Domino's Pizza learned and put to work in their marketing.
Maths of Fundraising

VIDEO: How to Use — or Misuse Donor Lifetime Value

Professor Adrian Sargeant of The Philanthropy Centre, talks about Donor Lifetime Value – an important measurement that can vastly improve your fundraising if you use it well… or dig you into a very deep hole if you use it poorly!

Learn what P&O Cruises and Domino’s Pizza learned and put to work in their marketing.

This may surprise you!

Please share what you’ve experienced working with Donor Lifetime Value by leaving your reply below. We’d love to learn from your experience.

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FundraisingMajor and Mid Value Donors

Mid-Value Donors: Neglected and Desperate to Help

Harvey McKinnon, Harvey McKinnon Associates, and Sean Triner, Fundraisingologist at Moceanic, discuss that important group of donors who fall between your top donors and your general donors.

Learn how to treat them and communicate with them in ways that will keep them giving — or even upgrade to much larger amounts. It’s one of the most important and least-practiced ways to maximize revenue.

Want to know more about Mid-Value Donors? Sean covers this important topic in the Mid-Value Donor Super Course which is available for all members of The Fundraisingology Lab. Find out more here.

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Make More for Your Cause with the Pareto Principle
Direct MailMajor and Mid Value DonorsMaths of Fundraising

Finding Your Best Donors with the Secret of “Pareto Squared”

If you are a fundraiser, you probably already know all about the Pareto Principle or 80/20 rule.

This rule tells you that 80% of revenue will come from 20% of your donors.

But you might not yet have heard about Pareto2 or Pareto Squared.

This rule only works across a large data set, and across a few years, but it is another useful thing to understand if you want to maximise future income.

What is it?

It digs deeper than 80% of revenue will come from 20% of donors.

It shows you that 80% of that 80% will come from 20% of the 20%.

Lost you?

It means that, in theory, 20% of my top 20% donors, which is 4% of all my donors will give me 80% of 80% of my revenue – which is 64% of all the revenue.

Wow.  64% of revenue will come from just 4% of donors.

Beautiful – and, if you are good at following up mid-value donors, major donors and bequests, surprisingly accurate.

The implications for how you should focus your time are amazing. And you can find out more in The Fundraisingology Lab.

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Donor LoveMajor and Mid Value DonorsMaths of FundraisingMonthly Giving

Sorry Darling, Not Everyone Wants a Relationship With You

It’s a question that many fundraisers ask me about mid-value donors. And it’s one of the key things that came up at my webinar All About Mid-Value Donors yesterday:

How can I identify those donors ‘worth’ an extra investment in time and money?

Go to any conference, read any fundraising blog and you will likely be told how important it is to ‘build relationships’ with your donors. Maybe it is couched as ‘engagement’.

You may see headlines like ‘Research shows that donors are more likely to donate if they are engaged’.

We believe this. After all it makes sense, doesn’t it? More engaged donors will give more.

Of course, people who give more are more, ahem, engaged too.

Chicken or egg?

At the same time we read about rising costs of acquisition and development, and are constantly reminded about this by our own budgets and results.

So, on one hand we need to build relationships –- which costs money –- and on the other hand keep costs down.

What to do? Luckily, you don’t need to invest lots into everyone.

You see, most donors don’t want relationships with you. They gave because they liked the pack/person who signed them up on the street/advert online/Facebook post/friend who did an event. The connection is slight. Casual. Hardly ‘engaged’.

If you have ever done any qualitative or quantitative donor research, you’ll find most of your donors don’t even know the name of your organisation. They often don’t know how much they gave. Or when. Or what for.

Also, about 80% of your future income is going to come from just 20% of your supporters. And, interestingly, about half of all your future income is going to come from a tiny number of donors – perhaps as low as 5% of them!

Combining these facts, you can quickly begin to prioritise those donors ‘worth’ an extra investment in time and money.

There are some nearly free ways we can improve how we communicate with all donors.

These boil down to:

  • Donor-centric language. Thank them, not you. Praise them, not you. Demonstrate outcomes from a recipient’s point of view, not yours. Make all your communications about them. Not you.
  • Personalising letters and response coupons in mail. Modern technology allows for personalised ask amounts in letter copy very easily.
  • Using the phone to thank and to ask for monthly giving.

These things will also lead to you raising more money straight away.

There is more we can do, but it will cost you.

