You may not have heard the phrase “subscription philanthropy” before, but I guarantee you are aware of the subscription economy. Understanding the subscription economy and translating that to your fundraising practices can not only help you be more responsive but also significantly improve donor retention. This approach encourages more generosity from your supporters.
Are You Part of the Subscription Economy?
I have a question for you. When I ask this question at conferences, I typically do a show of hands.
You are welcome to raise your hand. ✋ (Or not…I’ll never know!)
Please raise your hand if you subscribe to one of the following services:
- Video Entertainment – Netflix, Disney+, Hulu, ESPN+, etc.
- Music Streaming – Spotify, Pandora, Apple Music, etc.
- Software – Microsoft Office, Adobe Creative Cloud, Quickbooks, etc.
- Subscription Boxes – Stitch Fix, Birchbox, Dollar Shave Club, etc.
- Books – Audible counts here! Also, “Book of the Month” clubs
- Fitness – Your local gym, Orange Theory, fitness apps, etc.
- News – WSJ, NY Times, Washington Post, The Economist, etc.
- Groceries/Meal Delivery – Hello Fresh, Blue Apron, etc.
- Vehicle Ownership – Yes, this is a real thing. Automakers from Volvo to Nissan and Porsche to Land Rover offer various subscription-based vehicle ownership programs.
- Your Doorbell?
Is your hand in the air still? You can put it down now.
The last one on the list above is my favorite.
Do you subscribe to your doorbell? When I ask this at conferences, a handful of hands always shoot up. Because if you know, you know.
But if you don’t know, there are a slew of companies out there—companies like Ring, Arlo, and Nest—that feature video doorbell services. They will not only sell you a doorbell for a couple of hundred dollars, but then if you want features like storing and accessing recording history, A.I.-based image recognition (is it a cat or a car in my driveway?), or real-time notifications, you will need to pay anywhere from $4 to $20 a month for those capabilities.
If you had told me ten years ago that there was a future in which I would pay the DOORBELL company $10 a month, I would have said no thank you!
Recurring Revenue Models
Over the past ten years, we’ve entered into the Subscription Economy—the rise of subscriptions in nearly every area of business and consumer life. From Netflix to QuickBooks. From Amazon Prime to Hello Fresh. Subscriptions are everywhere.
It also turns out that recurring revenue models are good for business. Over the past ten years, subscription-oriented companies have grown at nearly 5X the annual growth rate of the S&P 500.
The rise of recurring subscriptions is happening in every area of consumer and business life. Customers are buying access always-on and anywhere, memorable experiences, ongoing value, and personalized service.
As the Subscription Economy has changed consumer expectations, it has also shifted donor behavior, leading to the rise of what I call Subscription Philanthropy.
While subscriptions have become a part of our daily lives as consumers, donor behavior has been shifting along similar lines.
52% of Millennials are more likely to give monthly over a large one-time donation, according to Nonprofits Source. Further, 49% of all Baby Boomer and Gen X Donors are already enrolled in a monthly giving program.
Donors today are choosing to give to nonprofit organizations on a recurring basis more than ever before.
Donors are not limited to supporting only those nonprofits with established recurring giving programs, like child sponsorship, missionary aid, or membership-based initiatives. They are increasingly committing to regular, ongoing donations across a diverse range of charitable organizations.
This rise of Subscription Philanthropy represents a massive opportunity for what I estimate is about 75% of nonprofits today who have been historically unable to tap into recurring giving in a significant way. By adopting a subscription-based approach as one of your donor retention strategies, nonprofits have a greater chance to secure ongoing support.
Mistakes to Avoid in Subscription Philanthropy
I write and speak about the topic of Subscription Philanthropy regularly. Today, I want to focus on the cultivation and retention of recurring donors.
Let’s look at three mistakes that nonprofits make by applying old cultivation tactics to new Subscription Philanthropy models.
