Outlook 2005: Nonprofits Face Troubling Future
Before we answer the original question, we must understand the meaning of the word "trouble" and the effect it can have on the direct mail industry. If we measure trouble by the strong sense of anxiety that those of us in the industry feel, then direct mail fundraising is in trouble. If trouble refers to the difficulty in conducting business today compared with the past, then there is trouble in the industry.
Therefore, do I think nonprofits that conduct direct mail fundraising face a troubling future? You bet. But thanks largely to the unyielding compassion and generosity of our nation's senior citizens, I don't think it is on the verge of extinction. Yet there is a big caveat to this answer.
A Look Back
By most accounts, 2004 was better for direct mail fundraising than 2002 and 2003, but a far cry from the results of five years ago. For this reason, it's important that fundraisers see this upturn as nothing more than a slight rebound from what many in the industry refer to as a period of bottoming out. The one tragedy occurring last year, the Indian Ocean tsunami, brought out the best in Americans and citizens around the world. A large chunk of the funds initially were raised via the Internet.
Without any specific data to back this up (except the 9/11 tragedy, for which Americans donated $2.3 billion), my opinion is that, yes, it will hurt fundraising for many other groups. The exceptions are the international relief and children sponsorship organizations, such as the Red Cross, CARE, UNICEF, World Vision, Christian Children's Fund, etc.
I would expect any effect of the tsunami to be short term, as many contributors make year-end contributions as a normal behavior. Organizations likely will have realized the effect of any shortfall on January revenues.
However, donor behavior undeniably has changed in the past several years, resulting in lower prospect response rates, lower retention rates and higher fundraising costs.
Traditional prospect universes aren't large enough to supply the names needed to offset the increased attrition rates. Increases in core donor values have offset some of these declines, but the trouble magnifies when donor values no longer can keep pace with higher attrition rates and lower active donor universes.
Another troubling behavior change is that most donors appear to have placed a price tag on the value of their contribution to a nonprofit - about $10 for an initial gift. It should come as no surprise that the $10-$14.99 contribution level is the fastest-growing segment of new donors, replacing the $15-$24.99 segment.
These new $10 donors have the worst retention rates and are difficult to upgrade. Worse, the overuse of premiums has turned donors into buyers and organizations into "merchandisers."
Direct mail fundraising is growing more complex, and marketing programs have become increasingly difficult to manage. In today's climate, all fundraisers must combine traditional direct mail fundraising strategies with comprehensive database marketing solutions that focus on information.
Marketing is all about information. This includes not only information about markets, prospects, donors and customers, but also about media and response channels, donor behavior and current and future donor value. In 2005, it will remain increasingly critical that fundraisers have a framework for gathering the right information and a strategy for how they use this information to maximize performance.
For example, many nonprofits target younger donors through direct mail. Many of these younger prospects come from local fundraising events. The conversion rate into the direct mail program is low. The data also indicate that as a donor ages, his responsiveness increases, but his average contribution declines. Savvy database marketers use this knowledge to develop retention and ask strategies that specifically target the behavior of these donors.
So as we navigate 2005 we ask ourselves, is the direct mail fundraising industry in trouble? Before that question can be answered, one more issue must be resolved, and only your organization can do it.
That issue is: Are you doing anything remarkably different today than you did last year, and maybe even the year before that? If not, you can expect the same outcome as before, and I contend that you and your organization's direct mail program will be in trouble. The direct mail fundraising industry as we have known it has changed drastically in the past several years. Organizations that are quick to embrace the new marketing philosophies and disciplines will succeed. Those that don't will struggle to keep pace with the status quo.
To answer the original question, if you are incorporating new thought leadership, innovation and knowledge into your direct mail programs, then I think you and your organization are moving in the right direction. Yes, there will be anxious times and greater difficulty in getting to where you want to be, but these troubles can be managed with a strategy grounded in quantitative, left-brain, database marketing principles.
Greg Fox is senior vice president of strategic services at Merkle Direct Marketing Inc., Lanham, MD, a database marketing agency. His e-mail address is firstname.lastname@example.org