White Paper: Is COVID in the rear-view?

Data Dictates Direction

Data tells a very clear story that should help us understand what’s going on under the surface. This information will allow us to focus on the best course of action moving forward.

At TrueSense, we create comprehensive donor file analyses using our proprietary Donor Health Index™ (DHI) suite of tools. These analyses examine a decade or more of donor-giving history in a multitude of ways that help us address red flags, identify patterns, and highlight key areas that could impact future planning.

For the purposes of this white paper, we’re going to focus on lifecycle migration and coverage ratio.

The lifecycle(s) of donors

In the DHI framework, the data breaks down into a handful of annual “lifecycles” based on donor giving behaviors. We will focus on the following:

1. New Donors: New donors added to the file in the current fiscal year.
2. Recaptured: Donors who were not active in the prior fiscal year but returned to active status in the current fiscal year.
3. 2nd Year: Donors who were new or recaptured in the previous fiscal year and who enter their second year of active giving.
4. Multi-Year Donors: Donors who have given three or more consecutive years and are active in the current fiscal year.

Each of these lifecycles is important, and together they create a donor ecosystem driving toward a goal of consistently covering or, even better, exceeding the attrition rate of the most critical lifecycle in that group, your multi-year donors.

Why is this important? Once a donor reaches the multi-year lifecycle they have entered the loyalty stage of their engagement with your organization. Retention rates and annual value skyrocket for this group, which means a high percentage of gross and net revenue comes from this subsection of your donor file.

The Power of Multi-Year Donors

In fact, when looking at the aggregate of all of the Food Banks we serve, in any given year approximately 70% of the total revenue comes from multi-year donors (excluding 2020 and 2021 where the surge of new donors pushed those percentages down).

Therefore, if we follow the data, the focus is clear: With the majority of revenue coming from this single lifecycle, it becomes imperative to stabilize and/or grow this lifecycle for revenue maintenance and future achievement of financial growth.

We mentioned multi-year donors entering their loyalty stage, and while retention is much higher than that of other lifecycles — industry standard for 2nd year retention is between 25%–35%, whereas multi-year is greater than 60% — it is statistically unlikely to achieve 100% retention in any lifecycle, including multi-year. This means, to grow your multiyear lifecycle, you need to replenish it with incoming donors at a rate greater than those attritting out of it.

This isn’t as simple as it sounds, mainly because it takes three years to reach the multi-year lifecycle. This is really where our current story starts to unfold because, while most of us would like to believe COVID is in the rear-view mirror, there are delayed shock waves impacting your file today.

Donors Surge and Shrink [2020-2023]

If it takes two consecutive fiscal years of giving to reach multi-year in that third year, that means the new donor class from 2019 impacted the multi-year lifecycle at the earliest in 2021, and new donors from 2020 impacted 2022’s multi-year lifecycle.

Using an aggregate of our Food Bank data, the chart below shows the number of donors by lifecycle. Here we can clearly observe the uncharacteristic surge of new donors in 2020 — up an astounding 290% from the year prior.

 The next chart plots the 2020 COVID boom through each of the lifecycles, with the 2020 new and recaptured donors migrating to the 2nd year lifecycle in 2021 (up 227% from 2020) and into the multi-year lifecycle in 2022 (up 31% from 2021).

That Was Then. This Is Now.

What happens next is what’s impacting our present. As we can see, the new and recaptured lifecycle normalized in 2021, decreasing 64% from the prior fiscal year. This translates to much smaller 2nd year lifecycles in 2022, down 69%, and finally impacting the multi-year lifecycle in 2023, down 11%. Even though we started to see normalization in 2021 overall, 2023 was the first year most Food Banks experienced a multi-year lifecycle decline of this magnitude.

Maintaining a similar logic as the prior view, we see continued declines in new and recaptured donors in 2022 and 2023 in the chart here, down 19% and 14% respectively, which of course will translate to negative multi-year lifecycle impacts in 2024 and 2025.

Creating file and revenue growth has two sides:

1. How many donors can you retain in the multi-year lifecycle itself?
2. How many financially viable donors can you acquire/recapture to progress into the multi-year lifecycle to cover attrition?

Coverage Ratio

The answer to these questions translates into what we call a Coverage Ratio. This is the percentage of year-over-year donor and revenue coverage. “And” is emphasized in the last sentence because, when looking at full file coverage, you may see 100% donor coverage but only 80% revenue coverage. That’s because, as we noted before, multi-year donors have a higher annual value than new donors, so you could have a large influx of new donors that covers your active donor attrition in terms of number of donors on file; however, the single-year value of a new donor won’t cover the revenue lost from the attrition of a single multi-year donor.

Again, looking at the aggregate of all the amazing Food Banks we serve, we observe that retention rates across each lifecycle are very strong — especially in the multi-year, well-exceeding industry standards and recovering to pre-COVID norms.

This means the side of the equation that’s having the most pronounced impact on your multi-year lifecycle decline is the reduced volume of new/recaptured donors, which in turn is limiting the number moving into the multi-year lifecycle from 2nd year lifecycles in the future, ultimately causing a failure to cover natural attrition.

The new donor phenomenon we saw in 2020 made file coverage that year a guarantee, but given we are fundraising in vastly different market conditions now, creating that 1:1 coverage ratio in these subsequent years was not just improbable; it was all but impossible. Putting aside the rapidly rising fundraising costs of the last 36 months and barring another pandemic-scale event/ disaster to drive the focus to food insecurity and hunger again, it was not possible for Food Banks to maintain that level of new donor acquisition YOY.

However, now three years removed from those elevated donor files, that coverage ratio is becoming more attainable — and this is where our investment focus should be.

