The Freakonomics of Fundraising: Part One

Katie Nix Business Tips, Fundraising

Over the past two decades, researchers have begun to take a serious interest in nonprofit fundraising. At the forefront of this research are economists from the University of Chicago, who are conducting field experiments to determine which techniques are most successful. This field research is part of an exciting new field, behavioral economics, which has become so popular that people now generally refer to the discipline by what has become its brand name, “Freakonomics.”

Freakonomics book cover

Published in 2005, « Freakonomics » has become the bible of modern behavioral economics

Coined by University of Chicago economist Steven D. Levitt, the main idea behind “Freakonomics” is that people in the real world don’t always behave as rationally as economists expect them to. They make decisions based on emotions, instincts, and shortcuts. By starting from real data about real people’s behavior (instead of from grand economic theories), economists have learned to ask questions and conduct research from an entirely new perspective. Sometimes their results have confirmed our conventional wisdom. But other times the results have been so surprising that they’ve fundamentally changed the way we look at everything from crime statistics to email marketing.

Having access to these new insights forces us to ask the question: How much do you really know about fundraising? In this two-part article (part two is posted here), you’ll learn the surprising lessons these scientific studies have revealed about the world of nonprofit fundraisers. You’ll also learn how these lessons have been applied by performing arts organizations with astonishing success.

If You Love Them, Let Them Go

A few years ago, California Symphony realized the bottom of their donor pyramid consisted of thousands of cold patrons—people who hadn’t donated or attended an event in over three years. These inactive accounts made up 89% of their database, and they weren’t having much luck getting them to return.

Aubrey Bergauer California Symphony executive director

Aubrey Bergauer
Executive Director, California Symphony

« And it’s not for lack of trying, » Executive Director Aubrey Bergauer explained. « Every time we send out a mailing, at least for ticket sales, we go back five years. We’re just wasting money if we continue to mail to these people and we’re not producing returns. »

If you’ve ever worked in nonprofit fundraising, this problem will sound very familiar.

To solve this problem, they tried a strategy that seemed at first like it might be a terrible idea. They sent their cold list a special mailing that included the option to « never hear from us again.” They even advertised that opt-out option on the outside of the envelope. The risky strategy was based on research from University of Chicago economists. They figured, worst case scenario, they’d get a lot of opt-outs with no donation—but those people were already so far gone that losing them wasn’t much of a risk. Best case scenario, the special envelope might catch the eye of a few people on the cold list who usually throw their mailings in the trash.

How did it turn out? « The Once & Done group made 17 times more gifts compared to the year prior, and generated nearly 15 times more revenue. » On top of that, they’ve seen an increased number of these cold accounts buy tickets after the end of the campaign. As Bergauer put it, « They were basically dead to us, completely dead accounts, and we’re seeing them come back this year. »

California symphony's once and done fundraising campaign

With their “Once & Done” campaign, California Symphony generated 15 times more donation revenue from a mailing that cost them the exact same amount as the previous year’s mailing

The Suggested Amount is Powerful

A study at the University of Chicago found that simply suggesting a donation amount could greatly increase the number of people who chose to donate. In a phone solicitation to university alumni, 12.6% of the alums gave when the solicitor suggested a $20 gift, compared with only 9.55% when the script didn’t include a suggested amount.

Donations tended to cluster around the $20 suggestion, and each donor gave less on average than when no amount was suggested. Researchers suggest the best strategy here would be to research your own organization’s donation history, and then pick a suggestion amount that’s just a little higher than your average gift. This will drive more donations and cluster them around that suggested amount.

Consider Personalizing That Suggestion

The same study also looked at personalized gift suggestions. In this case, they suggested a gift for some alumni that corresponded to their graduation year (i.e. suggesting a gift of $20.07 for class of 2007 alums.) In terms of total number of pledges, this strategy did about as well as the generic, $20 suggested gift. But interestingly, people pledging the personalized amount were much more likely to follow through on their phone pledges and actually donate.

Want to try this with your own fundraising? Consider a personalized pledge request, like the first year your patron visited your venue, or the number of events they’ve attended there. Make sure to suggest the odd amount and then tell them exactly why you’re suggesting it.

University of Chicago

As night descends on the University of Chicago, hundreds of budding behavioral economists go to bed dreaming of upending our preconceived notions

Matching Gifts Don’t Work the Way you Think

Matching gift campaigns intuitively seem like a great way to increase donations. You announce to your potential donors that a major donor will match every dollar given by a specific date. Maybe they’ll even double or triple every dollar given. You expect that your donors will give more, knowing that each dollar they give will have double, triple, or even quadruple the effect.

Nope. Big, fat nope. Donation appeals with a matching incentive do generate more donations than an ask with no such incentive. However, the rate of match (50%, 100%, 200%, even 300%) has no impact on potential donors. The amount of their donations are typically the same, regardless of the matching rate.

Announce Seed Money Instead

A study using different donation appeals at the Bavarian State Opera found that people gave more when the donation letter mentioned that a lead donor had already pledged €60,000, but actually gave a little less, on average, when a match rate was offered. The seed gift, or « challenge gift » led to the same increase in number of donations, but on average each donation came in at a higher dollar amount.

They suggest that it’s possible that donors do some subconscious math when they see a matching gift, and realize they can make a slightly smaller donation to have the level of impact they want. The economists suggest that if it’s up to the fundraisers, large gifts are best used as seed gifts, rather than for matching.

Bavarian State Opera performance of Alice In Wonderland

Photo courtesy of Bill Cooper

Founded in 1653, the Bavarian State Opera is considered among the finest in the world

Get Close to Your Goals

In might seem that announcing that you’re far from a goal will incentivize your donors to give more. They’re your donors, they want to help you, so logically if you’re far from a goal they’ll want to get you there, right? Sorry, Charlie.

A similar study found that when a leadership gift was announced, increasing the amount from 10% to 67% of the campaign goal resulted in a 6-fold increase in contributions. Conventional fundraising wisdom holds that seed money should be announced when it reaches about 40%-60% of the campaign goal, but donors were six times likelier to give when they thought the campaign was well past the halfway mark. It seems that donors intuitively want to give to campaigns that seem likely to succeed.

Aubrey Bergauer of the California Symphony actually adopted this strategy in tandem with the « Once and Done » campaign. The solicitation letter stated that they were 97% of the way to their goal for the fiscal year, and just needed a final push to the finish line. It was true, they were 97% of the way to their year-end goal, but they used that year-end statistic instead of the percentage for that particular campaign. « It worked, » says Bergauer, « it just blows me away. »

California Symphony orchestra

Photo courtesy of Kristen Loken

The California Symphony

In part two of our story, we’ll share five additional surprising—yet scientifically proven truths—about fundraising, grants, cold lists, warm lists and what makes high-capacity donors so special.