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This is my second of five posts focusing on Frederick Reichheld’s book “The Loyalty Effect” and how the concept of “loyalty” effects for-profit and non-profit corporations equally. If you don’t own a copy of this book, I suggest you buy it, read it, and change your approach to doing business.

Yesterday’s post attempted to set the stage for deeper conversations around the importance of tracking, measuring and implementing loyalty strategies. Before we move forward, I am sharing this short passage from page 37 of the book:

“Imagine two companies, one with a customer retention rate of 95%, the other with a rate of 90%. The leak in the first firm’s customer bucket is 5% per year, and the second firm’s leak is twice as large, 10% per year. If both companies acquire new customers at the rate of 10% per year, the first will have a 5% net growth in customer inventory per year, while the other will have none. Over fourteen years, the first firm will double in size, but the second will have no real growth at all. Other things being equal, a 5-percentage-point advantage in customer retention translates into a growth advantage equal to a doubling of customer inventory every 14 years. An advantage of 10 percentage points accelerates the doubling to seven years.”

I share this passage from the book with you because oftentimes I find myself in a group of people nodding as we talk about LYBUNT rates (aka lapsed donor rates); however, seldom am I engaged in discussions about what does this REALLY mean. I read this small passage and suddenly I found myself involved in a deeper understanding of the entire problem of donor turnover. I hope you also had the same ah-ha moment.

Ask yourself this question: “Every time I talk or think about my organization’s resource development program, am I overcome by a feeling of exhaustion? Do I see volunteers having the same reaction?” If you answered ‘YES,” then you might be suffering from a donor loyalty issue that has squarely put your organization on the proverbial hamster wheel, which means you’re exerting lots of energy and only running in place (just like Reichheld described in the above passage).

What struck me hardest when reading this passage was that most non-profit organization’s experience turnover rates much higher than 5% or 10%.

As I did in yesterday’s blog, I will end today with a few links to additional donor loyalty resources: 1) “Building Donor Loyalty to Meet Your Your Long Term Fundraising Goals” Fund Raiser cyberzine and 2) “Top 9 Donor Loyalty Tweets” by Reinier Spruit who has blogging about Adrean Sargeant’s book “Essentials of Donor Loyalty“.

Here is to your health!

As promised on Friday, I unearthed my copy of The Loyalty Effect written by Frederick Reichheld and re-read it over the last few days. Today’s blog post is the first of many this week where I will share a sliver of the book with you and try to translate it into non-profit speak. In the end, it is my hope that we can all get a little closer to this idea of “being donor-centered”. I encourage you to buy a copy of this book and use it as your own “non-profit business bible”.

Essentially, the thesis of this book boils down to this simple idea: business leaders are too focused on the bottom line and profits and not focused enough on retention of customers, employees and investors. Ironically, focusing on numbers rather than people creates turnover (disloyalty) and ultimately causes profits and companies to fall apart. Reichheld advocates for a new business paradigm where CEOs start measuring and focusing on efforts to build loyalty throughout their company.

I echo his sentiment for non-profit leaders!

One of the more interesting things I learned in the first few chapters of this book was:

• U.S. corporations lose between 10% to 30% of their customer base every year
• U.S. corporations lose between 15% to 25% of their employee base every year
• U.S. corporations lose more than 50% of their investors every year

For non-profit organizations, there are a number of different studies that illustrate “donor loyalty” floats somewhere between 50% and 75% per year, which essentially means resource development staff and volunteers are working hard to replace anywhere from 25% to 50% of their donor base just to break even EVERY YEAR.

To compare non-profit loyalty numbers to for-profit numbers, a decision needs to be made around this one issue — “Are non-profit “donors” the equivalent to for-profit “customers” when it comes to Reichheld’s book?”

While I’ve been telling my non-profit friends for years that donors are “investors” (and they really are), for the purpose of translating this book’s message I think we need to think “donor” every time Reichheld says “customer”.  Yes, I understand that donors are not our clients, but I just think the “economic dynamic” is closer for comparative purposes. If you disagree, please weigh-in using the comment section and let’s talk about it.

If you buy into this analysis, then non-profit leaders are equally bad if not worse off than their for-profit cousins when it comes to creating loyalty. So, it stands to reason that Reichheld would conclude that non-profit organizations are at substantial risk of bankruptcy unless they address this issue. I guess we shouldn’t be surprised that only 33% of non-profits survive beyond five years. (Compared to approximately 50% of for-profit biusnesses that are still alive after five years).

OK — this first installment sets the stage for a fun week of investigating the power of loyalty. I strongly encourage everyone to weigh-in with comments and questions as we embark on this journey. In the meantime, here are a few online resources and white papers if you want to deepen your knowledge of donor loyalty for this discussion:  1) Donor Loyalty: The Holy Grail of Fundraising by Craver, Mathews, Smith & Company, 2) The Number One Driver of Donor Loyalty is Satisfaction by Grizzard, 3) Building Donor Loyalty: Chapter 1 by Tony Poderis, and 4) Burk’s Blog by the queen of the donor-centered universe Penelope Burk.

Here is to your health!

Earlier this week, one of my favorite bloggers, Jeff Brooks of Future Fundraising Now, posted a piece titled “Create good experiences for your donors” and my mind has been wrapped around it all week long.

In a nutshell, he draws a link between customer loyalty and profits and then goes on to suggust that a similar dynamic exists between a non-profit organization and its donors. It is really good and I suggest you click through and read it for yourself.

I think the reason I’ve been spinning on this all week is because a decade ago one of my favorite board members took me under his wing and played the role of Oprah. I was a new Executive Director and he was a wise bank President. One day after a board development committee meeting, he pulled me aside and handed me a book titled “The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value“. He urged me to read the book and encouraged me to return in a month so we can talk about how it applied to our non-profit situation.

Jeff Brooks mentions in his blog that he thinks a “good donor experience” includes:

• getting the data right
• being thankful
• reporting back
• offering choices around communication mediums

I think creating donor loyalty starts here and involves so much more, which is why I’ve dug out my old copy of “The Loyalty Effect”.  Here is my plan … I am dedicating all five blog posts next week to this book. I’ll read a few chapters, report back to you, and try to draw comparisions to the non-profit – donor experience. I am titling next week’s blog posts “A dog’s world” because nothing is more loyal in this world than “man’s best friend”. Right?

In the meantime, I encourage you to take a minute to weigh-in with your comments on “what do good donor experiences look and feel like? And how do you see non-profits building donor loyalty?”

Here is to your health!