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CHARITY ACCOUNTABILITY: THE DONOR DRAIN

Anne Senft spends her work days raising money for the National Wildlife Federation. It’s not an easy job, and lately, it’sgotten harder. According to Senft, the Reston, Va.-based charityhas been losing some 300,000 donors each year — nearly one-thirdof its nearly one million members.For most of the early 2000s, Senft says, the group was only able to replacemost of the donors who walked out the door. “We pretty much brokeeven,” she says. Late last year, though, the nonprofit had to make a toughdecision: spend more money to make money, or risk falling behind. TheWildlife Federation ended up spending some $2 million more onfundraising than the previous year, according to its tax return, sendingout 20 million donor letters and nearly as many e-mails.It worked — but just barely, bringing in 50,000 more members, saysSenft, and bumping up donations and membership fees by 6 percent. “Wewere able to get ahead of the curve because our acquisition was so aggressive,”she adds. “But we didn’t gain ground until this year.”Call it the donor drain. Raising money for a cause these days has becomemuch like trying to walk up a “down” escalator while it is accelerating. It’sgetting tougher just to break even and much easier to fall behind. “The problemis not that [charities are] not getting new money; the problem is thatthey’re losing an enormous amount of money,” says Bill Levis, the author ofa new pilot survey by the Urban Institute that documents the trend.Levis’ survey shows that most nonprofits post an average gain of just 10percent each year: they lose 52 percentof their donations, which is then offsetby a 62 percent gain in new or upgradeddonations. In short, says Levis,nonprofits are losing almost as much asthey’re gaining, pouring a river ofmoney into a nearly open drain.The result? A looming financial crisisin the sector as the number of newdonors starts to wane, says AdrianSargeant, a professor of fundraising atIndiana University’s Center on Philanthropy.If organizations fail to keepdonors on board, says Sargeant,“they’re going to be spending a lot ofmoney on donor recruitment that could be spent on programs.”Indeed, analysis by Blackbaud, a fundraising research group,shows that over the past five years, there’s been a gradual but steadydecline in the number of nonprofit donors, in general, and particularlyin the number of new donors to the sector. It costs more to acquirenew donors than to retain them, experts say. But churningthrough donors also makes it harder to woo benefactors. “Donorsdon’t want to be funding fundraising,” says Sargeant. “They want tobe funding the work you’re trying to do.”And they’re demanding much more accountability from the nonprofitsthey bankroll. If they don’t get it, they walk, says PenelopeBurk, president of the fundraising consultancy Cygnus Applied Research, Inc.In August, Michael Steinhardt, the hedge-fund philanthropist,dropped 18 grantees from the 100 he supports, citing disillusionmentwith their work. Donor Susie Buffett, speaking to nonprofitmanagement students at Manhattan’s New School in September,said: “Sometimes, when people ask you for $50,000 and you give$35,000, it’s amazing how people react. A simple thank-you wouldbe nice…You’d be amazed at how many charities simply forget to saythank you.” David Rockefeller, Jr., the great-grandson of oil magnateJohn D. Rockefeller, Sr., says many charities “just don’t keep donorsinformed enough of how they’re having an impact.”Indeed, about one-third of nonprofitsreport that donors want moredetail about how their donations areused, according to Blackbaud’s annualsurvey of the nonprofit industry.That proportion has held steady sincethe first survey in 2005, says AmyComer, a manager of market researchat Blackbaud. Even if the numbersaren’t rising, says Comer, “the fact thatnonprofits say they’re continuing tosee increases [in concern] signifies aproblem that is not going away.”While faltering financials top the listof donor concerns — when Burk surveyeddonors, 37 percent said they stopped supporting groups becauseof “mismanaged funds” — simple appreciation is important,too. Of the donors who withdrew support, 47 percent did so becausethey felt uninformed or unappreciated. Yet when donorsleave, the funding clock resets to zero, says Burk. New donors areexpensive to get and rarely give much the first time, she says. Donorchurn, she adds, is “the most serious problem in fundraising today.”Yet even a small improvement in retention can yield a windfallover time, says Indiana University’s Sargeant. Boosting the retentionrate by as little as 10 percent, he says, can increase the lifetime valueof a nonprofit’s donor base by up to 200 percent. “A lot of nonprofitslose money on donor acquisition,” he says, “so if you’re notlosing them, you don’t have to replace them.”Just ask the International Rescue Committee: when half of itsdonors disappeared after the Kosovo crisis, IRC retooled its efforts.By the time the 2004 tsunami hit, IRC had a “welcome kit” on handto send to donors with thank-you notes and other forms of followup —and this time contained its post-crisis donor loss to just 3 percentof total membership. The secret: more time and money wasspent on retention. Donors, says Burk, “don’t hang around hopingthey’ll get [what they want] in the future.” If a nonprofit doesn’t getit just right, “[donors] are off to the next one.