Improving Fundraising Efficiency with Data AnalyticsOctober 1, 2019
By: Xixi Dong, CPA, Senior Manager, Nonprofit, Government & Healthcare Group
Have you ever wondered how Amazon knows what you want before you buy it? The answer is data analytics! Amazon has built a forecasting model that uses data from your previous Amazon activity— including time on site, duration of views, links clicked and hovered over, shopping cart activity and wish lists— to predict what you want. Using predictive analytics for targeted marketing enables Amazon to increase customer satisfaction and build stronger, more profitable relationships. This type of analytics, which uses a variety of techniques like data mining, modeling, machine learning, and artificial intelligence to analyze data and make predictions about the future, is now widely used in the for-profit sector and has proven to be very useful in the acquisition and retention of customers. However, the use of data analytics is not currently widespread in the nonprofit sector. A recent research study conducted by Blackbaud Target Analytics across thousands of nonprofit organizations determined that the average nonprofit is missing out on $3,781,461 in untapped giving potential - with the potential to increase annual donors’ contributions by an average of $52 and increase major donors’ gifts by $1,197.1 This information suggests that nonprofit organizations could certainly stand to benefit from the use of data analytics.
HOW CAN NONPROFITS BENEFIT FROM DATA ANALYTICS?
Nonprofits don’t typically have a lot of unrestricted resources to allocate towards fundraising, and they are rated by charity watchdogs for their fundraising efficiency - the amount a charity spends to raise $1. This makes it crucial for nonprofits to utilize their resources wisely and efficiently. Nonprofits must carefully direct their outreach resources towards those most likely to give and keep them engaged after their first donation.
Data analytics tools, including predictive analytics, can help nonprofits target donors, conduct better outreach and determine the most effective fundraising strategies. If your nonprofit is thinking about incorporating data analytics into your fundraising efforts, you may start by considering the following.
- What system does your organization have in place for a first-time donor?
- What donor communications system have you implemented?
- What system do you have in place for turning an event attendee into a donor?
- What is your system for turning a loyal donor into a monthly donor?
Data analytics tools can help organizations establish processes (or optimize existing processes) that will improve overall fundraising efficiency. To get started, it’s important to know that data analytics can be broken down into three key areas: descriptive analytics, prescriptive analytics and predictive analytics.
Descriptive analytics are used to describe the behavior of donors and classify them into groups. Many nonprofits maintain a large donor database that they can utilize. Descriptive analytics is especially helpful for donor database management. The database can be analyzed using descriptive analytics and characterized into different groups based on donor giving history, demographics, giving habitats, communication preferences and giving capacity, etc. Descriptive analytics help nonprofits understand who their donors are, therefore establishing a basis for predictive analytics.
Predictive analytics tools review the data you have collected from donors and attempt to predict their future behavior by finding patterns and trends in that data. Once the donor database is classified into different groups, nonprofits can identify the ideal donor segment, predict the likelihood of donations and predict the actions that are most likely to build long term relationships with donors. Predictive analytics help nonprofits predict when, how and how much a donor is likely to give, what fundraising method generates the most return and what is the best way to reach out to each donor segment.
Combining the results from descriptive analytics and predictive analytics, prescriptive analytics involves looking forward and determining what must be done next to help you plan your fundraising strategy. This is the step that customizes an organization’s fundraising strategy to target the right donors and creates an individualized outreach plan for desired donors. Using prescriptive analytics, nonprofits can significantly increase the effectiveness of donor campaigns and strategies.
The use of data analytics in nonprofit storytelling (which I discussed in my last article) can also help strengthen donor relations and increase donor retention. With greater access to information, nonprofits can incorporate the quantitative impact of gifts into their storytelling, making their stories more compelling to their donors and keeping them engaged. Donor markets are competitive and utilizing data analytics helps make an organization stand out.
Descriptive, predictive and prescriptive analytics can work together to create a high-quality donor engagement experience. They can save time and resources while creating a more customized donor experience. Understanding donor history increases a nonprofit’s knowledge of its donors while predicting what will happen in the future and recommending potential action items helps the nonprofit achieve its desired outcome. Used in this way, data analytics tools can improve nonprofit organizations’ fundraising capabilities and help them become as efficient and effective as possible
DATA ANALYTICS TOOLS FOR NONPROFITS
While predictive analytics used to seem out of reach in the nonprofit world, that is no longer the case today. Besides improving fundraising efficiency, nonprofits can utilize data analytics to measure mission-specific goals, evaluate program efficiency, forecast budget and cost and optimize operations. Below are some of the many data analytics tools that have been developed specifically for nonprofits to use.
- Alteryx for Good has developed data analytics tools specifically for nonprofits, with discount programs available. They also created Alteryx for Good Co-Lab, which is a volunteer network of Alteryx experts providing their analytic expertise to nonprofits and educators.
- Exact Ask by Arjuna uses machine learning algorithms to provide nonprofits with individually optimized ask amounts for donor solicitation campaigns executed through direct mail or email.
- IBM SPSS Predictive Analytics for Non-Profits is a product developed to improve program effectiveness, increase donations and reduce costs.
- Tableau has launched a free software program for nonprofits (provided certain criteria are met).
Just as for-profit businesses have embraced data analytics as a tool to improve performance and increase revenues, so too can a nonprofit organization utilize data analytics to improve its fundraising efficiency. Data analytics tools can help nonprofits maximize their resources and increase donations and engage and retain donors. In the competitive nonprofit landscape, using data analytics is a smart way to use scarce resources to the fullest, especially for target fundraising.