From the Winter 1997/1998 Watchdog Report
Truth About Prospect Fundraising
The following is a solicitation letterfor new
donors from a fictitious charitythat a fundraiser would write
only after swallowing a dose of truth serum:
Dear Potential Donor:
Greetings from the Save the Orangutang Foundation.
Please send us a check for $25. If you respond to this solicitation,
none of your money will be spent on the Foundations Orangutang
protection programsit will all be spent on this mailing
in your hand.
Why? Because 99% of the 100,000 people that we
send this solicitation to (at a cost of $35,000) will toss it
in the garbage. The one percent (or 1,000 people) that do respond
with a $25 check will bring in only $25,000, which is $10,000
less than this mailing. But thats okay because during the
two years following the receipt of the first letter we plan to
send at least eight more solicitations to the 1,000 people that
did respond. Based on our experience, we figure that a portion
of them will contribute $20,500 over these two years. Since it
will cost us less than $4,000 to solicit them, we will have about
$16,700 left to spend on Orangutangs and general Foundation administration.
After two years, there will only be about 400
people (out of the original 100,000) who will respond to our repeated
requests for funds. In the third year we can solicit them five
times, at a cost of only $1,000, and expect to have net proceeds
of about $7,400.
Though we will not be able to save any Orangutangs
with your first $25 contribution, if you and 999 other people
send us another check or two, we will make $14,000 in net income
by raising $54,000 in contributions and incurring $40,000 in fundraising
Thank you for taking the time to understand the
economics of direct-mail fundraising.
Charlie Orange Tang
The numbers used in this letter were provided by a
professional fundraising company at a recent nonprofit conference
as an example of typical returns for new donor acquisition campaigns
that are conducted by direct mail. It is costing the Orangutang
charity $40,000 to raise $54,000 over three years. In other words,
for every $100 contributed, $74 is taken out in fundraising costs.
Professional fund-raising companies consider this a good deal for
charities. They refer to the $10,000 loss on the initial 100,000
piece mailing as an investment and the $14,000 in net income as
a whopping 240% return on investment (ROI). (ROI is calculated by
dividing $24,000 in total contributions by the $10,000 investment
in the initial mailing.)
This may be a good business opportunity for a charity
and its professional fundraising company, but donors are not likely
to be thrilled to learn that after three years only 26% of their
contributions will be available for charitable purposes.
A donor is a charitys cash cow.
Just as a dairy farmer will spend a lot of money to buy a cow that
can be milked over many years to come, a charity will spend a lot
of money to acquire donors that will continue to send checks. It
is very expensive for a charity to quickly acquire new financial
supporters. A charity can reduce its fundraising expenses by concentrating
on its current donors and those who already expressed an interest
in the charitys work.
When a charity that you have never supported or contacted
is soliciting you through the mail or by phone, you should realize
that most of the money sent in response to the solicitation will
likely go to the cost of the solicitation campaign. Only through
resolicitations, and in some cases by selling your name to other
charities and businesses, will there be money left for charitable
purposes. AIP recommends that you continue to respond to the worthy
charities that you have been supporting and that you expand your
universe of charitable giving by seeking out groups that are not
seeking you out. By giving to groups based on your own research
and before you are asked to do so in an expensive solicitation campaign,
you can feel more confident that your contribution will be spent
on charitable purposes.