Advancing Philanthropy

Fundraising Tools: Why Acquisition is the Lifeblood of Nonprofits

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The word acquisition often conjures a lot of angst and surfaces past feelings of absolute hopelessness among fundraisers. This is the case because there are only a handful of annual fundraisers that understand the science and mechanics of how acquisition programs work and why they are important. To make it worse, those trying to understand this complex fundraising technique do not have easy access to literature that breaks this down into simpler comprehensible topics.

However, one thing is unanimous—acquisition is misunderstood and thus treated like Maleficent. It scares most fundraisers, most teams are quick to judge it and point fingers at low returns, and most finance colleagues try to defund it.

Like its counterpart the house appeals, acquisitions do work and are vital for the philanthropic longevity and financial sustainability of nonprofits. Mailed acquisitions are done by list rental or list exchange through a third-party list brokerage firm. The names rented or exchanged are most often new and unique names that are not in your current donor management database.

This is a vital fundraising tool for the annual fund program because it maintains a consistent stream of new donors, which, in turn, is vital for maintaining a healthy pipeline of donors for upgrading into major donors.

Why Mailed Acquisition Works

Acquisitions replenish donor lists in addition to growing our brand understanding by reaching new audiences. Most often, acquisitions are treated as a revenue stream and this adds to the misunderstanding of why acquisitions are vital for fundraising.

Unlike house appeals, acquisitions tend to have a lower response rate and average gift size. However, with time, this initial low engagement can be improved if a long-term investment is made. This means that even though acquisitions do have the potential to break even, it takes time and resources to reach them.

When it comes to the annual fund, acquisitions should be part of an organization’s fundraising tools because they replenish your donor base and they help build relationships with a new audience group, making them invaluable.

This becomes a catch-22 situation for organizations that are financially strained and have to make desperate budget adjustments. In order to grow your revenue and build relationships with prospects, you need to invest in your development department, your fundraisers and their tools so that you may diversify your income streams and maintain a healthy growing donor base.

For most organizations that have budget instability, transactional fundraising seems like a choice, but this is not sustainable. Transactional fundraising is a band-aid solution that helps meet the current financial needs, to a point only. In most cases, older donors sustain such organizations with their bequest gifts. As more and more bequest gifts come in, deceased donors are exiting your organization, and you continue to shrink your donor files by not replenishing them (add to this the natural loss we get from unsubscriptions and opt-outs).

Statistically Valid Testing

Acquisitions are also an important avenue where testing of house appeal elements can be done with an unbiased audience.

First, since the number of audiences in acquisition files tend to be higher than house files, this becomes a good venue for performing a statistically valid AB test on appeal elements. The higher number of mailers means your result will have higher confidence and a lower margin of errors (variability).

Second, new audiences give unbiased results to the AB tests. Humans tend to form connections to things after seeing them several times. Some psychologists believe that humans form memory imprints after seeing something 4–6 times, depending on the age of the person. Therefore, our current donors who receive weekly emails, monthly newsletters, appeals and thank you letters are imprinted on our appeal’s look and feel. When you do an AB test on an element—for example, changing your appeal from black and white to full color—our current audience notices it more and they usually react in a polarized manner. They will either love (positive outcome) or dislike the change (negative outcome). This is a biased result. Acquisition audiences who do not have connections to your organization and don’t form imprints give an unbiased result.

Long-Term Investment and Lifetime Value of New Donors

The lifetime value of new donors is hard to measure. Return on investment (ROI) is a ratio of profit over cost and is usually considered a popular measure of performance. A lot of nonprofits use this business investment index to justify budget needs and costs. However, ROI does not give you a measurable index of a relationship, nor does it factor in the lifetime value of a donor who may become an advocate for our organization and recruit volunteers, or may influence other monetary (e.g., donor-advised funds, stock) and non-monetary gifts (e.g., in-kind). Rather, this is a transactional measure of “getting the bang for your buck.”

This goes back to organizations that are in financial distress. This chicken-egg dilemma impedes a lot of organizations from starting acquisition programs, even though acquisitions are necessary for fundraising sustainability.

Contrary to common belief, the majority of the costs incurred during acquisition are printing and postage. List rental, graphics and data management tend to be minimal compared to the lettershop costs. A quick comparison of two organizations revealed that 75% of their annual acquisition expenses were attributed to printing and postage. When you reflect that postage is a standard nonprofit rate paid per mailer, this is a standard cost that can not be lowered. However, there are a few options when it comes to printing. Printing paperweight, color versus black and white, window versus flat face envelopes, and other design elements, can be updated to improve your economy of scale.

Making Sound Decisions

When it comes to the annual fund, acquisitions should be part of an organization’s fundraising tools because they replenish your donor base and help build relationships with a new audience group, making them invaluable. Short-term transactional fundraising strategies are not sustainable and should be avoided. Finding performance measures that emphasize the long-term value of engagement and relationship needs to be a priority because fundraising is built on deepening and building meaningful relationships with prospects. The major cost for acquisition is from lettershop (printing and postage), so you can adapt your brand and thus lower your economy of scale. Although it may appear expensive, long-term investment in acquisition should be a priority for the financial stability of your organization.

sunil prasadSunil Prasad manages the annual fund program at Catholic Charities in San Francisco, and he’s passionate about planning, strategizing, and implementing direct marketing, house appeals, acquisition, and digital fundraising. He advocates for community-centric storytelling, comprising narrative and visuals that humanize and elevate client-donor relationships. Sunil migrated to the East Bay area from Fiji Islands 11 years ago and currently lives with his bunny, Barnaby. https://www.linkedin.com/in/sunil-prasad-a581b31

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08 Aug 2022 President's Perspective Blog
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