CharityVillage® Research: Cybergifts, Part 5

Resources & Library

Path: Main Street : Resources & Library : Research Articles : Feature Article

Cybergifts, Part 5
By Adam Corson-Finnerty
Read Cybergifts, Part 1
Read Cybergifts, Part 2
Read Cybergifts, Part 3
Read Cybergifts, Part 4

Cybergifts versus Direct Mail:

Your mail today has brought an envelope from a humanitarian organization called Save Everybody Tomorrow. You read along, learning about their work with children, their efforts to eradicate malaria, their rice-growing program in India, and their work with the United Nations High Commissioner for Refugees. Sounds pretty worthwhile. You decide to make a contribution.

But when you read the donation form it says: "A $47 contribution to Save Everybody Tomorrow will result in a net loss to the organization of $20.50. Please give now, while the need is greatest."

Say what?

DM Logic:

If you are not familiar with the world of direct mail fundraising, you may not be familiar with the logic of this complex endeavor. It takes a while to explain.

We will start with the big picture. Save Everybody Tomorrow is a name that I made up, but we will imagine that it is thriving, in part due to its successful direct mail program. In fact, SET has a "House List" of 100,000 donors, who bring in a total of $6,300,000 per year. Not bad. And it only has an attrition rate of 20%, meaning that 20% of its house list stops giving in any given year.

That is actually a good figure, but it does mean that SET "loses" 20,000 donors every year. For the organization to sustain its income level, it must find 20,000 new donors each year. And for it to grow, it must find even more!

That's where "Direct Mail Prospecting" comes in. The concept is pretty simple. You pick a list of people to mail to, design a compelling package, and put it in the mail.

If you have chosen one of your "warm" lists, you may get a 10% gift response, or even better. A "warm" list is one that is made up of people who know you and are favorably disposed to you. "Lapsed" donors make a good warm list, or people who have written to you for information, or people who have been served by your organization.

Save Everybody Tomorrow is an efficient organization, and does not use expensive mailing packages. We shall posit a 10,000 piece mailing with a cost-per-piece of $1.35, including postage. (That's very low.) And we will posit an average gift response of $54. Run the numbers from the "warm" list and you find that the mailing has cost $13,500 and has brought in $54,000. That's a net of $40,500. Not too bad.

However, that's only 1,000 new donors, and you need at least 19,000 more to keep up the size of your House List. Now you have to turn to "cold" lists. A cold list is composed of people who may be sympathetic to your message. Perhaps they read a magazine that tests well for social causes, like the New Yorker or The Nation. Perhaps they fit a certain demographic profile that matches your current donor base.

A good response, a very good response, would be 2%. And a good average gift would be $47. Run the numbers. Your mailing has cost you $13,500 and it has earned you $9,400. For a net loss of $4,100, or $20.50 lost per gift.

We now have a conflict in logic. From the new donor's point of view (were she ever to be shown these numbers), her entire $47 has been spent on the mailing, plus another $20.50 from other donors. Net contribution to making a better world: worse than zero. Plus 9,800 paper-based packets have been thrown in the trash.

And we have only gained 200 new donors, and have 18,800 to go.

There are costs to acquisitions, but can make money

Direct Mailers see it a bit differently. Sure, the DM professional may say, it cost us $67.50 to acquire a new donor, but that's not the end of the story. New donors go on to make future gifts, and over time the net swings in our favor.

Which is true. Consider this six-year scenario. Our 20,000 new donors have an attrition rate of 20%. Over the subsequent five years, that means 53,786 gifts will come from this group. Figure an average gift of $63, and figure that it costs a modest $6.75 per year in appeal mailings to "service" each donor. Counting the costs and the receipts from the first year, we find a net gain for the organization. It adds up like this:

Total six-year Direct Mail Gifts: $5,268,

Total six-year Direct Mail Costs: $2,025,000

Net Income to SET: $3,243,518

See, Direct Mail logic prevails!

Nevertheless, this translates into a net cost per dollar raised of 38 cents. And we have not counted staff salaries, consultants' fees, and overhead costs of other kinds. Might it be costing Save Everybody Tomorrow 50 cents to raise a dollar? Probably. Probably more.

Similar logic, and similar numbers, apply to Advertising and to Telemarketing. I am not as familiar with these areas, and I invite comment by those who are. Nevertheless, I have purchased both services, and the numbers are appalling. In fact, one telemarketing firm refused to take my money for a membership-acquisition drive. "The results for cold membership calls are so bad that you'd be wasting your money," the CEO told me in a moment of rare candor. (Cushioned for him by the fact that we were negotiating three other calling projects with warm lists.)