And that’s what my recent free webinar was about: spending more to get more from the donors who can give more. It’s part of what makes the difference between a fundraising program that floats along, gathering revenue at a poor return-on-investment, growing slowly if at all … and a program that really grows by leaps and bounds.

Which one would you rather be?

I’d love your thoughts – please comment on the blog below.

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Make More for Your Cause with the Pareto Principle
Major and Mid Value DonorsMaths of Fundraising

Make More for Your Cause with the Pareto Principle

When we founded Pareto Fundraising, my friend Paul and I named it that for a reason: The mathematical concept of the Pareto Principle.

Most people in direct marketing understand the principle in general. They get that 80% of your income will come from just 20% of your customers, or in our case, donors. It is amazing how accurate this can be over the lifetime of your donor program.

But so what?

How do we use this fact to allow us to raise more funds?

Applying the Pareto Principle helps us allocate our resources for maximum impact.

If we can increase the income from those few top donors by just 25%, we will raise as much as we would have done from the whole donor file previously!

This effort could be bigger packs, phone calls, events or even personal visits. The point is, the Pareto Principle helps us see where we can spend more to get more.

One of the ways that this smart application of resources really ramps up your fundraising is reaching out to mid-value donors — those who fall between your general donors and your major donors. For most charities, they are an untapped goldmine!

Sean

 

If you’d like to learn more about how you can mine this gold, register for Sean Triner’s FREE webinar All About Mid-Value Donors. There are two webinars to choose from, so select your preferred time and register now. 

Option 1:

Tuesday, October 3 New York: 3.30pm / Los Angeles: 12.30pm / London: 8.30pm

Wednesday, October 4 Auckland: 8.30am

Register Here

 

Option 2:

Tuesday, October 3 New York: 7.00pm / Los Angeles: 4.00pm

Wednesday, October 4 Sydney: 10:00am / Auckland: 12:00 noon

Register Here

 

Check out the video below, which we put together to explain the Pareto Principle in the context of fundraising.

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Maths of FundraisingMajor and Mid Value Donors

The Calculation That Can Chart Your Future

Net Present Value

Net present value (NPV) is a finance term that’s meant to help you decide whether an investment is worthwhile or not.

It’s pretty much the same for fundraisers, who can calculate NPV this way:

  • Total projected lifetime giving from a donor (or group of donors)
  • Minus the cost of acquiring the donor
  • Minus the lifetime cost of cultivating the donor

When you calculate NPV on your donors, you’ll discover some amazing things.

Let’s look the NPV of a normal group of under-$10 donors:

The Calculation image 1

So you know from the day you cash their first check that this group of donors is going to put you in the hole at an average of minus $24 each!

I don’t think anybody — including the donors themselves — would be happy with that!

There are several things you can do to improve this:

  • Raise the average first gift, thus the projected lifetime giving.
  • Lower the cost to acquire them, which you can do by either making it cheaper or more effective or both.
  • Lower the cultivation cost by decreasing and/or spending less on it. This is the important part; you might even lower the cultivation cost on these low-dollar donors all the way to zero!

Now let’s look at a different group of donors, those whose initial gift to you was between $50 and $100. Their NPV calculation tells a different story:

The Calculation image 2

That’s more like it!  And you can usually make it better yet by spending more on cultivation.

NPV is really just another way of putting the Pareto Principle to work for your fundraising program. It helps you know with some precision how much more you can (or should) be spending on some donors, while also showing you how much less you can spend on others.

This can lead to a better overall response, better donor retention, higher return on investment — and you can afford to empower your donors in exciting ways.

NPV can also help you build smarter donor reactivation programs. It shows you that some donors just aren’t worth reactivating, while others are worth going to extra mile to do so.

So get out your calculator and start figuring. NPV is what you want to know!

Jeff

P.S. Please share your experience by leaving a reply below. We’d love to learn from your experience.

P.P.S. I hope you’re using math in ways that make your fundraising more effective and profitable. Stay tuned to the Moceanic Blog for more information on this important part of the job of a fundraiser!

 

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TrendsBenchmarkingMaths of FundraisingMonthly Giving

Should My Pareto Score Worry Me?

Should you be concerned about your Pareto ‘score’?

Following a post on Moceanic Facebook about the Pareto Principle, Daniel Peyton from Habitat for Humanity asked me if there was a Pareto split that a charity fundraiser should be concerned about.

