1

CULTIVATING“MISSING MIDDLE” DONORS FOR MAXIMUM FUNDRAISING RESULTS Treat Donors Right and Keep the Pipeline to Your Major Donor Programme Open and Flowing

A WHITE PAPER FROM THE VERITUS GROUP AND XTRAORDINARY

Yoou know the value of mid level donors. They give several times the amount that

general donors give in the course of a year, but you can’t afford to spend your major gift officers’ time cultivating them. If you handle them correctly, enough of them will upgrade to become majordonors to keep that high-valueprogramme growing and healthy.

That’s far easier said than done!

So the question is, “What is blocking that pipeline to building and expand-ing those major gift caseloads?”

This paper is a joint initiative between Veritus Group and Xtraordinaryfundraising, strategic partners whohave created many successful suchfundraising programmes for our clients.

We’re sharing it with you in the hope that you’ll discover what you need to do to improve your donor marketing and unblock your donor pipeline.

Our programme uses mid-level donor fundraisers to cultivate relationshipswith donors assigned to them invalue-tiered caseloads. Each nonprofit’s strategy is developed after analysis of the donor file to identify challenges andopportunities for growth, includingadding more mid-level donors,increased value, and upgrading.

The fundraiser communicates with the donor by phone, email, and personal notes to establish the donor’s needs relative to the mission and cause of your organisation.

Y

2

FIGURE 1DONOR PYRAMID

Mid-level donors are crucialto overall growth.

Additional “touches,” includingpersonalised reporting and “asks,”create the opportunity to move thedonor up the pipeline to major gift status. Regular analysis and reportingallow us to make changes to thestrategic plan in order to meet your organisation’s growth objectives.

MIND THE GAP!Many charities have a strong focus on what we’ll call general donors — typically those donors who give below annual cumulative amounts of £100. Many organisations also know how to handle those we would call major donors, or personal-caseload donors who provide annual cumulative gifts of £5,000 or more.

This leaves a wide and valuable gap: the “missing middle” of many donor files that are typically referred to as mid-level donors. Common sense and experience tell us that treating them the same way we treat general donors fails to maximise their involvement.They’ll give, but they won’t give as much as they could, and fewer of them will upgrade to higher levels. That is, when you treat them like general donors, they’ll act like general donors. On the other hand, if you try to treat them as major donors, your budget will suffer. Worse yet, you may cause your major gift officers to lose focus on those they should be spending their time and energy cultivating: your true major donors.

Think of your donor file this way:The role of the general donor

Fundraising suffers and:

Long-term value drops

programme is to attract donors to your cause. The role of major donors is to generate net revenue, which funds mission. This net revenue also fuels acquisition, completing a virtuous cycle of continuous growth. However, without a healthy mid-level donor programme that connects the volume at the base with value at the top, this virtuous cycle is broken.

Lower LTV means you must spend less to acquire a donor (and still have anacceptable net cost per donoracquired).

The file shrinks.

The major donor programmestagnates, driving LTV lower — which leads to an ultimate downward spiral in overall file health and net revenue generation.

Sadly, this is the situation manyorganisations face. The way to break out of this downward spiral is to have a game plan for those donors who fall between the upper and lower reaches

MAJOR

MID-LEVEL

GENERAL

3

of each organisation’s donor pyramid. This plan requires more than merely using first class postage treatments and other more expensive formats for direct mail appeals and reporting vehicles.

While this approach typically boostsresponse at a great ROI, it doesn’tsuccessfully move a lot of donors up the pyramid. To successfully transition donors, you need to build relationships. And you need to invest more than the typical £6 to £12 per year. This model scales your relationship investment

FIGURE 2RELATIONSHIP MODELHow relationships should play out across the donor pyramid

according to the expected return from that investment.

Mid-level fundraising is a one-to-some approach that combines as much of the one-to-one major donor model as possible, while continuing to deliver most of the same (or upgraded)appeals and reporting vehicles sent to the general donors.

Which leads us to our next question: How do we know what we should spend on cultivating mid-level do-nors?

INCREMENTAL OPPORTUNITY ANALYSISThe model we use assumes that your mid-level donors already receive an ongoing cultivation stream using direct mail, email, and possiblytelemarketing. The incremental opportunity analysis helps us think

clearly about the key question: What’s the most effective way to spend one more £ to reach these donors?

Table 1 indicates mid-level donors by annual cumulative gift amounts in the left column, followed by the number of donors in each group. Next is theaverage annual value per donor. And the next column sets up the ‘what-if ’ nature of this model. This column shows what the increased annualaverage value would be if the donors in a particular segment give anadditional 10%. The figures in the shaded box indicate the averageincremental revenue per donor, followed by the amount that can be invested per donor to achieve either incremental ROIs of 2:1 and 1:1.

