The Problem with Retention

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I’ve got a problem with retention.?

A bone to pick.?

A beef, if you will.?

More specifically, my issue is not with retaining donors year after year, which is very important. My beef is with the focus on the measurement of retention – a metric that fundraisers and marketers all over the world rely on as a core indicator of the health of their fundraising program.?

Retention is calculated as the percentage of donors who gave last year that have given again this year. It might be expressed as “We retained 42% of all donors from last year” or “We retained 60% of our repeat donors from last year.”?

Recurring donor retention rates are different. If you know me, you know I’m fired up about the opportunity for nonprofit leaders and fundraisers to take advantage of the changing landscape of recurring giving driven by the Subscription Economy.?

Neon One found that from 2018-2022, nonprofits had an average recurring donor retention rate of 78% – a dream for most nonprofits. I have one client with an incredible recurring retention rate of 86%. That’s nearly 9 of every 10 recurring donors that stick around year after year – and we’re not done improving it yet.?

Retention just sounds nice. But that’s the problem. It’s too nice.

The Problem with Retention

As a metric, retentional is not motivational. It doesn’t inspire action or incite alarm.? It doesn’t light a fire under anyone. Fundraisers talk about improving retention, but it easily gets lost in the shuffle of more pressing problems (like acquisition).?

It’s also unhelpful when retention is reported across an entire donor file. The Fundraising Effectiveness Project reports that overall donor retention rates hover between 40-45%. But what does that mean? And how can we improve it? What’s more important is understanding the dynamics for different segments – new donors, second-year donors, multi-year donors, recurring donors, online vs. offline acquired, etc.

I think we should flip the conversation on retention.?

Why We Should Flip the Conversation on Retention

The inverse of retention is churn. Churn is a more helpful and, I would argue, a more motivating metric.

One of the reasons churn is more compelling is that we humans tend to be more motivated to avoid losses than to pursue gains.

If I offered you one of the following two options, which would you choose?

1. Flip a coin, and have a 50% chance of winning $1,000, and a 50% chance of winning nothing, or?
2. A guaranteed payout of $450.

Research shows that most people will choose option B – we would rather take a guaranteed payout than take the chance at losing.

Beginning in the 1970s, researchers Daniel Kahneman and Amos Tversky answered this question. When they offered subjects the choice, the majority chose the sure bet – Option B, despite the statistical likelihood of winning more money with Option A. Kahneman and Tversky would go on to coin the term “loss aversion” based on this finding that humans tend to respond much more strongly to potential losses than corresponding gains.?

Loss aversion is a cognitive bias that describes why, for individuals, the pain of losing is psychologically twice as powerful as the pleasure of gaining. The loss felt from money or any other valuable object can feel worse than gaining that same thing. The Decision Lab – Loss Aversion, Explained

Kahneman would receive a Nobel Prize in 2002, partly based on this work on decision-making.

The pain of losing is twice as powerful as the pleasure of gaining. We humans will go out of our way to avoid losses.?

Retention is pleasure.

Churn is pain.?

?? Takeaway: Research shows that people are motivated more by minimizing loss than maximizing gain. Retention is essentially a “gain” metric, while churn is a more painful “loss” metric. By flipping the focus from the pleasure of retaining donors to the pain of losing them due to churn, we increase our motivation to do something about it.

Churn – A Lesson from Subscription Economy

I’m writing an entire book about the lessons we can learn from the Subscription Economy and apply them to growing recurring giving.?

Subscription businesses place churn at the top of their metrics. They obsess over reducing churn. They develop churn mitigation strategies. They hire third-party providers to focus on minimizing churn.

?? Takeaway: Subscription companies obsess about reducing the pain of churn – they know that every percentage point of churn they can reduce stems lost customers and revenue, and they are motivated to minimize churn.

My hot take: The nonprofit sector needs to talk less about retention and more about churn. It’s not “We retained 21% retention of new single-gift donors;” – it should be “We lost 79% of our new single-gift donors due to churn.”? Which one is more painful sounding? Which one is more likely to motivate action?

To my earlier example of our client with a stellar 86% retention rate… The truth is, even with an industry-leading retention rate of 86%, we’re still losing 14% of our recurring donors annually. That hurts.

?? Takeaway: We need to flip the conversation as a nonprofit sector and talk about CHURN, not RETENTION. How many donors are you churning each year, and what will you do to minimize loss?

What do you think? I’d love to hear from you.

Until next time… Surfs Up! ??

- Dave

P.S. This month’s Waves to Watch was an excerpt from the August 23, 2024 edition of The Wave Report – a weekly newsletter available ONLY via email subscription. For insights delivered right to your inbox each Friday, subscribe here.

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