Mistake #1: Same old same old
The first mistake I see in cultivating sustaining donors is not treating them differently than their single-gift counterparts. These faithful donors receive the same appeals, new donor onboarding series, and receipt packages. Yet, they don’t receive any tailored communications or additional affirmation. It’s as if they are no different than their single donor siblings.
Charities that treat their monthly donors in an undifferentiated way are effectively telling donors that they are no different, no more special or important, than a donor who gives once a year or once every couple of years.
The problem with this approach is that nearly all of the value of a sustaining donor is long-term future value. This means that donor retention rate becomes paramount. For example, a $30/month donor is worth just $30 in month one. But if we can keep them for a year, they are worth $360. If we can keep them for five years, they are worth $1,800.
🔧 Fix: Treat sustainers differently.
The fix to treating all donors the same is to tailor the experience specifically for monthly donors in a way that acknowledges their commitment and encourages loyalty.
Increase the frequency of affirmations, and tailor report backs to acknowledge the significance of the impact that their regular, predictable support is providing.
Decrease the frequency of appeals. Tailor appeals to acknowledge that the donor gives recurring and position asks to be “over and above” their regular giving. (Note: I don’t recommend eliminating appeals or additional ask opportunities entirely—we’ll cover this in the next section.)
Give them periodic surprise and delight experiences. Some nonprofits will send a special acknowledgment on the anniversary of the donor’s support—a handwritten card or a thank you phone call, for example. Others will produce unique videos or communications tailored to monthly givers.
It’s a mistake to treat recurring donors the same way as single-gift donors. Once you have a sustainer donor, the focus should shift to keeping them.
The next mistake I see in cultivating recurring donors is putting all of the effort into acquiring monthly donors, and then setting cultivation on autopilot.
Mistake #2: Approaching Subscription Philanthropy as Set It and Forget It.
Suppose an organization successfully avoids the first mistake by adjusting the cultivation experience for recurring donors. In that case, the next mistake I see is organizations investing an inordinate amount of resources into acquiring or converting recurring donors and then almost no resources into the cultivation, stewardship, upgrading, retention, and reactivation of those donors.
Subscription services would never do this. They realize that acquisition is less than half of the equation. They know that keeping a subscription customer engaged is the only thing that makes a subscription customer profitable. So they do everything they can to onboard and encourage customers to use the subscription product. They look for opportunities to cross-sell customers on relevant products and services and to upgrade them to access additional features or capacity. And if customers lapse, they work hard to reactivate them.
In the fundraising world, nonprofits tend to invest the vast majority of resources in getting donors to sign up for recurring giving and then treat donor cultivation as a function of donor services.
In the subscription world, this would be the equivalent of Netflix saying, “They are a subscriber now, so there probably isn’t anything we can do to make sure they continue to engage with our content or upgrade their plan, so let’s just send them to customer service if they have any questions.” No, subscription services recognize that the real value of a subscriber is in giving those subscribers a great experience, and so they look for ways to bring additional value and engage the customer.
🔧 Fix: Invest in cultivating, upgrading, retaining, and reactivating sustaining donors.
Effective, growing sustainer programs go far beyond reducing appeal frequency or handing the cultivation to donor services.
Here are five things to consider when cultivating recurring donors (a.k.a. implementing subscription philanthropy):
What does your report back and affirmation communications stream look like? How can you make the donor the hero and help them see how their recurring giving is making a difference regularly?
2. Extra Gift Appeals
Recurring donors can be a rich source of additional single gifts throughout the year. The typical recurring donor will give an additional 25% of their annual giving via single gifts. In other words, if you bring in $1 million yearly in recurring gifts, you should expect to see something like $250,000 in additional single gifts from those same donors. Organizations like World Vision pioneered the idea of extra gift appeals for child sponsors (send a birthday gift to your sponsored child). Still, there are many ways to ask for special gifts from sustainers that are over and above their regular giving – special year-end appeals, matching grant opportunities, disaster appeals, shortfall appeals, and so on.
