Donor profitability measurement: Part 2 — Making donor-level profitability work — John Sauve–Rodd, Journal of Direct, Data and Digital Marketing Practice Vol. 9 No. 4

General profitability rule found: using further donor profit case studies, there is a repeating and broadly similar 'profit curve' across widely different charities and countries. It appears that there is a 'natural law' of profit distribution at work. This means that donor profitability can be predicted and forecast with some accuracy. Taking action: four approaches are suggested for the deployment of donor-level profit in practice: (1) large-scale cost reduction on lossmaking donors; (2) cost reallocation to high-profit donors; (3) conversion, recycling and internal trade for loss-making donors and (4) much better accounting skills for costs in fundraising departments. Resistance to change: however logical and 'scientific' the arguments for donor-level profit-based approaches, charities cling to old ways, despite their decreasing effectiveness, and are risk averse. Proxy strategies: very few charities undertake profit-based approaches as suggested, but there is evidence of a proxy system: middle donors (also called intermediate or high-value donors). These, however, are not part of a true or thorough profit-based strategy and they serve to divert attention and muddy the water. No overhead trap: critics of the donor profitability approach have warned that an 'overhead trap' exists for anyone slicing out large chunks of cost from the low end of a donor programme. Tests in this research prove that the overhead trap does not exist and is an illusion. Future vision: at the heart of a profit-based strategy, we recommend starting with these words 'All donors are important to us, but we realise that some donors are far more important, financially, than the general throng...' (16 pages)

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