With this model, we can see that, for donors in the £250 to £499 segment, we can afford to spend an additional £13.12 per donor to achieve a 10% lift at a 2:1 ROI on the programme. We could spend an additional £26.24 per donor if we’re willing to accept a break-even return on the 10% lift. Carrying thisfurther, if we achieved a 2:1performance, we would receiveadditional net revenue of £381,712 from those donors — or anywhere between that amount down to break-even, depending on what we could afford to spend.

Going to the high end of Table 1, we see that 9,189 donors are available in the £1,000 to £2,499 annualcumulative giving category. A 10% increase in annual giving through a personalised cultivation strategy with this segment would provide £466,433 in net revenue at the 2:1 cost model. Of course, the 10% increase in giving could be lowered or raised to any amount — whatever we want to use for our testing and selection model — and

ONE-TO-MANY

ONE-TO-SOME

ONE-TO-ONE

4

AQF

that will drive the expectations we use in creating test segments for various versions of our strategy.

The answer to our question about how much a mid-level donor cultivation programme should cost is directly related to our assumptions about increased current year revenue and what we’re willing to spend to achieve it.

The answers to these two questions raise another question: How should

CHART 1 MAXIMUM INVSETMENT TO ACHIEVE TARGET ROIsThe cost to generate a 10% increase in mid-level givingat 2:1 and 1:1 (break-even) ROI

we assess the performance of amid-level programme? In other words, is an annual increase in revenue the only measurement we should be using?

Moving more donors up the major donor pipeline (by treating them in more personal ways) may drive down the incremental ROI, but that may be acceptable given the long-term benefit of having more major donors.

Chart 1 allows us to visualise the data from the table we’ve been reviewing.

TABLE 1 The cost to generate a 10% lift inmid-level giving, which will result

in significant new revenue

Goals and Objectives for Your Mid-Level Cultivation Programme

There are three primary goals for a mid-level programme:

KEEP- retain donors and decrease attrition

LIFT- increase the revenue per donor

MOVE- accelerate the movement and number of mid-level donors to major gift programmes

Table 2 is a summary of our Pipeline Donor Health Index™ that shows how each of these goals is evaluated

£100-249 £250-499 £500-749 £750-999 £1000-2499

TARGET ROI = 2:1

TARGET ROI = 1:1

INCREMENTALCUME GIFTAMOUNTS

AVAILABLEDONORS

AVG. REVENUEPER DONOR

WHAT IFLIFT (10%)

REVENUE PERDONOR

COST AT2:1 ROI

COST AT1:1 ROI

£100 - 249

£250 - 499

£500 - 749

£750 - 999

£1000 - 2499

111,558

29,636

13,102

3,206

9,189

£113

£262

£442

£659

£1025

£124

£289

£486

£725

£1127

£11

£26

£44

£66

£102

£5.65

£13.12

£22.10

£32.95

£51.24

£11.29

£26.24

£44.19

£65.89

£102.48

5

AQF

TABLE 2

While KEEP, LIFT, and MOVE are our primary goals, we always see additional benefits from a mid-level programme, such as:

DATA HYGIENE.As mid-level representatives communicate with donors, they get information that allows us to correct errors in their donor records. This alone leads to improved mail and email performance.

PERSONAL INTEREST INFORMATION.This includes adding information to the file that indicates why the donor first gave and what motivates them to continue giving. Other personal information, such as birth date, personal interests, hobbies, and other key life milestones, allows for the development of a relationship characterised by more than transactions.

LEGACY GIVING LEADS.Many donors at this level of giving recognise the need for the cause they care about to continue past their own life, and they may desire a legacy that shows their commitment to the cause.

REAL-TIME DONOR FEEDBACK.The personal communications we have with donors provides the type of feedback about donor satisfaction and under-standing of your charity that organisations often hire researchers to pursue through surveys and focus groups.How the Mid-Level Programme Works

GOAL MEASURABLE OBJECTIVES BY YEARKEEPRetention of Donors

(Defined as new and existing)

LIFTValue of Donors

(Defined as retained at previous year’s value, upgraded to higher value, and downgraded to lower value)

MOVEUpgrade

Quantity of available donors within a specific annual gift cumulative range from the previous year that were active.

Quantity of active donors who gave a gift in the specific annual cumulative range.

Percentage of donors who are active versus those who are available.

Total quantity of gifts.

Total value of gifts.

Gift frequency.

Average gift.

Amount per active donor.

Number of mid-level donors who are moved up to major gifts level.