One of the biggest missed opportunities in monthly giving is never asking donors if they would consider increasing the size of their monthly gift. Look for opportunities to periodically ask donors to consider increasing the size of their impact by giving more—that might mean taking on an additional sponsorship, or increasing their giving by X amount to have Y additional impact.
4. Lapse Prevention
The most common way to lose a monthly donor is through no action of the donor but rather through an expired or updated credit card. Ensure you have processes in place with your payment providers to auto-update expired credit cards and timely flagging of records when payments fail. When this happens, there should be a process of reaching out to donors with multiple touchpoints. Another way to prevent lapsing is to have a downgrade option when a donor indicates a desire to cancel their recurring gift—on the phone or online.
Even with the best strategy on how to retain donors—some recurring donors will lapse. Do you have a strategy to keep in communication with them and periodically invite them to re-up their recurring giving?
The last mistake I see organizations make when cultivating sustainers comes directly from not understanding the subscription economy.
Mistake #3: Not thinking in terms of a forever transaction.
As I’ve mentioned, subscription services understand that most customer value is based on engaging and satisfying customers for the long term. If a customer subscribes for only 1, 3, or 6 months, the subscription service will almost certainly lose money. So subscription businesses only succeed if they find what author Robbie Kellman Baxter calls their “forever promise.”
In her book The Forever Transaction: How to Build a Subscription Model So Compelling, Your Customers Will Never Want to Leave, Kellman Baxter describes a “forever promise” as committing to “deliver a result, solve a pain point, or achieve an outcome for your members forever, in exchange for their loyalty.” In other words, it is an ongoing value proposition so compelling, engaging, and worth it that the subscriber (donor) never wants to leave.
As the Subscription Economy has rewired donor expectations, nonprofits must consider what their forever promise is. Especially nonprofits that don’t have a one-to-one sponsorship or membership offer, which often have a built-in “forever promise.”
The forever promise goes deeper than the fundraising offer – many nonprofits make the mistake of assuming that whatever their best single gift offer is, is likely to be the best recurring gift offer. But the reality is that is rarely the case.
🔧 Fix: Commit to understanding your recurring donors’ motivations and building a sustainer program around your forever promise.
Sustainer giving is more than taking your best single gift offer and asking for 12 of those a year.
You’ve got to understand why monthly donors give to you or other organizations. What is a total package you can put together that makes your sustainer program have a forever promise – something that is so compelling and engaging to donors that they never want to leave?
Here are some of the questions that a forever promise value proposition should be based on understanding:
- What inspires the donor?
- What is the need, and how are you enabling the donor to solve the problem by giving through you?
- How does giving on a recurring basis make a significantly bigger impact in accomplishing the mission?
- Why act now? What are the consequences of not acting?
- What incentives are there to take action?
The best way to understand donors is to talk to them. Too often, we fundraising experts assume that because we know what tends to get donors to give single gifts, we can assume we know what the value proposition should be for donors.
There has never been a better time in history for nonprofits to build a resilient, growing source of funding from recurring donors. The Subscription Economy has led to the rise of Subscription Philanthropy, and donors are choosing to “subscribe,” or give to causes they care about on a recurring basis.
But like with subscriptions, it’s essential to understand that the value proposition that leads a donor to give monthly is different than that which will cause a donor to give one-time.
I write about this topic and others that leaders can leverage in a weekly report called The Wave Report. The Wave Report is about the “waves” that leaders should be aware of – trends to watch and lessons to tap into.
If you’re interested in receiving these reports, you can subscribe here: www.imago.consulting/wavereport.
About the Author
Consultant, speaker, and writer Dave Raley is the founder of Imago Consulting, a firm that helps nonprofits and businesses create profitable growth through sustainable innovation. He’s the author of a weekly trendspotting report called The Wave Report, and the co-founder of the Purpose & Profit Podcast—a show about the ideas at the intersection of nonprofit causes and for-profit brands.