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As a nonprofit organization, you know that fundraising is critical to your mission’s success. However, when we think about how we’re going to reach ambitious fundraising goals, nonprofits frequently turn to donor acquisition as the secret to growth. While donor acquisition is important, we sometimes focus on it so much that we overlook donor retention. With donor acquisition costing 50-100% more than donor retention, it’s not enough to simply secure new donations; nonprofits need to build long-lasting relationships with donors to ensure that their organization has a reliable and sustainable source of funding.
But how can you better understand how your organization is doing when it comes to donor retention? One way this can be measured is through donor retention rate.
Understanding donor retention rates
Donor retention rate is a measurement of the percentage of donors who continue to give to your organization over a specific period. This rate shows how successful your nonprofit is at retaining donors and cultivating long-lasting relationships with your supporters to ensure that they continue to support your mission. Donor retention rate has been hovering between 40-50% for the past several years, meaning that your organization could be losing up to 60% of your donors every year.
How to calculate donor retention rate for your organization
Calculating donor retention rate involves a simple formula that can be applied by any nonprofit organization. To calculate your donor retention rate, first, determine the number of donors who gave in the current period and the previous period. You can choose the time period that makes the most sense for your organization, but the best indicator of your donor retention rate is to look at it year over year.
Once you understand the number of donors, you then divide the number of donors who gave in both periods by the number of donors who gave in the previous period. Finally, multiply the result by 100 to get the percentage of donor retention.
Sounds simple right? Let’s dive deeper into donor retention rates and how they can help your organization reach your fundraising goals.
The importance of donor retention rate for nonprofits
Understanding your donor retention rate is crucial for your nonprofit organization to build and sustain its donor base. A high average donor retention rate means that you are retaining more of your supporters, which translates to a reliable and consistent source of funding over time. You can use the donor retention rate as a benchmark or KPI to measure your success in cultivating relationships with your supporters and as an indicator that the stewardship activities you’re using are effective. There are several benefits of maintaining a healthy donor retention rate for your organization including:
Increased revenue
Maintaining a high donor retention rate can in fact lead to increased revenue over time. Retained and repeat donors tend to give more than one-time supporters, which increases your average gift amount and overall revenue. In fact, recurring or repeat donors tend to give an average of 40% more than first-time donors and as a result, a healthy donor retention rate can significantly impact your nonprofit’s financial stability and sustainability, allowing you to allocate more resources toward your mission and achieve greater impact in your community.
Reduced costs
A high donor retention rate can also significantly reduce costs for your nonprofit organization. Acquiring new donors can be expensive, requiring significant investments in marketing and advertising. By retaining more of your existing donors, you can reduce these costs and allocate resources toward other mission-critical activities.
Stronger donor relationships
Maintaining a high donor retention rate can also help your nonprofit organization build stronger, long-lasting relationships with your donors. Retained donors tend to feel more invested in your organization and its mission, making them more likely to continue giving and even increase their contributions over time.
By focusing on keeping your donor retention rates high, you can better understand your donors’ motivations, interests, and preferences and tailor your communications and outreach efforts accordingly. This personalized approach can help build trust and loyalty among your supporters, ultimately leading to a stronger and more engaged donor base.
The consequences of a low donor retention rate
As a nonprofit organization, a low donor retention rate can have significant consequences for your fundraising efforts and overall impact. A low donor retention rate means that you are losing more supporters than you are retaining, leading to a decline in revenue and a less stable donor base. It can also signal underlying issues with your organization’s fundraising strategy or donor engagement efforts. Some of the consequences of a low donor retention rate include:
Decrease in funding
A low average donor retention rate can lead to a decrease in funding for your nonprofit organization. When donors don’t feel connected or engaged with your mission, they are less likely to continue giving. This can create a cycle of constantly seeking out new donors to replace those that have stopped giving, which can be time-consuming and expensive.
As mentioned, new donors tend to give less than retained donors, meaning that your nonprofit may need to acquire more donors to maintain the same level of funding. This can put a strain on your fundraising efforts, leaving less time and resources to focus on your mission-critical activities.
Challenges in reaching fundraising goals
If you have a low donor retention rate, it can be challenging to reach your nonprofit’s fundraising goals. Retained donors are more likely to give larger gifts and make multiple donations over time, which can add up to a significant amount of funding for your organization. When you lose donors, you also lose the opportunity to receive additional contributions from them, making it more difficult to reach your fundraising goals. This can put a strain on your nonprofit’s finances and make it difficult to fund important programs and initiatives.
Additionally, a low donor retention rate can signal to potential supporters that your organization is not effectively engaging with its donors, making it less attractive to give. As a result, your nonprofit may struggle to attract new donors and build a stable donor base.
Calculating and analyzing donor retention rate
Now that we have covered the importance of a donor retention rate and why nonprofits should strive to keep theirs as high as possible, let’s dive into the steps to calculate your organization’s rate:
1. Determine the time frame
Decide on the time period for which you want to calculate the donor retention rate. Most nonprofits calculate this on a yearly basis, however, if you’re interested in getting more granular, you can break down your donor retention rate quarterly.
