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Can Your Retention Rate Be Too High?

Recently I worked with an organization with an 80% retention rate.  Eighty percent of their donors who gave in 2010 also gave in 2011.

This sounds good, right?  It means that the organization is taking really good care of its donors.

The thing about retention rates is that there is a sweet spot.  If an organization’s retention rate is low, it has a problem.  We all know about that one.  Something in the cycle of stewardship and cultivation has broken down.  It could be a cruddy acknowledgement system, an anemic donor stewardship effort, flawed messaging, or any number of administrative malfunctions.

But can your retention rate be too high?

I think it can.

How’s that, you ask?  How can I be doing too good of a job of keeping my donors?

Well, it’s not that you’re doing too good of a job.  It’s that if you have a retention rate of 80%, you actually don’t have enough donors.

To attain an 80% retention rate, you have to be working a very small file of donors and paying them a lot of attention.

Now that can be fine if you have a lot of big donors, right? You can still raise a lot of money.

But, here’s the thing.  Very few donors start out as major donors to an organization.  Our major donors generally come from upgrades from our lower level of the pyramid.  We build relationships with them over time that blossom into larger gifts.

But you need to bring enough people to build a stable pyramid that provides the prospects for upgrading and replacing those donors who will inevitably stop giving to you for some reason or another.

So where’s the sweet spot?

It seems to me that a sign of healthy replacement of donors is a retention rate in the 60 to 70% range.

Below 60% retention rate means that you are close to losing half of your donors year on year.  There’s opportunity for sure in improving retention there – for the whole nonprofit sector.  A January 2011 study by the Fundraising Effectiveness Project found that the average retention rate for a nonprofit fundraising operation was 43.1%.

Above 70%, however, seems just as worrisome for long-term growth.  How much are you investing to ensure that high retention rate and can you be using some of it to acquire donors that will help to fill out your pyramid?

What do you think?  Do you think there’s any retention rate that’s too high?  What’s your sweet spot?

 

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