By Alan Sharpe, CFRE
If you drop a donor acquisition package in the mail as a test and it generates a response rate of 17%, can you say your campaign was a success? No.
If your donor acquisition test mailing generates an average gift of $125, can you say without fear of contradiction that your test was a success? No.
So how do you know if your direct mail donor acquisition test mailing was a feat or a failure? Answer enough of these questions in the affirmative to satisfy your boss, board, or banker.
1. Is your net cost per donor acquired acceptable?
Back in the day, which is to say, in the 1970s, charities mailed donor acquisition packages that generated a net profit. In other words, the revenue that the campaigns generated not only covered the costs of the campaign (writing, design, printing, list rentals, lettershop, postage), but also generated a profit. In those days, new donors more than covered the cost of their own acquisition.
Today, you should expect to lose money acquiring donors through the mail. How much you’re willing to “lose” is up to you and your board. After all, the “loss’ is really an investment. Your net cost per donor acquired is the investment you have to make to grow your donor database.
You calculate your net cost per donor acquired by subtracting your expenses from your revenue, and dividing the result by the number of donors acquired.
Number of pieces mailed: 50,000
Cost of the mailing: $50,000
Responses (donors): 500
Response rate: 1%
Revenue (total gifts): $34,000
Average gift: $68
Net Revenue: -$16,000
Net Cost Per Donor Acquired: $32
In this example, the charity suffers a net loss of $16,000. Some board members will look at that number and say the mailing was a failure and is never to be repeated. But look closer. The charity also acquired 500 donors. Many of whom will donate again. Each of those donors cost $32 to acquire. The charity will both break even and make a net profit with these new donors, assuming at least 48% of them give another gift of $68.
The safest way to pick an acceptable cost per donor acquired is to calculate the lifetime value of your average donor acquired by mail. If the amount of money you receive from your average direct-mail-acquired donor is many times greater than the cost of acquisition (four times greater, for example; the ratio is up to you), you can justify the cost of acquisition.
Another consideration is time until you reach break-even. How many months do you have to wait before your average direct-mail-acquired donor gives you enough money in donations to cover the cost of their acquisition? In other words, how many months from date of acquisition must you wait until your new donor starts giving you donations you can use for mission?
You can measure this in months and number of gifts. For example (using the figures from the above example), “Our typical donor acquired by direct mail must subsequently donate at least $32 to cover the cost of their acquisition so that we break even. Our new donors typically cover the cost of their acquisition and generate a net profit of $36 with their second donation, which they typically make within four months of date of acquisition.”
2. Is your average gift acceptable?
Some acquisition methods, such as premiums and trinkets, tend to generate a lower average gift than other methods. Are you happy with the average gift that your test generated? Just remember that your goal in donor acquisition is not to raise money. It’s to acquire donors. Money raised is secondary.
3. Is your response rate acceptable?
If you’ve conducted tests before, you know what your average response rate is. Did this test beat that average, or come under? If you have a goal for how many new donors you want to acquire this year, can you meet that goal with this response rate, and by mailing these lists again, or lists just like them? Remember that your goal is to acquire as many donors as possible (at an acceptable cost, of course). So the higher your response rate, the better.
4. Did enough of the lists you tested generate acceptable results?
In your test, you likely mailed at least 50,000 pieces to 10 or more lists. Some of those lists performed better than others, right? Measure your net cost per donor acquired, response rate and average gift for each list. Did enough of the lists generate the results you were after, so that you can confidently mail those lists again?
5. Did you beat your control?
In your test, you likely mailed two or more packages, each one with a different look, message and case for support. One of those packages was likely your control package (the one you’ve been mailing over and over because no other package can beat it). Did any of the packages beat your control? If one did, figure out why, repeat your test to be sure, and your test will have been a success.
Each of these metrics helps you discover, to a point, if your direct mail donor acquisition test was a success. No single metric tells you everything. You must exercise good judgment. But pay particular attention to your net cost per donor acquired. That’s the most useful metric. After all, your response rate, even if it’s in the double digits, doesn’t tell you if you made a net profit. And your average gift, even if it’s $200, doesn’t tell you if you made a net profit. But your net cost per donor acquired tells you two things: (1) if you made a net profit, and (2) how much you had to spend to acquire each donor.