For example, if you look at your data and find out that 20% of donors DON’T give 80% of revenue: should you be worried!?

Well, it depends.

Very few charities have a true 80/20 split – a ‘perfect’ Pareto score. But when you combine the data of a number of charities, they usually come close. The diagram below shows the Pareto Principle across all of Pareto Fundraising clients – representing about $1.4 billion.

It turns out that of all donations, 20% of donors give 73% of donations, and four percent of donors give 46% of donations. A little ‘flatter’ than the ‘perfect’ Pareto score.

Take monthly giving out, and only look at one off donations, and those ratios come much closer to the true Pareto principle at 78% of donations from 20% of donors, and 56% of donations from just four percent of donors.

So the lessons from Pareto – put your effort into the top 20% – still apply!

Pareto Principle

But what about monthly giving? Here the numbers are much flatter, with just 45% of revenue come from the top 20% and 16% of revenue from the top four percent. Concentrating efforts on the top donors is likely still worth it, but not to the same degree as with one-off donors.

So what should concern you?

Let’s look at some scenarios:

‘Extreme’ Pareto

My Pareto split turns out to be 95% of income from 20% of donors. Is this a concern? Possibly. If I raised $1 million from 10,000 donors that means $950,000 was coming from 400 donors (average $2,375) and just $50,000 from 1,600 people (average $31).

Let’s say it was just one donor who gave me $750,000.

Take that out, and I am raising $250,000 from 9,999 donors.

I still raised $50,000 from 1,600 (average $31) lovely people and $200,000 from the top 399 donors (average $501). My Pareto split is now 80/20!

So is it bad that I got that huge donation? Probably not. BUT it is risky if such a high proportion of my income is from just one donor. Perhaps a government grant?
If I were head of fundraising I would want to diversify, probably with a monthly giving campaign.

‘Flat’ Pareto

My Pareto split turns out to be 30% of income from 20% of donors. Is this a concern? Probably.

If I raised $1 million from 10,000 donors, that means $300,000 was coming from 400 donors (average $750) and just $700,000 from 1,600 people (average $437).

This looks like a monthly giving program to me. And it looks like we are doing well on initial retention (otherwise I would have more people giving very little) and are not doing great at upgrades (otherwise I would have more people giving much more).

It also tells me I am likely not doing well with major donors or bequests. So in this case, if I were head of fundraising I would want to diversify, probably increasing investment my major donor and bequest marketing.

If you do look at your data, you will likely see you are actually closer to a Pareto split unless you have one or two massive donors, or the lion’s share of your income is from monthly giving.

Thanks Daniel for this great question!

Sean

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Pareto Principle
Maths of FundraisingMonthly Giving

How Accurate is the Pareto Principle?

Hopefully, you know all about the Pareto Principle, also known as the 80/20 rule.
 
In fundraising, it means concentrating more resources on the 20% of people who would, theoretically, give you 80% of your future revenue.
 
Pareto2 (Pareto squared) is a little bit more complex.  It is when we look at those top 20% of donors and note that 20% of them will give a majority of income too.
 
Again, theoretically, this small number (20% of 20%, which is 4%) would give you 80% of 80% of your revenue – 64%.
 
This theory can really help with resource allocation.  But how close is the reality to theory?
 
The Principle ‘works’ to different degrees.  A charity with a database consisting of only monthly donors would have a ‘flat’ Pareto score.  Their top 20% of donors might give just 45% of donations for example.
 
Whereas a charity who has a broader portfolio of donors and is good at maximising revenue from bequests and mid-major donors would be much closer to the ‘true’ Pareto principle.
 
At Pareto Fundraising, we have a ton of data, so we had a look at all the individual donations made to all 75 charities in the Pareto Benchmarking study, and we saw something really interesting.
 
Bringing the charities together, you would expect the charities who are reliant on monthly giving would ‘balance out’ the charities who do well in bequests and major donors to get us closer to the Pareto principle.
 
And indeed they do.
One-off donations – including bequests – come very close to the ‘Perfect Pareto’.
 
With 73% of revenue coming from 20% of donors, and 46% coming from 4%, those one-off gifts are close to theory.  When charities are really good at their bequests and major donors, their Pareto principle will be closer to 80/20 and 64/4.
 
