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Why ROI Matters

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Why ROI Matters

It’s a fact that most nonprofits expect to lose revenue, or at best, break even on their acquisition costs each year. Nonetheless, refilling your donor file is vitally important to your organization’s success, given inevitable donor attrition due to factors out of your control. Put simply: Donor acquisition is a necessary investment — but not a short-term cash out.

There’s no getting around the fact that in the beginning, acquiring new donors may result in a net loss. That’s why you must identify and secure the right donor mix from the beginning so that you can ensure significant returns in the long run.

The cost of acquisition typically exceeds the funds raised due to added expenses necessary for finding new donors. But keep in mind that once you’ve identified these individuals and acquired their information, cultivation costs are much lower, and their subsequent mailings can yield a greater return. Your objective is closing the gap between net loss and breaking even — and some donors can get you there faster than others.

We’ve found that one of the most significant influences on retention, donor lifetime value and likelihood to upgrade giving is the first-gift amount — all of which impact the overall return on investment. For example, donors who make an initial gift of $100 or more are historically proven to provide a more reliable revenue stream and greater engagement than smaller-gift donors.

It’s easy to believe that growing your donor base by acquiring many small gifts is an effective marketing strategy. However, this can prove expensive in acquisition costs and is unlikely to maximize your return on investment, regardless of the sheer number of new donors.

The bottom line is this: All gifts are appreciated and respected. But obtaining the right mix of donors and giving levels will generate the greatest return over time.