Cybergifts:

I do not think it is necessary to argue that acquiring gifts online is-ultimately-more efficient and more ecological than Direct Mail. It saves money for the Charity, it results in more of the donor's money going for the mission, and it doesn't waste tons of paper.

Right now, cybergiving's numbers won't necessarily look that good. If it cost an organization $25,000 in outright expenses and staff time to create a website, and if online gifts in the first year total only $3,000, that's a huge loss per gift.

Well, you say, but our website isn't just for giving. It is there to educate people about us and our mission. That is exactly what Direct Mail people will argue about their mailings. In fact, many organizations charge a large part of the cost of such mailings to "education" rather than to fundraising.

Anyhow, there is a modest argument to be made for the educational value of some Direct Mail pieces. Perhaps not the recent Philadelphia Museum of Art piece that told me I could win a new Lexis if I took out a membership, among other wonderful prizes, but certainly pieces I have seen from the Sierra Club, Habitat International, the American Friends Service Committee, and so on.

There is no easy way to get a handle on cybergift fundraising costs, since the field is so new, and sites vary greatly in terms of design cost and purpose. However, some short observations can be made. The first is that there is a huge difference between investing in a site that is primarily for fundraising, and one that serves other purposes.

What are you trying to do with your site

Colleges and universities are developing websites to promote admissions, to facilitate information-sharing on campus, to support classroom instruction, to stay in touch with alumni, to publish the results of research, to host distance learning programs, and so on. Fundraising, so far, is an afterthought at most academic websites. Similarly, libraries have mounted websites to provide access to information, starting with their catalog, but branching to online databases, filtered lists of subject websites, and much more. Again, fundraising is either absent, or an afterthought.

In both of these cases, and in the case of advocacy organizations like Amnesty International or Common Cause, we can see that their website is carrying out and even extending their mission in a new medium. This justifies a considerable investment. And once that investment has been made, the cost of adding a fundraising component is trivial. In fact, there is a strong argument that says: the organizations which will be the most successful in online fundraising are those which have a strong purpose to be served in cyberspace. Traffic to the site flows naturally from this purpose, and loyalty to the sponsor should follow from involvement online.

Conversely, organizations which have no purpose to be served in cyberspace, other than fundraising, are taking an investment risk by mounting a website. Of course, if you have volunteers setting up your site, and your out-of-pocket costs are minimal, then the risk is small. But, if an NPO spends a ton of money on a flashy site which has no raison d'etre other than fundraising, this may represent a horrible squandering of organizational resources.

Which goes back to a question that I posed at the beginning of this series: why would anyone want to come to your site? If you don't have a good answer, think again about why you are bothering with cyberspace.

Going back to the question of cost-per-dollar-raised, one cannot determine a figure by dividing the total cost of a website into the receipts thus far. Yale has spent plenty on its website, as have most universities, but it would foolish to divide gifts received online by the total cost of developing and maintaining the site. The same for the San Francisco Public Library.

There can be some marvelous efficiencies in online fundraising. The experience of moveon.org is certainly instructive. Readers of cybergifts, parts 1-3 will recall that two activists decided to circulate an internet petition urging congress to "move on" from the clinton impeachment drama. They got such a strong response that they sent out a call for donations, and received back over $13 million in pledges. Their "fundraising" costs were practically nil, so the cost per dollar raised must have been *way* under one cent.

Such an example may be an exception, but the experience of the Red Cross and other relief organizations during the Kosovo refugee crisis is a predictor of the future. The Red Cross had raised over $1.2 million in online gifts for Balkan Relief, from more than 9,000 donors in the first half of 1999. And the money continues to come in, and the average gift online was significantly higher than the average phone or mail gift.

I could sit here and argue for pages that efficiency, ecology, and just-plain-morality argue that Charities should dump Direct Mail and shift to cyberspace. But such arguments will fall on deaf ears unless the Internet shows better and larger returns. For every Red Cross, there are probably five NPOs with "give now" buttons on their site who have garnered practically nothing.

Guess what? The bottom line for fundraising will continue to be what it always has been: The Bottom Line. When online giving begins to exceed Direct Mail results, direct marketing will migrate to the Web without shedding a tear.

And indeed, the purpose of the Cybergifts Series is to suggest ways that we can raise money online. In Part 4 I covered "Donate Now," and "Membership" mechanisms. In parts 6 through ? I will cover a surprisingly large range of other solid ideas (and some silly gimmicks.)

First, however, let's look at the results of a very interesting-and encouraging--study on the potential for cybergiving.

