The magic digital metric: 2.4 gifts

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Back in February, we reviewed Blackbaud’s Charitable Giving Report and found that the average donor would give an average of 2.6 gifts, meaning that if you are spending more than 2.6 gifts worth of cost to get and keep a donor, you need to lower your costs, increase your retention, increase your gifts per year, slowly go bankrupt, or quickly go bankrupt.

M+R’s excellent recently released digital benchmarks report provides an opportunity to look at this metric for digital-only donors.  They found:

  • 25% first-year retention
  • 63% multi-year retention
  • 2.03 gifts per year

If you acquired 1000 donors this year at those retention rates, you would have four donors left in a decade.  Over time, you would have 669 donor years after the first, times 2.03 gifts per year to get 1358 gifts.  Add in the original 1000 gifts and you have 2.4(ish) gifts per donor acquired.

Put another way, if you are exactly average on these, it’s OK to spend $40 to acquire a $20 digital donor.  But it’s not OK to spend $50 to get that donor.  Your lowest return on ad spend (ROAS) should be about $.42 for those media where you are acquiring new donors.

You may argue (correctly) that this doesn’t account for:

  • Non-financial benefits of acquiring a new donor, as you might also be acquiring a volunteer, advocate, member, or friend.
  • Increases in giving in amount or kind (e.g., upgrades to monthly, major, or planned giving)
  • Cross-channel revenues from the donor

All this is true; with a more accurate accounting and attribution model, you can and should be able to justify additional investment. By the same token, boards and leadership generally are not patient enough to wait 10 years to see their investments pay off, so it is overall liberal in that regard.

How are nonprofits doing in these investments?  M+R has answers there too.  Return on ad spend is:

  • $4.78 for search
  • $1.05 for social media
  • $.38 for display
  • $.27 for video

Search can be excused for the high ROAS.  That number is likely inflated because of free advertising under Google Grants.  It’s also not as scalable as other forms of advertising.  In search, there are branded keywords, there’s a cliff, and there’s everything else.  Everything else does not perform nearly as well.  (In fact, an experiment of eBay’s indicates that branded search terms may only be driving .5% of the traffic it looks like they drive, as the rest would have come to your site anyway.  More on that in another post.)

But there’s little reason for social media advertising to be, on average, making money.  Even after cookie-pocalypse, there’s still significant scale to be had in social media advertising.  Also, according to M+R, large organizations are also making money at point of acquisition in display advertising.  In both cases, there’s likely still opportunity for expansion where an organization can get net revenues from these donors, especially in a medium where cultivation has much lower ongoing marginal costs (e.g., it costs far less to add one person to your email list than to your mail list).

There are still organizations where digital is held to a different standard—where mail, F2F, and DRTV can invest to get future valuable donors but digital must make money immediately or in year one.  It’s time to break down the silo-based rules and invest where the investments will bear fruit.

And it’s time to invest time and energy in retention because, as you’ll see next week, retention is almost certain to fall this year.

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