The Thing About Premiums – Part II
Part II: Using Premiums to Retain Donors
Ok, so you can get more donors at a nice investment using premiums. You can even get economies of scale on production, lowering cost per piece because you can find more names to mail. But now you have a lot of donors who aren’t committed, won’t renew, churn and burn – or so the critics say. The numbers say something different.
Including premiums strategically in a house file or renewal schedule – starting with repeating your acquisition package at least once or twice a year to those donors – will also increase your response rates. Improved response rates will increase retention rates. Let me repeat that – RESPONSE RATES = RETENTION RATES. Retention isn’t about how donors feel about your organization. It isn’t about your messaging or marketing. Of course, those things are important – regardless of what packages you mail. But retention is about getting that gift, year after year, and multiple times within a year. A gift received is a donor retained.
Retention rates are simple math. If you have 100 donors and 50 give in the following year, your retention rate is 50%. If you do ten mailings in the year and each mailing gets an average response rate of 5%, and you only get one gift from each donor, there’s your 50% retention. In order to improve your retention, you need to either give your donors more opportunities to give or get more of them to respond to your appeals. Switch four of your ten mailings to premiums that average a 10% response rate and your overall retention jumps to as high as 70%!
Premiums increase response. More donors are giving. This means you are either increasing your retention rate or increasing your gifts per donor (which means higher retention next year) or both. The biggest predictor of a donor renewing in the next year is that they make more than one gift in the current year. Retention of donors who give more than one gift per year is often 60-70% higher than for donors who only give one gift per year. Every donor you retain means one less you need to acquire to keep your file steady.
As long as you are monitoring your segmentation to ensure your donors are creating positive net revenue each time you mail, premiums can be an effective tool to build donor files, improve retention, create stable net revenue, and balance acquisition with your renewal program. Keeping enough non-premium appeals in your renewal program will help balance costs overall, and give you opportunities to communicate with donors who choose to opt out of premiums.
In short, properly designed and managed, a program that includes premiums in strategically placed campaigns can create healthy donor files and give you a broader audience to listen to your story and grow to love your organization. Balancing your costs throughout the year and understanding that investing in keeping your donors is just as important as investing in acquiring them, will be a key to success. You can have a program that includes premiums and that can achieve your goals and create positive momentum for predictable net revenue for years to come.
And, if you have a premium-based fundraising program that is underperforming, perhaps we should chat!
Key Words: Direct Mail, Fundraising, Direct Marketing, Premiums, Donor Retention, Donor Acquisition
Becky Odum, CFRE is the Chief Strategy Officer at Edge Direct and can be reached at 443-852-0277 or Becky.Odum@edgedirect.com.
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