OK, hold onto your hats – because this post contains stats! But I’ll try to make them as simple as possible.
If you’re a direct marketing fundraiser like me, you probably juggle a wide variety of channels – direct mail, online, phone, etc. etc. And I want to make sure I use the right ones, in the right order, to get the best results. And sometimes the ‘common sense’ answer isn’t the right one.
For example. Let’s say I have a lot of people who have given me cash gifts and I want to find the most cost-effective way to encourage as many of them as possible to give again, or go onto regular giving.
The ‘common sense’ way might say:
- An email costs 6p
- A mail pack costs roughly £1 – £1.50
- A phone contact costs £7 – £9
So I should email first, follow up with mail, and then phone those who don’t respond to either of the first two approaches. That way I am being smart and getting the ‘cheapest’ results quickest. Right?
Not necessarily! What we have done here is mistake cost per appeal for cost per donor.
Because each of those channels has very different response rates. Cost per donor, as I’m sure you know, is obtained by dividing the cost of your appeal by the number of donors who give as a result of it.
When I look at my own appeal responses and costs and work out the costs per donor for email, mail and phone for existing cash donors I get the following:
- Email – £3.50
- Mail – £26
- Phone – £26
Interesting. Email is still cheapest, but phone and mail are now tied. Will Return On Investment help us break them apart?
So I look at my ROI figures (on a 5 year basis) and I get the following:
- Email – 36:1
- Mail – 5:1
- Phone – 4:1
OK, that would seem to settle it. Email beats mail, beats phone. But something is still niggling away at me.
Net income levels.
You see, I know email and mail have much lower response rates than phone, and I know I get much more net income per phone contact than per mail pack or email. It might be at a lower ROI but it will still be a lot more income for 1000 phone contacts, say, than for 1000 mail packs or 1000 emails. And I haven’t taken that into account in my workings yet.
So I look at net 5 year income (i.e. with costs already subtracted) per appeal for each channel and I get:
- Email – £2
- Mail – £7
- Phone – £26
Ah. As I thought. Phone delivers 13 times as much net income per appeal than email and nearly 4 times as much as mail.
But which wins on the combination of ROI and net income? How can we express this as just one number that will balance the ROI vs the net income per appeal and make it really easy to make these comparisons?
Let’s multiply up to get some nice sized numbers! If we multiply the net 5 year income per appeal by the 5 year ROI for each channel we get:
- Email – £2 * 36 (low income per appeal, great ROI) = 72
- Mail – £7 * 5 (moderate income per appeal, good ROI) = 35
- Phone – £26 * 4 (best net income per appeal, OK ROI) = 104
Aha! This seems to suggest I will get the best balance of ROI and net income by phoning first, then emailing, and then mailing.
It looks like we have come up with a Power Index here. I may be using the term ‘index’ incorrectly, I know! (I’m an English Literature graduate, after all.) I’m just thinking of it as a nice shortcut number.
Please note that of course the index number in and of itself is meaningless, except in relation to the other indices. And it will be different for everyone, depending on your ROI and net income per appeal figures, per channel, per appeal purpose. I’m not saying phone beats email beats mail for everyone – just for me, for this particular purpose.
Do you use a power index like this already to rank your fundraising channels? Over 1 year, 3 years or 5? I would love to know.