Tuesday, February 17, 2015

The Impact of Sustaining Givers on Public Radio Fund Drives

The movement to monthly sustaining givers has been good for many public radio stations, improving annual donor retention and monthly cash flow. The impact on fund drives is less clear.

There's not a lot of readily available national data on the subject, but we've seen mixed results across a few dozen client stations over the past three years. It appears the increase in sustaining members has reduced fund drive efficiencies for two reasons.

The pool of donors who might renew their membership during the drive is smaller because many of the most loyal donors are now sustainers. And additional gifts are a tougher sell since part of the sustainer pitch is that the listener is already supporting the station every month.

These two issues seem to have a greater effect on stations that ran efficient fundraising programs prior to seeking sustaining members. Stations that were less efficient to begin with get a longer grace period before their on-air drives are affected.

Perhaps a bigger issue now facing many stations is the multi-year impact of sustainer programs on fund drive cash flow. Every station has to manage the initial cash flow hit of starting a sustainer program. That's because the pledges that used to fulfill all at once now take 12 months to fulfill. The later in the fiscal year a sustainer is acquired, the less cash flow value that listener has in the current fiscal year.

In theory, the station is trading short-term fund drive cash for ongoing monthly sustainer cash. In practice, we are seeing stations trying to increase both. As a result, fund drive cash flow expectations are no longer being adjusted proportionately to sustainer pledges received during the drive. Drive goals are going up in a more difficult fundraising environment.

Here’s an example using a station with a drive goal of $300,000 in pledged dollars. Sorry about all of the numbers.

Prior to its sustainer program the station could count on $270,000 or more of that $300,000 to fulfill in the fiscal year. With a sustainer program, at least $100,000 of the pledged dollars are now being paid monthly (1/3 of pledged dollars).

If that drive occurs halfway through the fiscal year, then only half of the sustainer money fulfills in the fiscal year. That’s a $50,000 hit to fiscal year cash flow. Now only $220,000 fulfills in the fiscal year. Over three drives, on-air fundraising contributes $100,000 less per year to cash flow.

What we’re starting to see is that after the initial implementation of a sustainer program, stations aren’t willing to take that big of a cash flow hit on the fund drive revenue line. Rising budgets keep putting pressure on fund drives to deliver more immediate cash. So fund drive cash flow expectations are no longer being reduced deeply enough to account for sustainers. In some cases cash flow goals are approaching the same levels as the pre-sustainer drives. 

The consequence is that the station has to raise its overall fund drive goal to meet the cash flow projection for the drive. Going back to our example, to raise $270,000 in current fiscal year cash with the sustainer model, the drive goal now has to be $380,000. That’s 27% higher than the pre-sustainer model. In a tougher on-air fundraising environment.

As a rule of thumb, the more successful a station is with sustainers, the less reliant it must become on fund drives for cash flow. It also must become better at multi-year, multi-channel revenue planning. If it doesn’t, then drive goals must be increased with the understanding that getting more immediate cash out of a drive and getting more sustainers from that drive are conflicting goals.

The problem, as we are seeing it, is that an increasing number of stations want both and that's not working.

A few decades ago, when public radio was investing considerable resources in on-air fundraising research and training, I posed the question, "Pledge drive or Fund drive?” That is - is the main purpose of this drive to get donors or money? It is an important question that impacts fund drive strategy, tactics, and messaging.

It turns out that public radio's incredible audience growth over those decades made that question less important than we thought. Most stations picked raising money as their primary goal and got enough new members along the way to grow, even though the percentage of new member donations was quite low.* 

The success of sustainer programs and the importance of acquiring sustainers through on-air drives just might be making "Pledge drive or Fund drive?" a more relevant question today. 


* New givers in most fund drives range from 25% to 35%. It has been that way for a few decades. Flip that number around and it means that 65% to 75% of givers during an on-air fund drive are already in the station’s donor database. These percentages are a result of focusing on raising money during drives over acquiring new givers.

Thursday, February 12, 2015

It’s Taking More Leverage to Generate Pledge Drive Contributions

Our last post covered how it is getting more difficult to generate contributions during public radio pledge drives. We introduced the idea of public radio pledge drive Leverage.  (Pleverage?)

Leverage is the weight of the incentives offered to generate a contribution or to raise a dollar. Leverage is the stuff – premiums, challenge grants, dollar-for-dollar matches, sweepstakes – offered during the drive to spike response rates and influence average gift.

