Why is it so much harder for nonprofits to raise more funds online in 2023?
Over the past decade, I have worked with nearly 100 NGOs that all share two things in common: They want to do more good and need to generate new donors to do so.
The importance of generating new donors is clear. Organizations lose about 20% of their existing donor base every year. If they don’t grow their donor base, it is only a matter of time before they become irrelevant.
But a shift in the digital fundraising world will soon change the way nonprofits think about generating new revenue and will require them to pivot their outreach and marketing strategy.
Digital fundraising is an essential aspect of the nonprofit industry, enabling organizations to reach a wider audience and raise more funds than ever before. However, with the rise in customer acquisition costs, the future of digital fundraising is changing rapidly, forcing nonprofits to adapt and find new ways to engage donors.
Customer acquisition costs (CAC) are the expenses that organizations incur to acquire a new donor or supporter. These costs have been steadily increasing over the last decade, making it harder for nonprofits to reach their fundraising goals.
According to a study conducted by Nonprofit Hub, the average CAC for nonprofits in 2012 was around $93, while in 2018, it had increased to $141, a 51% increase. I personally managed campaigns with Facebook ads in 2018 that now cost triple the ad spend to reach the same audience, resulting in a much smaller return on ad spend (ROAS) in just five years.
What caused this dramatic increase in CAC?
As more nonprofits have turned to digital fundraising methods, the competition for donor attention and support has increased, leading to higher demand and for the big tech companies such as Google and Facebook to raise their rates and charge more money for acquiring donors.
The results for email marketing are no better. We have managed email marketing campaigns with leading pro-Israel Christian and Jewish media outlets for over a decade. In 2013, 30% of subscribers opened the emails we sent. Since then, open rates for email lists have dropped nearly 2% annually, making it harder for nonprofits to reach potential donors.
To sum it up: it is 3 times harder to acquire a new donor today than it was 10 years ago!
Despite the increased costs, nonprofits must continue to prioritize customer acquisition as a key component of their fundraising efforts. The strategies to do so, however, must change.
What can nonprofits do to acquire new donors in today’s challenging environment? Here are a six fundraising strategies and technologies to optimize CAC and maximize ROI:
- Crowdfunding and technology: Crowdfunding is a proven way to acquire new donors at a low CAC. Focus on using psychological nudges such as social proof and many other methods to get donors to contribute more and encourage their friends to participate via a peer to peer campaign. This will ensure your CAC stays low as your donors become your ambassadors. You can learn more about crowdfunding and donor psychology here.
- Go all in with strong focus on retention: Call donors to say thank you, send out transparency emails every month, be personal in your emails, and use tech tools such as GiveCloud’s AI platform that increase monthly giving by suggesting donors make smaller ongoing donations in place of larger one-off donations. According to a study conducted by Nonprofit Hub, the average retention rate for new donors is 46%. This means that even as nonprofits are spending more money to acquire new donors, they are also struggling to keep them engaged for the long haul. By working harder to keep new donors engaged, organizations can increase revenue without increasing expenses. Jonah Halper, President of ALTRUICITY and author of Date Your Donors, shared that converting a 1-time giver to a monthly giver resulted in 42% increase to their annual giving. In addition, the LTV (Life Time Value) of monthly donors is 5 years, far higher than the 46% of donors who stay for a 2nd year. According to Halper, retention should be the key focus of campaigns that not just leads to more funds but also gives donors a sense of real partnership.
- Upsales: The rising cost to acquire donors can be offset by increasing the value of new donors through upsells. Gavi Zeitlin from Zeitlin Consulting recommends non-profits immediately try to upsell every new donor by offering a gift if they become a monthly partner or increase their giving level.
- Build relationships: There is so much noise online today that many potential donors become blind to marketing emails, ads and influencer videos. But it is hard to forget your friends. Israel365 has invested in running events such as the Night to Strengthen Israel at NRB 2023 in order to build real relationships with potential partners. By focusing on offline relationship building as a complement to your online efforts, you will increase the value of your donors and justify a higher customer acquisition cost.
- Focus on awareness and engagement campaigns and REPEAT your message: Is it better to reach the same 100,000 subscribers five times or reach five groups of 100,000 subscribers one time? A recent study has shown that when trying to educate a new audience, it is better to reach the same 100,000 subscribers five times with a repeated message that will help influence new donors as opposed to reaching five unique groups with a one-off message. A suggestion by Yoni Alpert from theprospectingengine.com is to be proactive in creating good content – such as videos and podcasts relating to your field – that is separate from donation requests and establishes the organization as an authority over time.
- Optimize your messaging: To achieve better results, it is important to optimize your messaging. A compelling message can have a significant impact and go viral, while a difficult request may require increasing amounts of money to promote it. Itai Schimmel, CEO and Founder of Artza, an organization that supports small businesses and charities in Israel while fostering connections to its people, history, and stories, emphasizes the importance of constantly creating and testing new content to find the one that resonates the most. Innovative messaging can lower the cost of customer acquisition by increasing response and conversion rates.
Digital fundraising is changing, and nonprofits must adapt to the rise in customer acquisition costs to stay competitive. By leveraging the power of crowdfunding, retention, personal relationships and taking the time to educate the market, nonprofits can reach a wider audience, acquire new donors, and achieve their fundraising goals while minimizing costs. In this way, nonprofit professionals can focus on what they really enjoy doing: serving the community and their constituencies and bringing greater blessings to the world.
Shlomo Schreibman is a licensed industrial and organizational psychologist who serves as the Director of Sales and Marketing for Israel365 Media. He writes and lectures on topics of psychology, digital marketing and Jewish-Christian relations. Shlomo consults to some of Israel’s largest companies and NGO’s on their marketing strategy focused on building relationships with pro-Israel Evangelical Christians.