Because of the voluntary nature of the survey, many participants were from small or mid-sized nonprofits (larger organizations tended to fare better than the smaller ones), but the information held true across all organizational profiles and budget sizes. A detailed survey summary can be found here.

Sometimes notable gaps in contributed revenue open because of changes beyond your control: the death of a significant donor (hopefully you’ve secured a planned gift); the end of a three-year non-repeating foundation gift; the loss of major corporate support because of shifting priorities. Those larger hits, of course, are difficult to replace.

But more often than not, the churn is comprised of many lost relationships — typically modest by themselves but notable in the aggregate. Odds are good that most who disappear each year are the previous season’s first-time donors (some research has it as high as 80 percent), or those who feel the least connection to, or appreciation from, your organization. Retention rate increases significantly if you get the donor to return for at least a second gift, with gift size also likely to grow over time.

Reducing donor drop-off by just 10 percent — coupled with gift-growth strategies — could have significant impact. Adrian Sargeant, one of the world’s pre-eminent researchers in philanthropic motivation, argues a 10-percent improvement could yield up to a 200-percent increase in projected lifetime value through increased gifts, multiple gifts, recommendations to others and, ultimately, a planned gift.

Figuring the percentage of churn (or conversely donor retention) is easy: Divide the number of returning donors (or the contributed revenue) by the number of total donors (or contributed revenue) from the previous year. The hard part is to accept the results and do something about it.

This begs the obvious:

• How well are you assessing, understanding and working to reduce turnover?
• Are you segmenting analysis and strategies by donor category or gift range?
• What are your plans for effectively investing in even your most modest donors to keep them happy, valued, connected, trusting, engaged and involved — while working to upgrade gift amounts across the board?
• Are you willing to shift your thinking and incrementally focus additional resources and effort (staff, outreach, analytics) on retention, even if it means one less acquisition mailing or major-donor event?
• Can you generate an effective growth rate of 7 to 8 percent a year, effectively doubling every decade?

Yes, it takes more work and some tough choices. But in the end, it’s difficult to argue with the numbers. Or the reality that it is more efficient to retain and grow a current donor than to secure a couple of new ones … year after year after year.

Ron Fredman, chief development officer at Kansas City Ballet, is well known for beyond-the-horizon thinking, deceptively tough questions, nurtured expectations and enthusiastic partnership. He is a passionate fundraiser and dedicated relationship builder. He has enjoyed many years in arts fundraising, including record-breaking seasons as the chief fundraiser for the Kansas City Symphony and Houston Symphony. He joined the Kansas City Ballet as chief development officer in the fall of 2012 and has continued the string of fundraising successes. His background includes more than a decade as a national fundraising consultant with Hartsook Companies, where he last served as executive vice president. He has guided arts and cultural organizations, social services, youth organizations, schools, religious institutions, health care, professional and trade associations, foundations and more. Beyond solid fundraising leadership, he also provides senior-level expertise in management, strategic planning and marketing. 

Ron is a frequent speaker at national, regional and local fundraising and business conferences, where his energy, interactive style and common sense draw strong reviews. He has designed and taught business courses at the corporate and community-college level, and has written for many publications. He began his career as a sportswriter at The Kansas City Star. Ron studied political science at the University of Missouri-Kansas City and served as an adjunct faculty at Lansing (Mich.) Community College. Ron is chair of Dance/USA’s Development Directors & Staff Affinity Group.