Optimizing direct mail acquisition

Some would have you believe that cutting direct mail donor acquisition is the solution to low ROIs.

On the surface this seems to make sense. However, it is misguided.

The solution to low ROIs is more complex than simply cutting your direct mail acquisition program.

First, let’s set the context. The current fundraising landscape looks like this:

  • The costs for printing, mailing, list rental and postage continue to increase.
  • Response to direct mail acquisition is about the same as it’s been for years, i.e., 1 to 1.5 percent.
  • The first gift ROI is declining.
  • Donor retention is declining.
  • Average long-term donor value is declining.

Given these negative trends, why not cut acquisition?

Because that decision would have a big impact. While cutting acquisition would have an immediate, positive impact on ROI, it fails to take into consideration the long-term financial impact that would be quite negative, if not devastating, for a lot of ministries.

It’s important to consider that while the overall acquisition results may be poor (low ROI), there are a number of things you can do to improve the ROI without throwing the proverbial “baby out with the bath water.” Here are some recommendations:

  1. Conduct long-term donor value analysis to determine which rental lists are producing the best donors. We’ve found that in direct mail, for example, some rental lists produce poor first gift results, but very good long-term donors. Conversely, some lists that appear to work well based on first gift are not adding good long-term donors to the donor file.
  2. Don’t use the number of donors you acquire as your primary metric. You can add a lot of donors by asking for $5, but research shows that you may never break even on the cost to acquire any donor who’s first gift is less than $20.
  3. Test larger ask arrays in direct mail acquisition to find the optimum balance between first gift ROI and a larger average gift (the larger the first gift the greater the long-term donor value).

The overarching principle is that you should make your new donor acquisition decisions based on long-term donor value and long-term ROI, not just on first gift response.

By following these basic steps, it’s possible to reduce acquisition costs by reducing the mailing quantity, and still have a steady stream of good, long-term donors.

I also think it’s important to allocate a percentage of your new donor acquisition budget (money you probably will save following the steps outlined above) to test online acquisition strategies and ways to integrate online/offline acquisition. But that is a subject for another post.