A ‘Power Index’ for fundraising channels?

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.

 

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11 Comments

Filed under Analytics, Direct mail fundraising, Email fundraising, Fundraising, Online fundraising, Telephone fundraising

11 responses to “A ‘Power Index’ for fundraising channels?

  1. This is awesome Adrian! As I read it I could hear my high school algebra teacher telling me I had to “show my work”.

    Expressing the combination of ROI and net income as a single number is brilliant!

  2. Simon Buttenshaw

    Thanks Adrian – I like the idea of multiplying net income by ROI, since ROI (or indeed cost per contact) alone doesn’t tell the full picture. But I can’t help thinking that e-mail is so cheap that you could throw it in at any point, to develop the message and create more opportunities to give. Certainly the charities I support seem to take that view!

    • Cheers Simon, and yes, really email is in here so people didn’t think I was just doing a ‘mail v phone’ post, which isn’t what I’m trying to get at at all 🙂 Interesting stats from the M+R benchmarking survey for email suggest that we probably don’t use email as much as we could – unsubscribe rates seem to go down as send volumes go up. There are a number of flaws in the survey (which Denisa and others have highlighted!) but it is worth a look: http://www.mrbenchmarks.com

      What it does show though is just how hard email fundraising can be…

  3. Thanks for sharing this Adrian.
    Forgive me if this question has an obvious answer…
    Why is there a need for factor in net income as well as ROI? If telephone makes a lot more money, doesn’t that translate to a greater return on the invesment, so is already covered by ROI?

    • Because all ROI tells you is the ratio James, but no scale. So an ROI of 5:1 on its own might be an appeal that costs £1000 and raises £4000 net income – say that’s mailing 1000 donors. But phoning the same 1000 donors would cost you £7000 but raise you £21,000 in net income at a 4:1 ROI. Lower ROI – vastly more net income and on its own ROI doesn’t tell you that…

  4. Ah, I see. To gain the same amount of income, 21k, from the mailing you’d need to mail 3500 donors. It’d only cost you £3,500 (compared to £7,000), but you’d need to have a long enough donor list to do that.

    Thanks for clarifying.

    • Hi James – not quite – you’d need to mail nearly 5,500 donors to get £21,000 net 5 year income if the 5 year ROI is 5:1 and the cost per pack is £1. And if you had that volume of donors and could phone them you would then get £115,500 net 5 year income. So the opportunity cost of not phoning them first could be up to £100k!

  5. Fantastic Adrian. We’re just about to start our first phone campaign with your old colleagues at TPR – excited to see how it pans out!

  6. Paul Smith

    What is wrong with LTV it does the job of scale and ROI!

    • Hi Paul – well LTV (or as I’ve put it, net 5 year income per appeal) is the last but one of my steps. But any one number is limited, so I think the combination of net LTV and ROI is a bit more helpful. But failing that you certainly wouldn’t go wrong in my examples if you stopped at the net LTV stage (although you might not use email as early on in the mix as you might if you carried on to the final step).

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