Stabilize and Grow: Four Focus Areas

With this information, we’ve identified these four key focus areas, all aimed at stabilizing your file and returning you to growth:

1. Invest in viable, multichannel New Donor acquisition: New donor acquisition needs to be maintained at a rate relative to the size of your donor file attrition and is the critical component to stabilize your file. As noted, it takes three years for new and reactivated donors to reach the multi-year lifecycle (those acquired or reactivated today, in 2024, will have to give to retain in 2025 and then will become a multi-year donor when they give in 2026) so the decisions made today will have positive or negative implications for your organization in the future.

New donor acquisition is harder than it’s ever been because of heavily saturated media channels, elevated competition for mind-share and share of wallet, diminishing performance metrics, and increasing costs.

That sounds daunting, but here are a few things to think about while planning where to invest that may help you navigate those headwinds:

1. Use AI and predictive modeling tools to identify the right audiences to target on- and offline.
2.  Maximize your use of cooperative databases in direct mail acquisition. This can further help to ensure you have the most refined select possible.
3. Create variation within your offer and ask to better target individual audiences with higher relevancy.
4. Review and potentially revise your donor journey post-acquisition to promote better 2nd year retention and eliminate the donor “revolving door” effect. First-time user experience is just as critical for donors as it is for iPhone purchasers. What are you doing to make the experience memorable for your donors?

2. Take advantage of the Lapsed Donor population in an economical way: Because of the large infusion of new donors during COVID, most Food Banks today have a larger than normal pool of lapsed donors, especially in the 25- to 48-month recency range. Investing in the recapture of this full population would represent a significant investment that is unlikely to yield comparable benefits. Across our Food Banks, we are seeing strong recapture rates FYTD24, with targeted selects and messaging. Here are some tactics to consider while planning your own recapture strategy:

1. Using traditional RFM segmentation will likely bloat your investment and limit the upside. Consider predictive AI and machine learning alternatives, like TrueSense Marketing’s Giving Potential Scores™ (GPS) that allow you to select the right donors, not segments, from your lapsed file for specific channel communications.
2. Create a lot of opportunities for high-value lapsed recapture. You’ll likely see a lower response rate but a significantly higher average gift covering the expense of this investment. Retaining these high-value donors will prove to be more valuable long-term than acquiring brand-new donors whose gift levels you cannot know in advance or control as easily.
3. Create infrequent yet regular opportunities for a wider select of lapsed donors, potentially with nuanced language that speaks more directly to their journey with your organization. This cadence could be quarterly or biannually, depending on your performance metrics and objectives.

3. Enhance Multi-Year retention: While Multi-Year retention is strong, every percentage point increase has a dramatic impact on revenue and means less new/recaptured infusion is needed to create a positive coverage ratio. Creating easier pathways to loyalty and enhancing stewardship touchpoints throughout the year that acknowledge a donor’s loyalty will continue deepening their relationship with you. Some ideas to consider:

1. Use data and AI to target appropriate segments/targeting with multichannel Sustainer Conversion and Sustainer Acquisition. While converting an episodic donor into a sustaining donor can be challenging, any multi-year donors moving into this giving method dramatically enhances retention.
2. Create triggered donor-versary campaigns using email and/or phone that do not ask for financial support but rather acknowledge the donor’s loyalty and how instrumental they have been/are in supporting their community. This is a great opportunity to let them know the impact they are having on creating the change they hope to see in their communities.
3. Consider targeted loyalty messaging/ variable content in select key campaigns.

4. Focus on revenue retention: As we’ve already discussed, correcting the file coverage ratio is going to take time, and some organizations may find the economics of chasing file size are prohibitive and cannot be sensibly achieved. With the new/recaptured counts Food Banks experienced in 2022 and 2023, there are already indications that 2024 and 2025 multi-year lifecycles will be at a deficit from today’s level. If you think your organization is facing that situation, you can still impact total revenue while working on file stabilization longer-term by focusing on high-value donors/gifts that can offset the annual revenue attrition from lapsing lower-dollar donors.

Here are a few considerations:

1. Reassess MGO portfolios to ensure you can execute your custom communication plans at those portfolio volumes. A lot of nonprofits bloat their MGO portfolios, which is wonderful in intention but untenable in implementation. Ensure your portfolios are sized appropriately for your MGOs to be as effective and successful as possible.
2. Create or revise your mid-level communication plan by verifying the donors sitting just below the MGO portfolios receive a semi-bespoke, one-to-some communication plan that reflects their high value to the organization. This could include surveys, custom content based on a donor’s highest motivation, enhanced stewardship, and unique access to your leadership team, etc.
3. Include easy references to Donor Advised Funds (DAFs) on your website and in key communications throughout the year. As reported by GivingUSA (and others), it is becoming increasingly common for donors to use DAFs to make donations. Make sure donors know they can designate to you.
   
   

The Big Takeaway

While there are a lot of patterns in Food Bank fundraising today, we also know that every Food Bank is in their own unique situation, and it’s possible that these key areas of focus may not all be best aligned with your particular goals or be relevant in your own nonprofit sector.

However, the big takeaway here is that your data can tell you stories that you won’t always see on the surface of your fundraising campaign results. When focusing on just campaign results, it’s easy to misdiagnose what’s actually driving performance overall, which in turn can lead to investment decisions that are cross-purpose with where you want your organization to go.

Stepping back and seeing the full data picture allows you and your team to be strategic about what will give you the greatest odds of achieving your goals and how you can intentionally deploy each invested dollar where it will matter most.

In summary, don’t be discouraged. You have the data you need to make the right decisions for your organization in this “post-COVID” era.