A dog’s world: Part 1 of 5

As promised on Friday, I unearthed my copy of The Loyalty Effect written by Frederick Reichheld and re-read it over the last few days. Today’s blog post is the first of many this week where I will share a sliver of the book with you and try to translate it into non-profit speak. In the end, it is my hope that we can all get a little closer to this idea of “being donor-centered”. I encourage you to buy a copy of this book and use it as your own “non-profit business bible”.

Essentially, the thesis of this book boils down to this simple idea: business leaders are too focused on the bottom line and profits and not focused enough on retention of customers, employees and investors. Ironically, focusing on numbers rather than people creates turnover (disloyalty) and ultimately causes profits and companies to fall apart. Reichheld advocates for a new business paradigm where CEOs start measuring and focusing on efforts to build loyalty throughout their company.

I echo his sentiment for non-profit leaders!

One of the more interesting things I learned in the first few chapters of this book was:

  • U.S. corporations lose between 10% to 30% of their customer base every year
  • U.S. corporations lose between 15% to 25% of their employee base every year
  • U.S. corporations lose more than 50% of their investors every year

For non-profit organizations, there are a number of different studies that illustrate “donor loyalty” floats somewhere between 50% and 75% per year, which essentially means resource development staff and volunteers are working hard to replace anywhere from 25% to 50% of their donor base just to break even EVERY YEAR.

To compare non-profit loyalty numbers to for-profit numbers, a decision needs to be made around this one issue — “Are non-profit “donors” the equivalent to for-profit “customers” when it comes to Reichheld’s book?”

While I’ve been telling my non-profit friends for years that donors are “investors” (and they really are), for the purpose of translating this book’s message I think we need to think “donor” every time Reichheld says “customer”.  Yes, I understand that donors are not our clients, but I just think the “economic dynamic” is closer for comparative purposes. If you disagree, please weigh-in using the comment section and let’s talk about it.

If you buy into this analysis, then non-profit leaders are equally bad if not worse off than their for-profit cousins when it comes to creating loyalty. So, it stands to reason that Reichheld would conclude that non-profit organizations are at substantial risk of bankruptcy unless they address this issue. I guess we shouldn’t be surprised that only 33% of non-profits survive beyond five years. (Compared to approximately 50% of for-profit biusnesses that are still alive after five years).

OK — this first installment sets the stage for a fun week of investigating the power of loyalty. I strongly encourage everyone to weigh-in with comments and questions as we embark on this journey. In the meantime, here are a few online resources and white papers if you want to deepen your knowledge of donor loyalty for this discussion:  1) Donor Loyalty: The Holy Grail of Fundraising by Craver, Mathews, Smith & Company, 2) The Number One Driver of Donor Loyalty is Satisfaction by Grizzard, 3) Building Donor Loyalty: Chapter 1 by Tony Poderis, and 4) Burk’s Blog by the queen of the donor-centered universe Penelope Burk.

Here is to your health!

Erik Anderson
Owner, The Healthy Non-Profit LLC

About DonorDreams

Erik got his start working in the non-profit field immediately upon graduation with his masters degree in 1994. His non-profit management and fundraising experience numbers nearly 20 years. His teachable point of view around resource development is influenced by the work of Penelope Burk and those professionals subscribing to a "donor centered" paradigm. Donors have dreams and it is our responsibility to be dream-makers because donors are not ATMs.

Posted on May 30, 2011, in Uncategorized and tagged , , , , , . Bookmark the permalink. 1 Comment.

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