Last week I attended the DMFA Awards (formerly DMFA Package of the Year) in New York City. This is the profession’s signature event of the year and showcases the best of the best in direct marketing for fundraising. It was my first time attending, and I came away with some new conclusions and reinforcements of others. The results are in, I won’t comment on that because I’m not a voting member of the DMFA, but you can read about the winners here.
Today, though, I’m offering 4 takeaways (and 1 bonus!) about the event.
1. Acquisition Really Is That Difficult
The conventional wisdom is that using direct mail to acquire new donors is plagued by high costs, low success, and low returns on investment. The numbers reinforce that conclusion. There were 7 packages entered in this category. Of those, the least expensive clocked in at a cost of $1.09 to raise $1. More than half are $1.66 or more, with multiple packages over $2.00. That means, if you spent $16,600 on a package, you would get a return of only $10,000, losing money.
The reason for such high costs is the extremely low return and low average gift. With response rates in the 0.5% to 1.5% range, and average gifts less than $40, it just doesn’t result in any profit for the organization after including package development, postage, list rental, and creative costs. Conventional wisdom holds for these “best of the best”. Should other nonprofits expect any better?
Naturally, I ask, If direct mail acquisition is so expensive, why do it at all? The answer is in #2 below.
2. Renewal Really Is Where You Make It Up
With response rates at 6%, and average gifts at $142, it’s no surprise that Renewal mailings are where nonprofits really see the value of direct mail. Efficiency improves dramatically, because: you’re mailing to proven names, you’re mailing to a much smaller group, and the people who you’re mailing to already have some connection to the organization you can build on. And it shows.
Costs to raise $1 are as low as $0.04, with many below $0.30. The average is only $0.23, which means to replace the $10,000 you got in Acquisition giving, you only need to spend $2,300 this year. That’s now a $7,700 profit, which overcomes the loss from the year before.
Plus, these mailings represent just one campaign. Throughout the year an organization may produce 4 or 5 or up to 10 packages. If each one garners a 5%-6% response, that’s potentially 30%-50% of your mailing list giving again. It’s easy to see that Renewal is an essential part of fundraising, and should never be taken for granted. Doing so would mean ignoring a big opportunity and leaving a lot of money on the table, so to speak.
3. These People Are Not Naive
In any industry there are best practices for a reason: because they continue to work. The Mid-Level Renewal packages have higher cost to create and mail compared to standard Renewal and Acquisition packages. Average cost per piece for Acquisition is about $0.55, while Renewal is $0.93 and Mid-Level Renewal goes up to $1.90. This is because these donors have a tendency to give more, so it makes sense to spend more asking them to give. More color printing, more special reports, more benefits such as tickets to events, etc. The result is often higher response rates and higher average gifts ($307) in this category, leading to more money for the organization. That’s a good thing.
However, because of the need to “spend more to get more”, it does not translate into more efficient fundraising. The cost to raise $1 on Mid-Level Renewals is still about $0.20, which means you’re not really getting more bang for your buck here.
It simply means that you’ve got to continue doing this, and doing it well, because mid-level donors are that much closer to your highest tier, where you can start talking about large gifts and bequests. Should you try to cut costs and squeeze the pipeline, downstream giving would certainly suffer from the resultant smaller, less engaged donor pool.
4. It’s Hard To Compare Apples And Term Papers
E-mail is becoming more popular, because of the significantly lower production and distribution costs. For a while many predicted this, and the cultural shift to electronic communications, would lead to the death of direct mail . However, the existence of the DMFA (and all its members) nullifies that conclusion. The reason? E-mail fundraising just isn’t that much better than direct mail. Costs to raise $1 for this category range widely, but average around $0.18. So while you can potentially have a wider, easier, faster reach with e-mail, it’s not going to be kicking direct mail to the curb any time soon.
As well, e-mail response rates are a tenth (or worse) of physical direct mail, so it’s hard to make comparisons as to which is better for the organization. It’s almost like comparing two completely different types of things, like a piece of fruit and an academic exercise. Ultimately you need both, and used in their own right ways.
The final category of awards is Multichannel. That is, perhaps there’s an e-mail campaign integrated with direct mail. Or you’ve got some Facebook ads along with a series of e-mail blasts. How do you measure all of these “impressions”? Is an e-mail worth the same as a Google ad? What about reTweets, do they get included? And where is the measure of the return on investment from your donor seeing 6 different ads, then navigating to the website independently, and donating there? It’s daunting to create a holistic view of how this channel works, and because of the lack of standardization, it is hard to know what numbers (impressions, clicks, etc.) represent better results here.
Because there is so much disparity in what defines this category I’ll fall back on the cost to raise $1. And, here, like everything above, the average works out to about $0.21. All told, this may be the wave of the future. But, like e-mail’s inability to dislodge traditional mail’s place as a staple of fundraising, integrated digital impressions will become another tool, but not the only one.
This was my first time attending the event. I found the participants welcoming, willing to talk and listen to my story when I told it, and extremely competent in their respective areas of expertise. There is no magic trick that will make one campaign stand out against all the rest competing for attention, and most fundraising is about the same efficiency. I learned a lot, made some important connections, and look forward attending again next year. This meeting reinforced some of the assumptions I’d been making and invalidated others. For that alone it was worthwhile.
Bonus Impression – The After-Party Is More Than Just Socializing
Just like the for-profit business events I’ve attended in the past, I was able to hang around long enough to get invited over to the after-party. There I got to continue some conversations and make some new impressions. And, just like in the for-profit world, once you get people a little more relaxed and out of the “show” of the main event, they’ll start giving you their real opinions. Like which companies are just screwing up the southeast region, and who could be doing a whole lot better by changing to that other supplier with the lower overhead cost.
These aren’t the things you’ll hear about in any of the general sessions or over lunch at a traditional business conference or meeting. But they’re where a good portion of the real work gets done. I’m very grateful for the chance to play “fly on the wall” to a couple of these conversations, and I hope to be able to leverage these insights for the benefit of all in the future.