How Donor Analytics Inform Nonprofit Financial Management
Your nonprofit likely collects many different types of data on its supporters. Between the donor profiles in your CRM, your online donation page, registration forms, feedback surveys, and marketing conversion data, there is a wealth of information available for your organization to use when making strategic decisions.
However, all of this data contains untapped potential unless you draw applicable conclusions from it. These insights are collectively known as donor analytics. Jitasa’s guide to donor analytics divides these insights into four major categories: giving, engagement, demographic, and predictive analytics.
Donor analytics can inform many areas of your nonprofit’s operations, including financial management. To help you get started, this guide will discuss four major areas of your organization’s financial management strategy that can benefit from data-driven insights, including:
- Measuring Fundraising Effectiveness
- Evaluating Expense Budgets
- Cultivating Major Gifts
- Improving Donor Retention Rates
As you adapt the tips in this post to your organization’s needs, keep in mind that financial management and fundraising are closely linked. A data-driven approach to bringing in and handling funding maximizes your nonprofit’s ability to further its mission. Let’s dive in!
1. Measuring Fundraising Effectiveness
You’ve probably heard the saying, “Begin with the end in mind.” When your nonprofit plans a fundraising campaign, you should consider how you’ll determine if you succeeded after the fundraiser ends.
Donor giving and engagement analytics from past campaigns can help you figure out what concrete metrics to use to measure your fundraising success. In addition to the total amount of revenue you generate, some common data-driven fundraising metrics include:
- Donor participation rate. You can either measure this on an overall level or break down participation rates by supporter segment to gauge donor engagement.
- Average gift amount. While it’s helpful to know your overall average, you could also categorize your donations into small, mid-level, and major gifts to find the average amount in each tier.
- Lifetime value. Analyzing information about each of your donors allows you to better understand the efficiency of your fundraising efforts per donor. You should calculate your overall fundraising return on investment (ROI) after each event or campaign, but also measuring your ROI per supporter can help you determine who your most valuable donors are.
Although giving analytics are discussed most often when it comes to fundraising success, keep in mind that monetary donations aren’t the only way supporters provide value to your organization during a campaign. Donor engagement analytics, such as volunteer participation, event attendance, and in-kind donations, provide a more complete picture of how supporters help further your organization’s mission. So, your fundraising campaign goals should take both giving and other forms of engagement into account.
2. Evaluating Expense Budgets
Your nonprofit’s operating budget is one of the most important documents for effective financial management because it predicts your revenue and expenses for the coming year. Most organizations categorize their predicted revenue by source and break down expenses into program, administrative, and fundraising costs. Your administrative and fundraising expenses together make up your nonprofit’s overhead.
You might have heard of the 65/35 rule of expense budgeting, which states that nonprofits should plan to spend at least 65% of their revenue on programming and no more than 35% on overhead. In reality, this breakdown will look different for every nonprofit.
It’s best to treat the 65/35 rule as a flexible guideline and instead focus on leveraging donor analytics to expand your organization’s program spending and reduce overhead. This process could take many forms, including:
- Analyzing engagement rates for various communication methods. You can lower your organization’s spending on marketing by focusing on the channels with the highest conversion rates and taking the communication preferences donors have expressed into account.
- Exploring corporate philanthropy opportunities. Appending employer data lets you know what companies supporters work for and what philanthropic programs those companies have. This information can help you take advantage of corporate sponsorship opportunities to offset event planning and administrative costs.
- Playing to individual donors’ interests. To allocate more resources toward your programs, consider asking supporters to donate to initiatives that align with the individual interests listed in their donor profiles. For instance, if an environmental nonprofit knew that one of their supporters was passionate about education, they could ask that donor to contribute to their initiatives to teach elementary school students about recycling.
As you consider these data-driven strategies to allocate your expenses more effectively, keep in mind that your spending still needs to align with available cash flows. A nonprofit accountant or outsourced chief financial officer (CFO) can help predict cash flows and create a range of possible scenarios to ensure your estimates for overhead and program expenses are realistic.
3. Cultivating Major Gifts
Another commonly cited guideline when it comes to nonprofit finances is the 80/20 rule, which states that 80% of individual donation revenue comes from the top 20% of donors. While these percentages may vary for each organization, they show that major gifts are critical for your nonprofit to bring in funding.
The main purpose of predictive donor analytics—data-driven conclusions that provide insight into donors’ future involvement with your cause—is to help identify potential major donors through prospect research. DonorSearch’s guide to major gifts recommends analyzing both wealth and philanthropic indicators to identify major donor prospects:
- Wealth indicators demonstrate that a prospect is capable of making a major gift and include data points such as net income, stock ownership, political giving, and real estate holdings.
- Philanthropic indicators show whether the prospect would be willing to support your cause. These indicators include past donations, volunteer hours, event attendance, and board membership either at your organization or with other similar nonprofits.
While your donor database can serve as a starting point for finding major donor prospects, you’ll likely need to use specialized wealth screening and prospecting tools to build an accurate list. Predictive analytics can also be useful once you start soliciting major gifts, since they help you tailor each fundraising ask to the individual donor.
4. Retaining Donors Over Time
Donor retention has multiple financial benefits for your organization. Not only is it more cost effective than acquiring new donors, but it also provides more sustainable funding for your organization.
There are several ways to use supporter data to refine your nonprofit’s donor retention strategy, including:
- Sending personalized thank-you messages that include donors’ preferred names, giving amounts, and other details about their history with your organization.
- Providing recommendations for future involvement based on each donor’s past engagement.
- Regularly updating supporters’ contact information so they never miss your emails, phone calls, texts, or direct mail messages.
By regularly reaching out to donors in a personalized way, you’ll let them know that your organization values them as individuals. This allows you to build stronger relationships with each of them, leading to higher retention rates.
While donor analytics can inform various aspects of your nonprofit’s operations, financial management is the most essential way to apply these conclusions. This is because financial management is the foundation of all of your nonprofit’s activities, including fundraising, marketing, supporter engagement, and more. Whether you’re planning next year’s budget or looking for more sustainable funding methods, make sure your efforts are data-driven.
