Understanding donor retention rate and donor behavior

03 Jan 2023
Understanding donor retention rate and donor behavior

Fundraising is no mean feat.

Non-Profit organizations are always struggling to improve their donor retention rate.

Program directors of Non-Profits may sometimes feel as if donor acquisition and donor retention are at loggerheads.

To add salt to the wound, the pandemic created uncertainty about the donation cycle.

Will the recurring donations stop due to the economic downturn? And what about new donors?

Some businesses and Non-Profits perceived COVID-19 as a black swan opportunity — driving adoption of new technologies. Digitalization inspired new and innovative ways to increase donations. For example, when Macmillan Cancer Support estimated a reduction in its donations by a whooping £95m due to the pandemic, they turned to online games such as virtual escape rooms and quizzes to help reinvigorate donations. Developing a wide range of innovative fundraising strategies helped this Non-Profit to weather the storm.

Many articles cover ways to increase donor retention rates. In this blog, we would like to address the fundamental question of what motivates donors to give and then seek its correlation with donor retention.

As per the Fundraising Effectiveness Project, research by The Association of Fundraising Professionals (AFP) and the Center on Non-Profits and Philanthropy at the Urban Institute, the average donor the retention rate for Non-Profits is about 45%.

Some of the reasons donor retention is important for Non-Profits include:

  • It takes much less time and money to retain a donor than to acquire a new one. Non-Profits tend to spend two to three times more on acquiring new donors than on retaining old ones.
  • Donor retention contributes to larger gift sizes. An integrated marketing and communication strategy geared to engage constituents helps to strengthen the relationship between you and all your stakeholders. Over time small donations from your recurring donors are likely to convert to rather large-sized contributions.
  • That shows a healthy donor retention rate demonstrates to all the stakeholders of a Non-Profit its loyal supporters. Your impact report is a great marketing asset. It showcases data-driven insights about the good your Non-Profit has achieved. You can use this impact report to further amplify your donations by including stories about real people and their impact on your cause. This communication strategy of impact storytelling by engaging your donors also helps to lower marketing costs as your donors do the marketing for you, by spreading your message with their friends and family on social media.
How to calculate donor retention rate?

Here is the simple formula:

# of Returning Donors (Year 2) / # of Previous Year Donors (Year 1) = Donor Retention Rate (%). For example, if you have 180 repeat donors in 2021 and 400 donors in 2020, then your donor retention rate will be 45% .

A 2016 study by Trust Study of High Net Worth Philanthropy in partnership with the Indiana University Lilly Family School of Philanthropy, gives data-driven insights on donor motivations. Results showed donor motivations as follows:

  • Believing in the mission of the organization (54%)
  • Believing that their gift can make a difference (44%)
  • Experiencing personal satisfaction, enjoyment, or fulfillment (39%)
  • Supporting the same causes annually (36%)
  • Giving back to the community (27%)
  • Adhering to religious beliefs (23%)

Another factor that is not covered above is that wealthy donors give to get tax benefits. High net worth individuals who have to pay higher taxes are happy to give a larger amount as a donation. Thus, money is another motivator to give!

Know your donors

Let’s understand this with an example of the famous Ice Bucket Challenge that raised more than $100 million for the ALS Association in just one month!

A study on the Ice Bucket Challenge by Dr. Sara Konrath, Associate Professor of philanthropic studies at Indiana University, focused on how narcissistic people engaged in charitable donations. The study showed that people who posted a video only scored the highest on narcissism, while those who donated without posting a video scored the lowest on narcissism.

The author suggests that Non-Profits think about ways they can reach egotistically motivated donors. And for altruistic donors, Dr. Konrath encourages fundraisers to demonstrate how the values and mission of the organization fit with the donor’s values.

The point we are trying to drive through this example is to get a thorough understanding of your donor behavior. Clarity on this front will help you chalk out a winning communication and marketing strategy to increase donations.

Why do donors stop giving?

Funders and other Non-Profit stakeholders want to know how their funds are contributing to the accomplishment of your philanthropic goals.

The pressure on Non-Profit organizations to demonstrate the dollar value against the outcomes has increased. Savvy fundraisers understand this. They can achieve a high donor retention rate by listening to their donors and giving what motivates them to give. And that is, communicating data-backed stories of their program and mission outcomes to show donors why their donation matters.

Impact reporting is essential for donor loyalty. GiveLife365’s impact reporting module helps Non-Profits to align fundraising, program delivery, finance, and operations with actionable insights and impact on a purpose-built platform.

Focus on “impact storytelling”

One of the best ways to increase your donor retention rate is by showcasing your impact report.

Demonstrating data-driven evidence of your program and mission outcomes brings transparency and builds trust. This creates a positive change and encourages supporters to keep giving to your cause.

Communicate visual stories such as images, video testimonials, etc of real people that have benefited from your program. Share actual numbers of KPIs relating to your cause. For example, if your stakeholder is concerned about the future of children and youth, a meaningful indicator would show how their money has directly helped in counseling or providing quality education and skill development programs to empower children.

The idea is to showcase the specific actions your Non-Profit has taken to achieve desired outcomes. Remember the three Fs — faces, facts, and figures — is a good combination of evidence to convince and inspire your supporters to continue giving!