Jan/Feb 2008

Looking Back, Looking Ahead: What the Numbers Tell Us

by Vinay Bhagat, Founder and Chief Strategy Officer, Convio

Many economists are forecasting at least a mild recession. Goldman Sachs economists Jan Hatzius and Ed McKelvey expect the recession "is likely to last two to three quarters and be relatively mild by historical standards, with a cumulative decline in real (inflation adjusted) GDP of only about a half percent."

Research by the AAFRC Trust for Philanthropy and Center on Philanthropy at Indiana University suggests that charitable giving will decline: "In six of the eight recession years since 1971, giving dropped by 1 to 5 percent when adjusted for inflation."

And the Target Analytics Index of National Fundraising Performance, which tracks a number of very large nonprofits, shows "donor counts have declined for both of the past two years, dropping a median -1.8% from the first three quarters of 2005 to the first three quarters of 2006, and -1.4% from the first three quarters of 2006 to the first three quarters of 2007." The decline is concentrated in new donors, with "new donors declining a median -6.2% from the first three quarters of 2006 to the first three quarters of 2007." While this shrinkage has been offset by increasing contributions per donor, it is nevertheless a very worrisome trend.

The shift online

As direct mail-based acquisition gets more difficult, online marketing becomes increasingly attractive to nonprofits. According to a soon-to-be-published research study of more than 300 organizations (The Online Marketing (eCRM) Nonprofit Benchmark Index™ Study 2008, published by Convio), the median online fundraising growth rate across sectors was just over 23% from the first half of 2006 to the first half of 2007, with some sectors, namely Environment and Wildlife, Visitation (museums, zoos/aquariums and performing arts), and Higher Education growing at over 50%. Most of the organizations in our study have been doing online marketing for several years, with groups newer to online marketing experiencing even higher growth rates.

Much of the online fundraising growth is coming from new, younger donors. In addition to growing online fundraising 23%, usable email files grew 32% in the same period, showing that, in addition to growing online donor files, nonprofits are building and cultivating prospect lists online. As a result, more nonprofits are beefing up their online strategies and systems. According to the Direct Marketing Association, on average nonprofits are growing their online marketing spend four times faster than their direct mail and telemarketing spend.

Measuring online fundraising impact

In addition to high growth rates, online fundraising totals have finally reached meaningful levels across organizations large and small. From the upcoming Convio 2008 benchmark report, from July 2006 to June 2007 small groups with email files of less than 10,000 raised a median of $53,714 online; groups with 25,000 - 50,000 emails $152,684; groups with 50,000 -100,000 emails, $453,762; and large groups with over 250,000 email addresses $807,496.

While these numbers are meaningful, online giving for most nonprofits is still less than what they derive from direct mail and offline secured major and planned gifts. However, online marketing should not be measured solely by money raised online. There is increasing proof that online marketing attracts new donors and influences existing offline donors to give more.

At the 2007 Convio Client Summit, Jeff Regen, VP Online Marketing & Communications at Defenders of Wildlife, shared how they use online advocacy as a way to attract new constituents, and subsequently deploy a multi-channel approach using email, direct mail and telemarketing to convert non-donor activists to donors. The cohort of new non-donor activists recruited between January and March 2006 contributed over $90,000 within 16 months after being exposed to a multi-channel fundraising effort. About 78% of the donations were ultimately yielded online.

In addition to being a source for new donors and a feeder channel for direct mail and telemarketing acquisition efforts, online marketing also enhances donor loyalty. In our joint study with the analytics firm StrategicOne in 2006, we demonstrated that online engagement enhances direct mail donor lifetime value donor through growing both gift frequency and donor retention rates.

A new breed of donor

Constituents are increasingly taking an active role in their philanthropy and nonprofits need to adjust their practices accordingly. In many ways, the Web has been a catalyst in donors taking a more active role in philanthropy:

• By visiting charity Web sites, using resources such as GuideStar and Charity Navigator, and running Web searches, donors are empowered to do extensive research before making a philanthropic decision.

• Direct-to-beneficiary giving portals such as Kiva and DonorsChoose have emerged and garnered early success. At Kiva, a donor can make a micro-loan online directly to a specific person in a developing country. At DonorsChoose, donors are connected directly with funding needs in public schools posted by teachers.

• Online constituent-led fundraising has taken off. Increasingly, charity supporters are organizing their own campaigns or events to raise money for their causes, and using online tools to reach out to friends, family and co-workers. The very small organization, Trisomy18 Foundation, which just recently had an annual operating budget of less than $100,000, is now raising more than $10,000 per month online mostly through key supporters organizing their own events or running tribute/memorial campaigns.

The impending economic slow-down accelerates the imperative to align better to the online empowered, new breed of donor in your communications and fundraising efforts. For some tips on how to get started, see Challenging Fundraising Times: A Strong Case for Investing in an Effective Online Marketing Program.