We’re still working on the best way to measure this, but it is an important concept.  On one hand, incentives are a cost to the station – financial and in terms of listener perception. We know from Listener-Focused Fundraising research that commercial-like fundraising tactics create negative perceptions among many listeners and that is a cost.

On the other hand, incentives create an important value proposition for an significant subset of potential givers. This post focuses on the idea of value proposition.

But Wait There’s More!

It used to be that using one incentive at a time was sufficient leverage to meet hourly and daily on-air drive goals. Sometimes two incentives, such as a premium and a dollar-for-dollar match were offered simultaneously. Now, more stations are offering more stuff, simultaneously, to meet their goals.

The questions before us are how much leverage is really necessary for a station to get the results it needs?  And, is there a point where so much leverage is needed to meet the pledge drive goal that it is a sign of an unrealistic goal?

In the interest of full disclosure our company, Sutton & Lee, provides on-air fundraising consulting services to nearly a dozen public radio stations. We are helping many of those stations use increased leverage to meet their goals.

Below is an example of what one major market station offered as sweepstakes prizes during a recent campaign. The example below is not one of our client stations but it represents how a handful of stations have been operating over the past decade and we think it represents where much of the industry is headed.
  • Trip for two to Paris
  • Tanzanian Safari for two
  • Trip to Iceland
  • WWDTM Trip to Chicago
  • Galapagos trip
  • Rome and Florence trip
  • Mercedes Benz
That’s something like $60,000 to $70,000 of prize incentives for just one pledge drive. The station also had several challenges and dollar-for-dollar matches ranging from $10,000 to $50,000. Additionally, a few premiums were set at “loss-leader” pledge levels to boost response rates.

Depending on when a listener was asked, the enticement to respond during this drive would have been entry into sweepstakes for multiple trips, a chance to win a Mercedes, a $50,000 challenge grant, and an attractively priced premium.

The value proposition to the listener is this:

“Give $10 per month now to get a great thank you gift at a special pledge level and also support the station you depend on so you can maintain access to your favorite programs. You’ll also get many chances to win a dream vacation and a chance to win a luxury car all while turning that $10 per month into a $50,000 challenge grant the station can earn if you do it by the end of the hour.”

While this might seem extreme to the outside observer, leaders at this station obviously felt all of these incentives were needed to meet the goal over their planned fundraising footprint. That’s a lot of leverage.

And this station is not alone. Many stations are giving away multiple trips. Others are giving away cars and even tens of thousands of dollars in cash.

It’s Not a Bake Sale Anymore

And it’s not just the sweepstakes that are getting extreme. Some stations offer “early bird” discounts on premiums, where the pledge level starts low and goes up later in the drive. While very commercial sounding, this technique does boost immediate response rates.

Some stations offer “two-for-one” matches where every dollar contributed generates two additional dollars in match money. To the listener this is, “give $100 right now and the station receives an extra $200 donation from a generous major donor to the station. Right now your pledge has three times the buying power.”

These two-for-one matches can be very effective at generating immediate response. They are often four times more effective than incentive-free fundraising at generating contributions and dollars.

The value proposition of matches is also quite good from the listener perspective. Unlike a sweepstakes, which the listener may or may not win, there is an instant benefit to responding. The listener gives and the station gets even more. Instantly!

The primary downside of two-for-one matches for the station is that a dollar of leverage returns just 50 cents in revenue. The pledges come in faster, which is good, but the cash return on the leverage is lower than the value proposition to the listener.

We’ve seen stations raise less money in an entire day than they used for a two-for-one match during that day. For example, $30,000 in match money generates $15,000 in contributions over a few hours. Then the rest of the day generates $10,000 in pledges. The daily pledge total is $25,000 but it took $30,000 in match money to get it.

It’s a reasonable argument to point out that the any match or challenge in a pledge drive is worthwhile because the station leveraged the pledge drive to obtain the match money commitment in the first place. We agree. That’s one of the great strategic benefits of matches and challenges. They raise money twice for the station, once before the drive and once during the drive.

But from the potential donor’s perspective a two-for-one match is the antepenultimate pledge drive offer. It’s big leverage. The only thing that makes it better is getting a discounted premium and a chance to win a great sweepstakes prize while getting your gift tripled.

Circling back to the big question in front of us, “how much leverage is too much?”

Are we at the point where meeting goals requires offering incentives worth more than the value of the contribution itself?  Is there an ideal ratio of pledge drive dollars to incentive value.

Defining leverage in this way could help underperforming stations get better results or at least better manage their expectations. It could also help stations efficiently meet their goals without going overboard.

Another benefit is improved pledge drive benchmarking. It’s almost impossible to compare results across stations without considering the leverage applied at each station.