A

B

C

D

TIE

RS

BA

SED

ON

EV

ALU

AT

ION

CR

ITE

RIA INTRODUCTION STRATEGY

LETTER PHONE CALL SURVEY

MONTHLYTOUCHES

CASELOAD

ONLINE OR MAIL

THANK-YOU

YOU MADE ADIFFERENCE

PERSONAL CARDS

UPDATES

PHONE CALLS

SURVEYS

ANALYSIS

EVALUATIONCONTINUE

MAJOR DONORCASELOAD

DISCONTINUETREATMENT

(DIRECT RESPONSE ONLY)

MID-LEVEL COMMUNICATION STRATEGYTHE PLAN IS MULTICHANNEL AND INTEGRATED TO BUILD STRONG DONOR RELATIONSHIPS AND PRODUCE NEW MAJOR DONORS.

6

AQF

HOW THE MID-LEVELPROGRAMME WORKSThe previous diagram shows the principles that we’ve learned and put into practice for mid-level donor programmes:

DIRECT-RESPONSE FOUNDATION: Part of the standard analysis of a non-profit’s current programme is tounderstand the strategy that is currently relied upon for mid-level cultivation. By gaining an understanding of what is working (and what is not), we’re able to create a high-touch plan that is integrated with the current donor-marketing plan.

DONOR CASELOADS:Caseloads of approximately 600donors are the right quantity for proper management and development of personal relationships with mid-level donors. Caseloads are tiered A through D based on donor value.

INTRODUCTION STRATEGY:Three elements are part of theintroduction strategy: 1) letter, 2) phone call, and 3) interest survey. These three tactics are used tointroduce the donor to the fact that the nonprofit has launched thisprogramme to provide them with timely information about how the donor’s gifts are accomplishing the mission, as well as the appreciation that the organisation has for the donor’s commitment to giving. They are also used to gather feedback about the donor’s interest in the non-profit’s mission and their preferences forcommunications channels.

MONTHLY TOUCHES:Based on tier level, each donor will receive various personalcommunications, or “touches,” via phone, email, handwritten cards, and personalised reports. Based on donor gift files that are received daily, the mid-level representatives will make thank-you calls or write personalised thank-you notes to donors within

days after the gift has been received. “You made a difference” reports are personalised to the donor and can be based on the type of offers the donor responds to. Updates on the overall programme are sent by email, phone, or in personalised mail packages.Invitations to special donor events, such as open houses, or other non- giving opportunities, are also extended. The emphasis in all communications is on serving the donor and the need they have to be appreciated and to know that their gift is being wisely invested.

ANALYSIS AND EVALUATION:The Pipeline Donor Health Index™ analysis informs decisions about programme effectiveness, whether changes are required, and to make decisions about individual donors in

Four Keys to a Successful GeneralDonor Fundraising Programme

GREAT FUNDRAISING OFFERS.Show your donors specific actions they can take when they donate that are right-sized for their giving abilities and focused on having a powerful impact.

FREQUENCY. Don’t go silent on these donors for weeks or months ata time. When you aren’t communicating with them,someone else is.

PROMPT THANKING. Receipt their gifts quickly. If it takes more than 48 hoursto get a receipt in the mail, you are losing donors.

REGULAR REPORTING BACK.Newsletters should highlight the incredible impact thedonors are having through their giving. Newslettersthat brag or educate fail to show donors that giving isa good investment.

the programme. Top-value donors are evaluated for hand-off to major gifts on a scheduled basis.

SPECIAL OFFER:Free Mid-Level Donor-File Analysis

Talk to us about producing an analysis of your mid-level donor file utilising our Pipeline Donor Health Index™ to uncover your current challenges and discover your opportunities to maximise donor retention, value, and upgrading to major donor caseloads.

7

AQF

A large national environmental organisation came to us with a challenge: Implement a personal mid-level programme. Quickly. They had nothing like it in place and wanted to test the impact of a programme of the type we’ve presented in this paper.

Six months ago, we started a test: one caseload of 668 donors in our outsourced programme to be measured against an identical panel of donors that received only the ongoing direct-mail pieces. The three goals of retention, value, and upgrade to major donor caseload and objectives for measurement were agreed to.

After only six months, we’re seeing the following:

Test caseload donors have 6% overall higher revenue compared with thecontrol caseload donors.

Test caseload donors have 3% better year-over-year revenue retention than control donors.

But beyond the improvement in revenue generation were the number of comments made during initial calls with 6 donorsregarding Legacy giving opportunities. The following are comments in reports from the mid-level donor representative:

“Donor wants to set up trust to benefit charity after they are gone.”

“Donor wants to include charity to receive shares in her Will.”

“Donor wants information about legacy gift to charity.”

