Nov/Dec 2008

Strengthening Your Online Presence: Now is the Time

by Vinay Bhagat, Founder & Chief Strategy Officer, Convio

Many nonprofits are feeling the impact of the financial crisis — in particular those reliant on corporate gifts. Others are bracing themselves for challenging conditions. In difficult economic times, it can be a natural reaction to stop all new investments. Yet, building strong constituent relationships and acquiring new donors to replenish losses is more important than ever.

Nonprofits must adopt a strategic approach to their fundraising investments, cutting less efficient areas and investing where gains can be realized. The traditional fundraising model has been in decline for some time. The financial crisis and competition for donor dollars has heightened the imperative to change models today, re-allocating investment from waning traditional fundraising approaches to new approaches that incorporate the online channel.

Challenges with Traditional Fundraising Channels

Direct mail-based donor acquisition has been getting more difficult and more expensive due to postage rate increases, mailing list fatigue, postal mail delivery challenges, and shifting consumer preferences. The Target Analytics Index of National Fundraising Performance, which tracks some very large nonprofits, shows donor counts have been declining consistently for the past two and a half years. In the first quarter of 2008, for the first time in two years, overall revenue declined as well. Revenue fell 1.8% from Q1 2007 to Q1 2008.

Until now, increases in revenue per donor compensated for donor declines, allowing overall revenue to continue to grow. In the most recent quarter in the analysis, however, continued revenue per donor growth could not make up for the donor decreases nor prevent overall revenue from declining. For most organizations, overall donor declines have been due primarily to a decrease in new donor acquisition. New donors declined 2.3% from Q1 2007 to Q1 2008, on top of a 5.3% drop over the same period one year before. Additionally, telephone fundraising is growing more difficult in the wake of "do not call" regulation and the substitution of land lines for cell phones. In this context, nonprofits must find more economic ways to source new donors and enhance their lifetime value.

The Shift Online

As direct mail-based fundraising has become less effective, online fundraising has grown significantly. According to the Pew Foundation, 75% of all Americans are now online at home or at work. According to The Online Marketing (eCRM) Nonprofit Benchmark Index Study, published by Convio in 2008, the median online revenue growth rate across sectors was just over 26% 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%.

Much of the online fundraising growth has come from new, younger donors. Online donors are typically 15 years younger than direct mail donors. In addition, usable email files grew 32% in the same period, showing that nonprofits are successfully developing online prospect lists for future supporters. A first-of-its-kind national survey conducted for Convio by JupiterResearch, a Forrester Research company, shows that of the 175.6 million online adults (age 18+) in the US, more than half (51%) plan to donate to charities during the upcoming holiday season.

If there is a silver lining in the economic cloud, it is that consumers and nonprofits are aligning around the online channel. Given its growth, it is imperative that nonprofits invest appropriately in the online channel to realize its full potential. In fact, according to the Direct Marketing Association, nonprofits are on average growing their online marketing spend four times faster than their direct mail and telemarketing spend.

Power to the People

Today, constituents are taking a more active role in their philanthropy. Many want to see the direct impact of their giving, others are eager to participate in a movement. Increasingly, people are donating because of being asked to do so by their friends or family versus a nonprofit organization itself. The Internet has accelerated these trends which represent a shift of power to the constituent.

A majority of prospective donors will visit a charity’s website to learn more before making an initial contribution. A growing number of people will research charities on sites like Charity Navigator or Guidestar before giving. Direct to beneficiary giving portals, such as Kiva and DonorsChoose, which give donors unprecedented control over where they direct their gifts, have grown exponentially. At Kiva, a donor can make a micro-loan directly to a specific person in a developing country. At DonorsChoose, donors can support a specific funding need posted by a public school teacher.

Online peer-to-peer fundraising tools like Convio TeamRaiser™ and Tributes have enabled nonprofits to turn their most passionate supporters into prolific fundraisers. Convio’s extensions for Facebook and widgets for other social networks like MySpace have extended the appeal of peer-to-peer fundraising to Generation Y.

The Integrated Effect

The value of 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 the organization uses online advocacy as a way to attract new constituents, and subsequently deploys 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. Convio's joint study with the analytics firm StrategicOne in 2006 demonstrated that online engagement enhances the lifetime value of a direct mail donor through growing both gift frequency and donor retention rates.

Online marketing is emerging as a strong source for new major donor prospects as well. Defenders of Wildlife has found that about one-third of all new major donors are sourced through their online marketing efforts. The Wired Wealthy research that Convio conducted with Sea Change Strategies and Edge Research confirms that mid-level and major donors are increasingly wired, and online communications can help augment and enhance less frequent personal contact.

Now is the Time

Current economic conditions indicate that competition for donors will intensify. Economically sourcing new prospects, converting them to donors, and maximizing their lifetime value is more important than ever. Savvy nonprofits will make the strategic changes and investments required to succeed online, to align to a world where power has shifted to donors, and to implement multi-channel marketing strategies. Money raised online can now more than justify the start-up costs of online marketing efforts, and is a fraction of the true value created by effectively integrating online marketing with direct mail and major donor development efforts.