2. Determine the number of donors in the previous period
Now that you have decided on the time frame you want to measure, you’re going to have a “previous period” (ie. the time frame that you’re comparing against) and a “current period” (ie. the time that you’re actively seeking to understand your donor retention rate within). Start by counting the number of donors who gave to your organization in the previous period. For example, if you are calculating the donor retention rate for 2022, you would count the number of donors who gave to your organization in 2021.
3. Determine the number of donors in the current period
Next, you will need to count the number of donors who gave to your organization in the current period. If you’re following along with the previous example, this would be the number of donors that gave to your organization in 2022.
4. Determine the number of retained donors
Now that you have your count from both time periods, it’s time to dive deeper into your data and identify the number of donors who gave in both the previous and current periods.
In this step, you should have the lists of donors from each time period side-by-side in a spreadsheet and look for duplicates between the 2 lists. In this phase, it’s important to determine what your unique identifier is to determine if the donors are the same person. To do this successfully, you should avoid using names and instead use email address, phone number, or constituent ID.
5. Divide the number of retained donors by the number of donors in the previous period
Next, you’re going to divide the number of retained donors by the number of donors in the previous period and multiply by 100. This will show you your donor retention rate as a percentage and allow you to compare against industry standards.
6. Interpret the results
Analyze the results to understand your organization’s donor retention rate. A higher percentage indicates that your nonprofit is retaining more donors, while a lower percentage indicates that you are losing more donors.
To calculate your donor retention rate successfully, it’s important to have a donor management and fundraising software, such as Keela, that maintains your donor records, updates them in real-time, and can provide all of the information that you need to calculate your donor retention rate accurately.
How to use donor retention rate to guide your fundraising strategy
The most important part of calculating your donor retention rate is to use it to guide your fundraising and donor retention strategies and identify areas for improvement that will lead to increased donor retention. A few ways that nonprofits can use donor retention rate in their fundraising strategies are:
Understanding how to create and tailor donor communications
You can use your donor retention rate to guide the donor communications that you send by tailoring your messages to better engage and retain donors. For instance, donors who have given consistently over time may appreciate more detailed updates on the impact of their contributions, while new or lapsed donors may need more information on your organization’s mission and programs.
Additionally, you can use your donor retention rate to inform the frequency and timing of your communication efforts, such as sending regular updates to retain donors and focusing on re-engagement efforts for lapsed donors.
To personalize your communications effectively, it’s critical that your donor database has integrated email communications tools, such as Keela’s, to easily segment your donors and target your outreach.
Creating exclusive opportunities for your biggest supporters
You can also use your donor retention rate to create special experiences for your most loyal donors. By identifying and recognizing the donors who have consistently given to your organization over time, you can show your appreciation and build a deeper connection with them.
For instance, you can invite them to exclusive events, provide them with special recognition, or offer personalized communication and engagement opportunities. You can also use their feedback to tailor your programs and services to better meet their needs and interests. By creating special experiences for your most loyal donors, you can foster a sense of community and belonging, which can lead to continued giving and advocacy on your behalf.
It’s important to recalculate your donor retention rate on a regular basis (e.g., yearly or quarterly) to determine the effectiveness of your fundraising and donor retention strategies and make adjustments as needed.
Strategies for improving your donor retention rate
Once you have done the work to calculate your donor retention rate, you may find that your donor retention rate is lower than industry standards. Don’t panic, because there are several ways that your organization can work to improve your donor retention rate such as:
Regular communication with donors
By staying in touch with your donors and providing them with regular updates on the impact of their contributions, you can keep them engaged and invested in your organization’s mission.
Regular communication can also provide opportunities to express your gratitude and acknowledge the important role that donors play in your organization’s success. You can use a variety of channels to communicate with your donors, such as email, social media, direct mail, and phone calls.
By tailoring your communication to the preferences of your donors and providing them with opportunities to give feedback, you can build stronger relationships and encourage continued support over time.
Identifying and re-engaging at-risk and lapsed donors
Identifying and re-engaging at-risk and lapsed donors can significantly improve your nonprofit’s average donor retention rates. By analyzing your donor retention rate and identifying donors who have stopped giving or are at risk of lapsing, you can take targeted steps to re-engage them. For example, you can reach out to these donors with personalized messages and offers, such as exclusive opportunities or updates on the impact of their past contributions. You can also solicit their feedback to understand why they stopped giving and make changes to your fundraising strategy or donor engagement efforts to address their concerns.
Additionally, you can use data and analytics to identify patterns and trends in donor behaviour, allowing you to identify at-risk donors before they lapse and take preventive measures to retain them.
Conclusion
In conclusion, prioritizing your donor retention rate and investing in effective retention strategies is critical for your nonprofit organization. Your donor retention rate provides valuable insights into donor engagement and fundraising success. A high donor retention rate indicates that you are effectively engaging with your supporters and building a committed, loyal donor base.
Remember to regularly monitor your donor retention rate, analyze your results, and make adjustments to your strategies as needed. By building a strong, sustainable donor base, you can achieve greater impact in your community and move closer to achieving your mission.
If you’re interested in learning about how Keela’s donor management and fundraising platform can help you boost your average donor retention rates, reach out to us here.
