Donor retention is a critical metric for nonprofits, so it's important to know how to calculate and set benchmarks for your donor retention rate.
Everything You Need To Know About Donor Retention in 2022
Donor retention is the key to strong nonprofit fundraising - here's how to improve your retention rate, as well as context and trends over time.
Donor retention - the rate at which donors give yearly, repeated gifts to an organization - is the often overlooked backbone of strong nonprofit fundraising and Development programs. While it can be tempting to focus relentlessly on bringing new donors into your fold, a measured approach that balances both donor acquisition and donor retention will set your organization up for long-term fundraising success.
In this blog post we’ll review the data that shows why retention is so important for nonprofits today, as well as historic and current donor retention trends across the nonprofit sector, discuss donor behavior studies that demonstrate the fundamentals of a strong donor retention program, and highlight some key ways that your organization can start improving your donor retention rate today. Short and time and looking to get started right away? Download our Donor Cultivation and Stewardship Plan Template for an easy way to get started building a coordinated plan to improve your donor relationships.
Why Donor Retention Matters
Donor acquisition is an increasingly expensive endeavor, with the cost of bringing in a new donor often double or even triple the amount of their initial donation. Donor retention is now necessary just to break even on acquisition costs, much less generate sustainable revenue for your organization.
As donor acquisition gets harder and more expensive, small and mid-level giving programs are steadily declining. Since 2008 nonprofit fundraising has seen steady consolidation - nonprofits are raising more money from fewer donors. The shift toward increased major donor fundraising poses a high-risk, high-reward situation for nonprofit organizations. While large gifts can offer transformational funding for your cause, donor retention becomes even more critical, as the loss of even a few donors can have drastic effects.
Acquiring major gifts almost always requires prior investment in donor retention. According to a recent study, it can often take 18 to 24 personalized touch points before a donor considers making a major gift. This translates to 4-5 years of cultivation and stewardship, meaning that if smaller and mid-level donors are dropping off after 1-2 years of support, an organization significantly decreases its chances of securing major gifts.
Donor upgrades over time are an important part of the donor retention equation to consider - while some donors will give at the same level for their entire relationship with an organization, with strong donor stewardship many will upgrade their gifts as well as contributing in holistic ways, such as volunteering, referring their friends to the organization, and perhaps even making a planned gift. With these increases in value over time in the donor lifecycle, organizations stand to see exponential benefits from increased donor retention. A large-scale analysis of database records has shown that even a 10% improvement of donor attrition can yield up to a 200% increase in projected value, taking into account both additional benefits of long-term donors, and decreased marketing and acquisition costs.
Donor Retention Today & Trends Over Time
While results will vary for individual organizations, tracking donor retention trends at a sector level allows us to set benchmarks and evaluate trends in fundraising investment and donor behavior across the nonprofit world. The Fundraising Effectiveness Project has been tracking overall donor retention rate (among many other nonprofit fundraising metrics) for nearly two decades, and the data in their annual and quarterly reports provides an important snapshot into the state of philanthropy today.
The figure below illustrates 15 years of annual average donor retention rates, as tracked by the FEP.
Source: 2019 Fundraising Effectiveness Survey Report and Fundraising Effectiveness Project 2020 Fourth Quarter Report.
Despite recovery from an understandable dip between 2008-2009, overall donor retention has continued to trend slightly downward since the FEP began tracking nonprofit fundraising metrics. The latest data regarding 2021’s donor retention numbers suggests that retention continues to be abnormally low, although there are promising developments in the retention of new donors in 2020. Another noteworthy data point from the 2021 Q2 retention numbers is the fact that the smallest donors (<$100) also see the lowest retention rate, with likelihood of retention increasing steadily as gift size increases.
Calculating Donor Retention Rate
An organization’s donor retention rate is the amount of donors who gave last year, who have also given this year. Calculating your organization’s donor retention rate is fairly simple; all you’ll need to do is divide the number of repeat donors this year by the total number of donors last year. Multiply that number by 100, and you’ll have your donor retention rate as a percentage.
The worksheet below includes a step to help you calculate the number of repeat donors this year, by subtracting the number of LYBUNTs (donors who gave last year, but unfortunately not this year) from the total donor pool.
Source: Urban Institute, Donor Retention Matters
Once you’ve calculated your overall donor retention rate, try drilling down even further into your data for more insights. Common next steps include calculating your New Donor Retention Rate (the rate of new donors last year who returned this year), Regular Donor Retention Rate (donors who have given for more than one year), Donor Recapture Rate (donors who gave this year and have given at some point prior, but not last year), and retention rates by acquisition source (comparing retention rates for donors who first found your organization through social media, through a peer-to-peer-fundraiser, etc.). For a more detailed look at calculating your organization’s donor retention rate, check out our blog post on the topic here.
Calculating your organization’s donor retention rate on a regular basis will give you insight into the health of your donor stewardship program and your organization as a whole. If you’ve noticed a decline in your donor retention rate, or you’re ready to proactively invest in increasing donor retention, donor cultivation and stewardship is the place to start. Download our Donor Cultivation and Stewardship Plan Template today.
What Makes Donors Come Back
While there has been significant research into what motivates a donor to make their first gift to an organization, fewer resources have been expended exploring the reasons that donors stay for the long-term (or the reasons that they leave). However, this has begun to change in recent years, and new insights into donor motivations and behavior offer powerful clues for how nonprofit organizations can cultivate and steward donor relationships that last.
Today’s donors are increasingly motivated by impact and demonstrated ROI for their giving - sometimes termed the “effective altruism” movement. The rise of organizations like Charity Navigator and Candid (Guidestar), which exist to help donors evaluate potential beneficiary organizations, offering star-ratings for impact and financial transparency, further illustrate the desires of today’s donors to trust that their hard-earned money is making a difference.