Finally, we can’t leave this discussion without asking if there is a point where greater reliance on commercial tactics makes pledge drives even less-listenable and/or erodes the bond between the station and listeners who value the non-commercial nature of public radio. 

Monday, February 02, 2015

Difficult Pledge Drive Days Ahead?

It’s getting harder to generate contributions through public radio pledge drives.  Most stations are still getting good overall results, but the cost of getting those results is going up.

Sometimes the cost is more on-air fundraising. It is taking more of the station’s time and more of the listeners’ time to generate a contribution. Sometimes the cost is greater leverage. That is – stations are having to offer more, or more expensive, incentives to generate a contribution.

Probable Causes

Success with monthly Sustaining givers appears to be having an effect on drives by cutting into the potential number of annual renewals received during the drive. Declining AQH (Average Quarter-Hour) audience is another possible cause. Lower AQH means listeners are using the station less. That could result in listeners being less likely to give.  It certainly reduces the number of potential respondents to an on-air fundraising appeal.

There could be external factors as well. People are being asked to immediately part with their money at unprecedented rates these days. The junk mail and telemarketing calls of 25 years ago now follow us out of our homes and find us 24/7. The amount of daily asks is numbing. Public radio pledge drives appeals are fighting through much more clutter just to be considered let alone acted upon.

Measuring Pledge Drive Success

The primary metric we use to measure on-air fundraising success is Listener-Hours to Generate a Contribution. Using Nielsen Audio audience data, we answer the question, “how many hours of listening must we expose to fundraising to get someone to give?”

Or, put another way, how efficiently are we spending our listeners’ time to get a single contribution? A lower number is better. The goal is to maximize the pledge drive return against the expense of the disrupting the listening experience.

In a PPM-measured market, an efficient pledge drive for an NPR News station generates one contribution for every 300 hours of listening exposed to fundraising. That’s like putting 300 people in an auditorium and playing public radio content for an hour, except that their experience will be interrupted 4 to 5 times in that hour with 4 to 6 minute fundraising appeals. At the end of that hour, one of the 300 people will make a contribution in the amount of an average gift.

Two Trends

We see on-air fundraising following two trends. Some stations are adding more fundraising hours and exposing more listening to pledge drives to meet their goals. The fundraising efficiency metrics at these stations don’t improve, they get worse. The stations still meet their goals, or come relatively close, by applying more brute force.

The other trend involves applying more Leverage to the fundraising ask. We haven’t settled on exactly how to best measure Leverage, but we believe the broader concept is sound. For now, consider the Leverage to be the weight of the incentives offered to generate a contribution or to raise a dollar.

Here’s an example. Ten years ago a station offers a dollar-for-dollar match and the fundraising efficiency is 150 Listener-Hours (LH) per Contribution. That means the match is twice as efficient as the average hour of fundraising, which took twice as many LHs (300) to generate a contribution.

Today that match has an efficiency of 200 LHs per Contribution. It’s less efficient at turning listening in to contributions. So the station decides to offer a free tote-bag to anyone who gives during the match in addition to any other thank you gift they take. More listeners respond to the offer and the efficiency returns to its prior number of 150. The station achieved its prior efficiency by applying more Leverage.

This is happening at a lot of stations across the country stations. They are offering more incentives each drive and offering more of them  simultaneously to maintain fundraising efficiencies.

Is the Problem Too Much Talk About Stuff and Not Enough Talk About Mission?

Probably not.

Mission messages are great for convincing listeners that they should give to the station but they aren’t particularly effective at motivating people to actually pause their busy lives to give at that moment. The well-executed “Mission” focused fundraising hours tend to fall in the 400-500 LH efficiency range.

A pure Mission approach to pledge drives would likely require a plan that exposed listeners to 33% to 50% more fundraising to meet the overall drive goal. That’s like turning a 9-day pledge drive into a 12 to 14-day pledge drive. As you might imagine, longer drives tend to drive efficiencies down even more.

What’s Next?

Subsequent postings on this topic will go a little deeper into Leverage, Sustainers, and off-air fundraising including the use of email, social media and database solutions.

One final note. In the past we’ve observed that public radio might have more of a spending problem than a fundraising problem. The money stations are spending on increased local news offerings and digital initiatives is outpacing their ability to monetize those activities. They are currently money losers. That puts pressure on the core radio service to generate “profits” to subsidize those activities.

One of the possible answers to slipping pledge drive efficiencies is to reduce the revenue burden they must bear through smarter spending on local news and digital.

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