But monthly givers are nice and ‘flat’ with the top 20% of donors ‘only’ giving 45% of revenue, and the top 4% just giving 16%.
SeanTriner_ParetoPrincipleVsReality

Pareto Principle – Theory v Reality 

So what does that mean when you develop a plan for your mid value, major donors, and bequests?
 
Well, the lessons of Pareto still apply – there is more potential now and into the future from a minority of your donors. Your approach should be the same.
 
Here are my thoughts about the Pareto principle and Pareto2, even if the numbers are not quite 80/20 and 64/4.
  • You will get a majority of your revenue from a minority of donors
  • If you have a ‘flat Pareto score’ – like 20% of donors giving you 50% or less of revenue – then you are probably not doing enough work in the areas of bequests, mid and major donors
  • If you have a ‘steep Pareto score’ – like than 5% of donors giving you 80% of revenue – then you may be too reliant on a few donors for your whole operation. Time to invest in some monthly givers?
  • Increasing investment in your ‘top’ donors is likely to reap rewards. What type of investment?
    • Better stewardship
    • Visits, events and meeting donors ‘in the field’
    • Bigger, better direct mail to fewer donors
    • Integrating direct mail with digital, phone, visits and events
So don’t worry if you don’t have a perfect Pareto score, the learnings still apply and can guide you in your future planning.
PS – If you work in a charity with lots of donations (at least 10,000) you are almost certainly interested in being part of Benchmarking. Please email Jesse at Pareto.
  
Sean
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The Pareto Principle
Maths of Fundraising

The Pareto Principle – Damian O’Broin’s Latest Blog

You may like to hear from other fundraisers from time to time, so I’d like to share my friend and fundraising expert, Damian O’Broin’s latest blog on the Pareto Principle.

Yes, I know you have heard about this principle a million times before, but I believe it is always worth reading others thoughts, particularly if it only takes you 5 minutes, which this will.

Click here to read Damian’s blog: bit.ly/Damians_blog

I am also very proud to be invited to speak at Ask Direct (Damian’s agency)’s Summer School in Sept 2016. Click here to find out more about the event. 

  • Stewardship 3 Easy Steps Presentation Slides
  • Customer Care Feedback Handling Guide Mini Give Away
  • Customer Care Training – Module Overview (Pareto)
  • Donor Feedback Log Template
  • Examples of lovely thank you communications
  • Nice donor cards from Maude at Children of the Street Society
  • Example welcome program
  • Should we thank? Proof in numbers? AND how to construct a thank you test.
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Direct MailMajor and Mid Value DonorsMaths of Fundraising

Pareto Principle and Direct Mail

I’ve reminded you all about the Pareto Principle, and written about Pareto2.  It’s all well and good in theory.

But how can it be applied in practice?

One of the most obvious applications is when targeting and budgeting in direct mail.

If I am working on a direct mail pack to my house file (people who have donated through direct mail before) I can use the principle to increase revenue. And usually for no extra cost!

A fundamental mistake in direct mail is when the goal is to reach as many people as possible, as cheaply as possible.

Generally the bigger and better the pack, the better it will perform.  A ‘better’ pack may get a higher response rate and/or a higher average donation.  But it probably costs more per pack to mail.

Applying the logic of the Pareto principle, we can quickly work out that sending a bigger, better pack to fewer donors will raise more money.

A really easy example is that I may be planning on spending $1.50 for a standard pack to 20,000 people. That will cost me $30,000.  (Print and production is expensive here in Australia!)

My ‘better’ pack is going to cost me $3, but my budget is stuck at $30,000.

I would mail the $3 pack to the top 20%, about 4,000 people. Wiping out $12,000 of my budget I now only have $18,000 left and 16,000 people I could still mail.

Now, with the remaining budget I can either:

Mail a much cheaper pack to all of them ($18,000/16,000 = $1.12 per pack) OR

I only mail 12,000 people with the $1.50 pack.

Whichever I choose, I will raise more money in total. But only if the pack really was better.

Nice and clear?

Here it is in a video.

A call to action about the Mid-Value Donor Super Course.

If you want to learn more about how to write and develop Direct Mail that will get you results – click here to find out more about my Mid-Value Donor Super Course. it’s available for all members in The Fundraisingology Lab.

In it, we focus on how to write and develop direct mail aimed at Mid Value (or Mid Level) Donors.

Click here to find out more about the techniques for writing and developing a successful direct mail pack aimed at mid value donors. In the course, I also provide essential tips to help you write effective copy. And much, much, much more.

Sean

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