A recent study found that of people who donate regularly:
- 75% seek information about the nonprofit’s impact,
- 63% try to find information on the social issue that the nonprofit addresses
- 56% want a list of specific projects supported by the nonprofit.
This type of donor behavior trend has far-ranging impacts on nonprofit fundraising. As nonprofit fundraising has consolidated over the past two decades, nonprofits on average are raising more money from a smaller group of donors. The 2021 Burk Donor Survey Report posits that this fundraising trendline is related to a generational shift in donor behavior, finding that donors under the age of 65 contribute to half the number of causes that their older counterparts do. Why are younger donors giving so differently than their predecessors? Burk writes that when asked about their reasons, “middle-age donors preferred to award larger gifts to fewer organizations in order to maximize the net value of their contributions.” This is important for two reasons: first, donors know that larger gifts often do get more done, better accomplishing their goal of making an impact, and second, larger gifts also generally result in better information, more regular updates, and stronger relationship building outreach from fundraisers. Donors may understand that larger amounts of money enable organizations to accomplish more, but they also may subconsciously react to the fact that a large gift will trigger more communication from an organization, giving more access to direct information about a gift’s impact. Repeated small gifts may also have a significant impact on your organization’s work, but lower-level donors are likely not being told about their impact with the same level of consistency and urgency as larger donors are, potentially contributing to drop-off of mid-level giving.
Another Burk report touched on this issue as it applies to retention specifically, asking donors directly “what could unleash your philanthropy at a whole new level?” Nearly half of the donors surveyed said that they weren’t giving at their full potential because they had not received enough information about how their past donations had been spent. Donors mentioned outreach such as letters highlighting personal stories of those helped by the nonprofit, and coffee meetings where development staff shared how donors’ contributions have been used, rather than asking for more money, as key examples that have spurred them to repeat and upgrade their gifts. When donors perceive that they are being treated as valued team members in the work of an organization, rather than simply an avenue of funding, they become more likely to continue investing their time and resources.
How To Increase Donor Retention At Your Nonprofit
Understanding your organization’s retention rate and your donors’ motivations for giving provides the foundation you’ll need to begin taking action to increase donor retention at your nonprofit. After you’ve evaluated the current state of donor retention at your organization, it’s time to make a plan and set goals. Donor retention is built on strong relationships with donors that make them feel appreciated and allow them to see the impact that their participation has on your mission. This relationship building and communication happens in two phases: Cultivation, and Stewardship.
Cultivation For Increased Donor Retention
Cultivation is generally the earliest phase of your relationship with a potential donor, starting before they have even made a gift. Traditionally cultivation is associated with large requests, such as major gifts and planned gifts, but the principle and practice of building a strong foundation can apply to relationships with donors of all levels.
Cultivation can take many forms, depending on your organization’s capacity and the type of donor that you are cultivating, but it should generally focus on effectively showing a potential donor that your organization will be a trusted partner in their quest to do good. The cultivation period is your chance to start showing a donor your organization’s impact, and the impact that they can have by joining your community. It is also a chance to begin showing them the type of communication that they can expect from you, so it is essential that you demonstrate personalized outreach, tuned to the donor’s interests and responsive to their interactions, from the very beginning.
Donor cultivation tactics will vary from organization to organization, based on your mission, capacity, and the type of donors you are working with. Looking for inspiration and example tactics to help you get started? Download our Donor Cultivation and Stewardship Plan Template for the basics of putting together a clear, measurable plan for building strong, lasting relationships.
Stewardship For Increased Donor Retention
Stewardship is a continuation of the relationship building process which happens after a gift has been made. Equally or more important than cultivation, stewardship builds on the foundation that has been laid and focuses on maintaining strong relationships. Donor stewardship is directly related to strong donor retention and spending time and effort on building an intentional and thoughtful donor stewardship plan will pay dividends in the long run.
Similarly to cultivation, donor stewardship will look different between organizations and for different donors, but no matter the level of stewardship you’re investing in, your efforts should be personal, holistic, and communal. Personal outreach is tailored directly to a donor, acknowledging their individual motives and impact. Holistic outreach shows that you truly appreciate a donor as a member of your team, offering opportunities (and showing appreciation for) both financial and non-monetary support, including volunteering, serving as an advisor, and more. Finally, communal outreach acknowledges a donor as part of your community, and also recognizes their larger network. Perhaps your primary donor’s spouse also donates or volunteers - in that case your outreach should take into account their communication preferences as a household. Your donor might be a community leader in other areas, in which case your best next ask for them may be an introduction to someone else in their network, rather than an immediate second donation.
Donor stewardship involves a variety of activity categories, including acknowledgements (how you thank a donor for their gift), reporting (showing donors how your organization is using their donation to make an impact), and continued relationship building. Planning for donor stewardship helps your team get aligned on how to continue cultivating relationships with everyone in your community - ensuring that each supporter receives appropriate outreach and no one falls through the cracks. Download our template today to start building your stewardship plan.
Retaining donors takes consistent time and effort, but the outcomes are well worth the investment. From small Development teams stretching their limited time, to larger teams developing strategy for building close, personal relationships at scale with larger donor bases, one of the best next steps your organization can take toward improving donor retention is investing in a modern donor stewardship platform. Technology built specifically for nonprofit relationship management, with the needs of nonprofit fundraisers and the desires of nonprofit donors put front and center, can help your team deepen individual relationships and widen your stewardship net to strengthen your most important community relationships, support donor retention, increase fundraising revenue, and maximize your potential for impact. If donor retention is a priority for your nonprofit this year, we’d love to show you what Instil can do for you.