Month: January 2013

What is your nonprofit’s Second Gift Ratio(TM) and why does it matter?

A 10% improvement in donor retention can increase the lifetime value of your donor database by as much as 200% (Professor Adrian Sargeant). But if you don’t know your donor retention rate, you can’t figure out how to increase it

Today’s blog was prompted by a Wall Street Journal article titled:  My plan to fix the world’s biggest problems authored by Bill Gates. Mr. Gates describes the power of measurement in improving outcomes.

Am I suggesting that donor retention is among the world’s biggest problems? No. But is certainly is a key fundraising metric. Why?

Loyal donors translate into sustainable revenue streams. Some of these donors will make major and/or planned gifts.  That is why modest increases in donor retention have a geometric impact on the lifetime value of your donor base. For more info, check out the research-based donor retention and loyalty section of the Study Fundraising website.

The Second Donation is Key

According to the Fundraising Effectiveness Project of the Association of Fundraising Professionals, donor retention in the US averages a dismal 41%.  If this were not bad enough, drill down a level and you’ll find that first-time donors retention is 27%.  That means 73% of the donors you worked so hard to rally around your mission depart after they make their first gift.

For this reason, coined the term:  Second Gift Ratio™.  This is the all-important yet simple calculation of the number of donors who made a first-time gift in year X who make a second gift within the next twelve months, stated as a percentage.  if 100 donors made a first-time gift last year and 45 of them made a second gift by the end of this year, then your Second Gift Ratio = 45/100 = .45 or 45%.

We focus on this number because here’s the good news:  Once a donor makes a second gift, the odds of the donor making a third gift skyrockets up to 70%! 

So calculate your Second Gift Ratio today and see where you stand.  No matter what the number, set your sights on increasing it by two or three percent over the next twelve months.  How?  By doing a better job thanking your donors and letting them know how you used their gift.

Keeping donors informed in the midst of charitable deduction uncertainty

The charitable deduction headlines are confusing.  The final outcome is unclear.  What better time to communicate with your donors?

Warning:  Charitable deduction facts in this blog post may time-limited.  The donor communication concepts are not.

Donor communication stances

1.  Non-expert “head’s up”

Your goal is to let your donors know you are thinking about them and to refer them to expert information sources. Your communications do not try to explain the charitable deducation rules.  Instead, they focus on the process, i.e., when might the next decision be made, and recommend expert resources to which your donors might want to refer for additional information.

One information source you may want to consider: The Tax Policy Center, which is a joint venture of the Urban Institute and Brookings Institution —

2.  Non-expert, but communicating expert information 

We understand from <source 1> that xxxxxxxxxxxxxx.  If there are differing points of view, you might add: <Source 2> tells us yyyyyyyyyyy.  You don’t have to solve the problem.  It is acceptable to share the confusion and commiserate.

You may; however, be able to highlight some of the basic incontrovertable facts, e.g., “As of today’s date, donors with household incomes under $300,000 (and individuals under $250,000) are subject to the same charitable deduction rules that were in place in 2012.  But we’ll have to wait see what happens over the next sixty days.”

3. Expert:  Your nonprofit is on top of the issue.

Your organization quickly reviews the “charitable deduction rules” and becomes an interpretation resource.  The Tax Policy Center cited above is one such example.  Understandly, charitable deduction expertise and the requisite tax law and accounting knowledge is outside the mission and scope of most organizations. 

What about major donors?

As of January, 2013, there is a charitable deduction divide.  Some of the headlines proclaiming victory tor the charitable deduction fail to explain that the Pease limit, which had expired in 2010, is back. For higher income donors, Pease creates a limit on total itemized deductions, which includes the charitable deduction.  (Do refer to for details).  To further confuse the issue, the legislation that was passed in early January may be amended over the next sixty days as “fiscal cliff” conversations continue on Capital Hill.

If you are someone who speaks with major gift propsects, you probably want to have an answer ready–especially while the topic is “hot.” Using a paradign similar to the one described ablve, you might refer the donor to a trusted source.  Or, if you are comfortable with the information, relay your understanding directly.  Be certain to cite your source, unless you are, in fact, the expert.