Nonprofits are clearly facing some steep challenges during the COVID-19 crisis. Even during good times, around half of them have less than one month of operating reserves and less than six months of cash to keep them afloat. Also, consider the fact that nonprofit organizations are a significant piece of the US economy; there are currently well over 1.5 million registered with the IRS, representing over 10% of the national workforce.
Nonprofits with strong relationships built around recurring donations are clearly going to have an advantage when it comes to weathering this storm. I recently talked with Bill Strathmann, the CEO of Network for Good, which makes fundraising software for nonprofit organizations. Since 2001, Network for Good has processed over $3 billion dollars in donations for over 300,000 nonprofits (full disclosure — I’m a board member). Lately, Bill has been focusing on what nonprofits can learn from popular B2C subscription companies in terms of growing recurring revenue.
How are nonprofits doing in terms of shifting their donation models towards recurring revenue? I’m seeing a lot more organizations asking for recurring donations right out of the gates, for example.
Well, first off, I just need to acknowledge that nonprofits, especially small ones, like small businesses, are facing really tough times during this crisis. They have some unique opportunities to adapt and we can hit that later. Yes, you’re starting to see “first asks” for a recurring donation (as opposed to a one-time donation) more often with larger nonprofits these days, but generally speaking, nonprofits are lagging behind their for profit counterparts. We’ve found that while B2C subscription companies generally retain around 70% of their consumers, nonprofits retain only 37% of their recurring donors. Still, with $300 billion in nonprofit donations coming from individuals every year, if nonprofits could improve their retention rates to that 70% B2C rate, they could convert $100 billion dollars from single donations to recurring donations.
That’s a potentially huge swing. Do you have any examples of nonprofits that have successfully made the shift towards recurring donations?
Yes, there’s a nonprofit organization called Charity: Water that has done a great job of adapting SaaS metrics like customer acquisition costs, churn, and ARR vs ACV. If you look at their website, the first thing you read is: “Join an unstoppable community of monthly givers.” They’ve lifted their annual donor retention rate from 50% to 70%.
That’s amazing. If you look at their donation page, it does two things really well. First, it asks you to choose an amount to give per month. Second, it also offers a clear value proposition: “Your $60 monthly donation can give 18 people clean water every year.” So what’s stopping other nonprofits from making the shift?
The biggest challenge is that structurally most nonprofits have an obvious disadvantage compared to B2C companies. With nonprofits, the buyer of the service (the donor) is seldom the user (or beneficiary) of the service. Why are people hanging onto their Netflix and Spotify accounts right now? Well right now it’s pretty obvious, but even in normal times, it’s because they’re consistently using those services and finding them worthwhile. If you’re a nonprofit, you don’t really have that. Your buyer is not your user.
That makes sense. Lots of nonprofits are missing a “usage” element. But nonprofits also have some advantages as well, right? It feels good to help support a worthy cause.
Absolutely. It’s sometimes called the “helper’s high,” and it’s a very real thing. You’re seeing it in the news every day right now: people volunteering, helping out, raising money for first responders, health care workers, local businesses. When we do good, we feel good. It literally triggers endorphins in the brain.
So how can nonprofits take advantage of that?
Well, almost all nonprofits are also equipped with all sorts of great stories, as well as great opportunities for building community. For profit companies desperately envy the “feel good” stories of their nonprofit counterparts. Almost every corporate advertisement these days co-opts a nonprofit’s “do good” story to its perceived benefit! Think about the pink cleats in NFL games, stuff like that.
So nonprofits should use compelling stories as a proxy for usage?
Exactly. You need to be tangible (as you noticed with Charity: Water’s $60 gets 18 people clean water value prop), compelling, and story-based to be effective. As a nonprofit fundraiser, the stories are your service to the payor or donor. The best stories are heartfelt, feature one person and the tangible impact the nonprofit is making. Recurring donors are signing up for a stream of these stories. Unfortunately, what often happens instead is nonprofits treat even their recurring donors as ATM machines. Donors want frequent communications, just not constant solicitations.
Makes sense. It also feels like there’s a basic re-framing of the revenue model that has to happen. I always tell companies to make a clear contrast between your non-recurring and recurring revenue, and put the focus on maintaining and developing the latter. That’s the real gold.
Yes. Think about Harvard University, for example. If you look at Harvard as a subscription business rather than as an educational institution, then the school is really just a vehicle for establishing a recurring revenue stream from the alumni for the endowment. Harvard is essentially just a huge multi-billion dollar fundraising and investment operation with a small educational side operation! Its students ideally have a great experience, and eventually, turn into long-term recurring donors. More nonprofits need to think in terms of placing that pool of recurring revenue front and center. They don’t need to recreate Harvard. They just need to begin with the concept of a long-term recurring relationship, create great experiences (stories of their impact) that help to serve and grow that pool of recurring donors (subscribers in your world), and relentlessly measure their progress like a subscription services company would…all so that they can do more good.
So to sum up: make the first ask for a recurring donation, offer a clear value proposition, give your donors a sense of engagement with compelling narratives, and organize yourself around recurring revenue. Thanks for the time, Bill. Last but not least, how are you doubling down on your relationships? And how can we help?
We’re glad you asked because we all need to help small nonprofits right now and Network for Good is going all in on its nonprofit relationships with a national campaign called #CovidCantStopGOOD. In the same way, the nation is rallying around small businesses, we want to shine a light on small nonprofits and support their important work. We’re helping nonprofits access COVID-specific resources including fundraising strategies and software that they can use from home. In fact, that reminds me of one more advantage small nonprofits have over small businesses right now… their revenue is not tied to their expenses. A nonprofit can still fundraise and reinforce relationships with its supporters during these times when it has pulled back on its service provision. Eat like an elephant and poop like a bird.
That’s a really good point. Nonprofits have a lot more flexibility when it comes to spend. So double down on those relationships. It’s not going to cost you anything.
Yes. And for the rest of us who can afford it, we should all give now to help these helpers in our community and share our support on social media. You won’t be alone, as of the end of March we’ve already seen a 33% increase over March last year in online giving to our nonprofit customers. That’s something to do and feel good about in between Netflix binge sessions.
To aid in this global crisis, Zuora has joined the COVID19 Tech Collaborative. How is your company responding to the current situation? I’d love to hear from you.
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Disclosure: These opinions expressed are mine, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.