Online Philanthropy Study:

Craver, Mathews, Smith & Company is a Direct Marketing firm that has been around for 25 years. Their clients tend to be on the "progressive" side and include the Southern Poverty Law Center, the Humane Society, the ACLU, and others. For 25 years, CMS has been doing what you might expect a direct marketing firm to do: advise on marketing, direct mail, targeting your message, segmenting your constituency. Along the way, according to Company Chair, Roger M. Craver, they have pioneered new concepts in telemarketing, segmentation, personalization, and high-dollar direct mail programs.

This month CMS launched its own website, and to inaugurate the site, they released a report on a commissioned study entitled, "Socially Engaged Internet Users: Prospects for Online Philanthropy and Activism." The thrust of the message: *The pool of potential online "progressive" donors is much larger, significantly younger, and more sophisticated than the pool of direct mail "progressive" donors.*

It looks like this: CMS estimates that there are 50 million "socially engaged Internet users" over 18 years of age in the U.S. Three-quarters of them are under age 50, and 29% have household incomes over $70,000. A hefty 80% of these people have donated to a cause or charity through "traditional means." And the group is about evenly divided between people who describe themselves as "liberal" and those who describe themselves as "conservative."

Direct Mail "progressives" tend to be older (64% are over 60), more "liberal," and to identify themselves as Democrats. They also discovered that:

Online activists are more demanding than their direct mail counterparts when it comes to organizations demonstrating progress and being accountable to donors. Online activists are 14 points more likely to say it is absolutely essential for organizations to demonstrate real progress toward their goal (42% compared to 28% among direct mail donors). Similarly, while 51% of online activists say being more accountable to donors is absolutely essential, only 45% of direct mail donors say the same (6 point difference).---

Potential online activists and donors are a bit less concerned about the amount of mail and phone calls they receive than are direct mail donors. The 1998 Hart Survey found 39% of direct mail donors saying it is absolutely essential for charities and organizations to reduce the amount of solicitations they send, compared to 31% of activists who are online.

There is more, much more, that can be gleaned from this study. While its methodology may be debated, it is the first extensive set of numbers that can give us guidance to the world of potential online donors. (Yes, I'll give the URL in a minute. What's the rush?)

One more conclusion to note: The study breaks down the 50 million online "progressives" into segments. This segmentation should be very instructive as we plan our online strategies. The first two segments are considered prime groups for online solicitation:

Progressive Pace-Setters (15% of sample; est: 7.6 million)

This segment is highly engaged on progressive issues and has broadly integrated the Internet into their everyday lives. They are most likely to have made a contribution or taken action online and intend to do so in the future. They are also much younger than the other segments.

Thresholders (15% of sample; est: 7.3 million)

This segment is on the verge of becoming engaged in online activism. They are highly engaged in progressive issues, have done some shopping and say they have taken some online actions. Many are unaware of the opportunities for online activism, but are waiting to be told. They are slightly less likely to give than the Pacesetters and are not quite as engaged in the community aspect of the Internet. They are older than the Pacesetters, but younger than traditional mail donors

The other three segments are less promising, but individuals in these groups may migrate to the other groups over time. They are Snail Mail Donors (10% of sample; est: 4.9 million); Moderate Computer Crunchies (26% of sample; est: 12.8 million); and Online Apathetics (35% of sample; est: 17.3 million).

The CMS study found that only 7% of the 50 million online progressives have actually made a donation online. This contrasts sharply with the statistic that 80% have made donations through "traditional" avenues. This suggests that, for the short term, most prospects will have to be approached with a combination of traditional and Internet communications. A pure Internet play is not suggested, though considerable advice is given about how to respond to what these people care about.

I was gratified to find that two of my pet theories were born out: Online prospects do not like giving out their phone number-so don't ask for it! And, people who have used the Internet for online purchases are more likely to make donations online. Well, duh, you may say, but keep in mind Adam's Internet Fundraising Mantra: As e-commerce grows, so will e-giving. So if you think that e-commerce is exploding, what conclusion should you draw about the future of giving online?

And yet one more of my inclinations was validated by the study, and by the conclusions that CMS reached from it. What is the most effective way to reach progressive online donors? I quote: "Email. Email. Email." Specifically, permission email, which was covered in Cybergifts, Part 4.

The site: Start at http://www.craveronline.com Their site is *very* advanced. So advanced that it will take a little getting used to. But check it out. It is powered by Cold Fusion and is clearly on the cutting edge.
Adam Corson-Finnerty is a Development Officer, Author and Occasional Consultant. Reach him at: 215-635-4084 or corsonf@fund-online.com. Find his web site at: http://www.fund-online.com. This article was originally published as a series of three postings to the CYBERGIFTS mailing list at http://www.charitychannel.com.