ARE YOU ASSESSING THE DONOR DEFICIENCY RISK?

2020 is the year that changed the world permanently. When the whole world is working towards defining its new normal, and are going to struggle on this for the foreseeable future. It is inevitable for the organizations to halt and re-evaluate how they operate. Take this moment to ask yourself whether you are communicating with your donors with the right message that engages them, or are you endangering your organization with losing gifts of your long-time donors? What if you could quantify the potential dollars at-risk should you lose your donors and quantify the reasons of donor churn your frontline fundraisers are observing, in other words, assessing donor deficiency risk? The good news is that you have all the ingredients to create the recipe for assessing this risk. Here is a stepwise plan for you to get started on this assessment:

Step 1: Define your donor deficiency risk

The end goal of your analysis is not churning numbers but making it consumable for your team. To do so, remember to define what you are assessing clearly. For this blog, when we say donor deficiency risk, we mean to answer the following questions:

a). Can we find out your at-risk donors? The risk here is losing their affinity and, thus, potential future gifts.

b). Can we quantify average dollar amounts that you are potentially at stake, should you lose connection with these at-risk donors?

c). Is there a mechanism to tie what your frontline fundraisers are observing on donor churn and the scores of these donors (from above), such that you can create a risk mitigation plan by prioritizing where to begin with at-risk donors?

With three clear objectives defined, let's move forward to the next steps and see how we can answer them.

Step 2: Collect relevant data

To understand the potential dollar amounts you could lose, you need to begin by understanding the behavioral change in donors. Begin by collecting all relevant data on your donors. The following data can be readily collected from your database:

·   Bio information of donors (e.g., ID, address, spouse or other relationship information, age, gender, zip code)

·   Giving information (e.g., first gift, last gift, largest gift)

·    Any additional wealth data available (e.g., Household Income, Home value, Luxury purchase history)

·    Personal interests and affinities (e.g., volunteering information)

·    Communication with your organization (e.g., events, in-person communications or active online supporter)

·    Any qualitative data (e.g., feedback, complaints or suggestions made in the past)

If your organization is not collecting any of this data, then it is time for you to institutionalize this change. And the simplest way to start collecting is through yearly/bi-yearly surveys. Consciously designed and analyzed surveys can give you rich insights that reflect the well-rounded perspective of your donors.

Step 3: Create risk score

There are several methods to score your constituents to determine your at-risk donors. Easiest one to get started by yourself? RFM score.

Recency, frequency, monetary value (RFM) assessment creates an indicator that suggests which donors demonstrate the most substantial risk of losing the next philanthropic gift from them. Each donor is assigned a score based on that donor's position in a normal distribution of all donors. In plain terms, an individual with a higher RFM score has given less, less frequently, and less recently than individuals with lower RFM scores. In other words, a higher score means they are at-risk donors.

Recency: When did your donor make their last gift?

Calculate the recency score by sorting the entire constituent file in descending order by the most recent gift date. Those in the most recent 20% are assigned a score of '1', the next 20% a '2', and so on until the final 20% receive a score of '5'.

Frequency: How many gifts has your donor made to your organization?

Calculate the frequency score by sorting the entire constituent file in descending order by the total number of gifts to the organization.  It is important not to include pledge payments or recurring gifts as these can the perceived activity of the donor. Again, those in the top 20% are assigned a score of '1' the next 20% a '2' and so on until the bottom 20% receive a score of '5'.

Monetary: How much total amount has your donor given to your organization?

Calculate the monetary score by sorting the entire constituent file in descending order by total giving to the organization. Those in the top 20% are assigned a score of '1' the next 20% a '2' and so on until the bottom 20% (which should primarily be non-donors) receive a score of '5'.

The Total RFM Score: Although you can use each score separately, they are most powerful when combined into a total RFM score. The result is a score ranging from 15 to 3, which highlights your at-risk donors based on their demonstrated gift history.

You can also filter these scores, individually, before combining, for the following use cases:

With this, you now know the answer to the first question we defined in our objectives. Let's go to the next step for quantifying the potential dollar amounts at risk.

Step 4: Find average dollar amounts at stake

There are several ways to calculate this; however, the easiest method to calculate potential gift amount at stake is: 

Potential gift = length of time a donor remains an active donor (longevity) x average donation of that donor x total gifts from that donor

This formula gives the average dollars you could potentially lose if the donors do not receive meaningful attention.

Now that you have these dollar values, you can crosstab these dollar amounts (converting into ranges) with at-risk scores above and get a clearer picture of the donors who needs your immediate attention. Below is an example diagram of how you can crosstab the two information:

With this, you now know the answer to the second question we defined in our objectives. Let's go to the next step for the final question to know if there is a mechanism to tie all this with observations of your frontline fundraisers and create a risk mitigation plan.

Step 5: Create risk mitigation plan

Your risk mitigation plan should not be driven purely by numbers, just as it should not be dependent solely on the observations (thus bringing human biases). Your organization can best operate if they make a combination of both art and science we lay here. So, how can you tie these two pieces together?

Here is an iterative approach to creating a mitigation plan:

5.1. Start with the highest at-risk donors, as outlined in the crosstab above.

5.2. Have your frontline officers pick every donor in this "red zone" and list one primary concern they have observed for each donor, owing to which they feel that donor could potentially leave your organization. Then have your officer give a rating 1 to 5 (1 being lowest to 5 being highest), to those concerns on two parameters:

·  Ease to address

·  Impact of the concern (i.e., likelihood of the donor leaving should this concern is not addressed)

Your final table should look like:

5.3. From this list, start with the ones who are most likely to leave, and the ease of addressing their concern is easiest. These are your easy wins with maximum gain. Some would require connecting with an understanding of communication, while others could mean sharing your impact with the donor. Continue this exercise until you exhaust the list.

5.4. Once you complete your "red zone" list, move on to the next list, as outlined in the crosstab of last step.

Remember, the key is to consistently evaluate your donors from both the perspective of your data and your frontline officers. Use the under-utilized data (starting with collecting it) of your organization and empower your team for deeper insights.