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. 

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* 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.

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