“Donor wants to discuss legacy gift to charity.”

“Donor wants to include client in Will (call back at end of summer).”

“I walked donor through charity website about how to leave client 25% of £3.8million estate.”

CONCLUSION: While this organisation’s donors regularly receive Legacy giving communications, it took the power of the human dynamic through the phone to uncover these very personal and very important giftopportunities.

CASE STUDY 1LAUNCHING A NEW PROGRAMME

CASE STUDY 2IN-SOURCED OR OUT-SOURCED?

CASE STUDY 3UNBLOCK THE PIPELINE!

Two years ago, a major international non-profit with a functioning, high-touch mid-level programme asked us for a test of our outsourced programme against their internal-team approach. The nonprofit’s leadership said that they believed their approach was effective, but internal costs (salaries, benefits, and overhead) weremaking it difficult to expand to meet the needs of their mid-level donors.

By comparison, they deemed ourout-sourced costs — including analysis, data file management, donorrepresentative calls, and personalised communications — to be significantly less and easier to manage.

The test included three matchedcaseloads with a total of 1,800 mid-leveldonors. It would evaluate retention,donor value, and number of mid-leveldonors upgraded to major gift caseload. The client said that doing as well as the control groups or even close would be a win.

Before the test, our outsourced teamimmersed themselves in the client’smission and programme so that they could communicate as effectively as the client’s donor marketing team.

After 1 year, the results were as follows:

• Out-sourced caseloads had 10% better retention compared with the control caseloads.

• Out-sourced caseload donors had an increase of individual value of 7% over the control donors. This equated to a roll-out revenue increase of £3.4m in total revenue.

• Test caseloads moved up 75% more donors to major donor caseload. It was clear that our out-sourced solution met the challenge, and we proved that an outsourced solution can do as well or better than the in-house mid-level programme team.

A social services charity needed to move more donors into major gift caseloads.

In the past, donors who moved up the donor pyramid did so of their own volition. Many donors were “stuck” in the £250–£2,500 annual cumulative gift range. The non-profit needed a strategy to proactively move these donors into a major gift programmme.

We started a test programme with 10,000 donors. By the end of the test period we moved 510 donors into major donor caseloads. That was 364% more than those donors not in our programme. This demonstratedeffectiveness has led this non-profit to increase the number of mid-levelcaseloads assigned to us from 20 to 50.

8

AQF

TAKEAWAYSCULTIVATE MID-LEVEL DONORS FOR GROWTHAn effective mid-level donor programme is one of the most important elements of current donormarketing. But most organisations need a model to help them think about what that solution looks like.

The model we use recognises three key goals: KEEP— retaining donors and decreasing attrition; LIFT — increasing the revenue per donor; MOVE — accelerating the movement and number of mid-level donors to major gifts programmes.

The content for all mid-level donor marketing communications is similar to that of major and general donors: thanking and affirming donors for their gifts and reporting on how their gifts are making adifference in meeting the needs that the donor cares so much about.

It is possible to establish a target budget for a mid-level programme based on anticipated outcomes. This incremental ROI analysis is informed by the organisation’s experience and by our best practiceexperience with mid-level donors.

We use the Pipeline Donor Health Index™ to analyse the past and to quantify performance against agreed upon strategic goals for all mid-level programs. All programmes are designed to improve KEEP, LIFT, and MOVE.

The programme we develop for all clients is individualised for each non-profit based on its current donor marketing programme, including offer, channels, and tactics.

A robust mid-level programme is one of the most important programmes for non-profits to get started today in order to meet the growth needs of tomorrow.

Veritus Group and xtraordinary in Partnership

Two specialist fundraising companies Veritus Group and xtraordinary fundraising have teamed up to create this results-producing, outsourced mid-level donor programme.

Veritus Group has 35 years of experience in major donor advice and caseload strategy, management of major gift officers, and hands-on fundraising. Together, we’re bringing a solid strategy and dependable team of professionals to nonprofits across the country, helping them develop mid-level donors for greater revenue and retention.

Xtraordinary Fundraising is a fully integrated digital and offline fundraising agency delivering strategy, creative and execution for many charities. As Blackbaud’s implementing partner for its digital products, we are proud to be associated with many leading fundraising brands, working in partnership to produce the best outcome. Our Creative Director, Jeff Brooks, is well known to many fundraisers around the world. Our sister agency hjc in Toronto Is one of the leading digital fundraising agencies in the world.

Stephen Butler, Director T: 07866 695476 E: stephenb@xifr.co.uk W: xifr.co.uk

Sian McDermott, Client ManagerT: 07866 695476 E: sian@veritusgroup.co.uk W: veritusgroup.com