The Reason for Research: How Prospect Research Impacts Fundraising’s Return on Investment

Prospect research provides the foundation to effectively carry out virtually any fundraising program—effective prospect research delivers a pipeline of highly qualified, prioritized and segmented prospects and donors. Programs that include major gifts, planned giving, campaign components or an annual fund must include some amount of prospect research in order to efficiently focus resources on those donors or prospects that are most likely to have the greatest impact with a single gift or with increasingly higher gifts over time. Here are some important considerations when evaluating the impact prospect research has on fundraising ROI:

Think Beyond the $

While monetary returns provide the true measurement of ROI, when evaluating the value of prospect research, nonprofits should also consider factors such as the number and the dollar amount of gifts, as well as metrics such as total numbers of donors, number of new donors acquired annually, number of donors increasing their gift, percentage of new prospects converting to donors and at what gift level. These measures of performance ultimately play into the ROI equation.

WealthEngine’s research shows that investment in a prospect research and screening solution significantly increases both the size and quality of the prospect pipeline. The benefits of having a more comprehensive and accurate target prospect list, and the ability to apply analytics to further segment and classify the prospect pipeline, enables institutions to more effectively and efficiently target their strongest prospects and donors. This obviously results in a higher percentage of closed gifts.

A case in point is St. John’s College High School in Washington, DC. Philip Brach, Vice President for Institutional Advancement, cites the importance of looking at metrics and analytics to identify trends and gift potential. Brach uses three key metrics to determine a prospect’s inclination to give and an ask amount: (1) his own RFM score which is based on the Recency, Frequency and Monetary value of previous gifts, (2) the WealthEngine gift capacity rating, and (3) the prospect’s real estate valuation. This approach has resulted in a total of 150 major gifts ($25,000 or more) for the school’s leadership campaign, of which 97 were first-time capital gifts totaling $2.7M and 53 were repeat capital campaign gifts totaling $5.4M, nearly 60% of which are higher amounts.

Similarly, a response to a direct mail appeal does not always equal a closed gift, but higher response rates usually lead to higher giving amounts, and an effective prospect research process can help nonprofit organizations achieve both through better segmenta- tion and qualification of their target donor audience. Having a clean, targeted prospect list can also help save additional resources in direct mail materials and mailing expenses.

Consider How the Data is Used

Another consideration when determining the impact prospect research has on ROI and CRD is the way in which it is used to raise funds within various types of programs. When conducting batch screenings, data can be segmented and used for multiple fundraising activities. Consequently, the use of prospect research will impact the ROI of each fundraising activity you are performing.

Recognize that Timing is Everything

Development offices and nonprofit boards should not underestimate the importance of factoring in cultivation time and the average donor cycle when evaluating ROI and CRD. Tracking prospect research expenses and measuring ROI and CRD are easier when conducting a fundraising event or direct mail solicitation. In these cases, the time period from generating and verifying a target list to executing the campaign is relatively short, ranging from a few weeks to a few months and the ROI equation is typically quite linear.

On the other hand, major gifts and planned gifts require relationship-building, and many larger donations come from years of cultivation, so they may not be clearly evident in the ROI model. When determining ROI and CRD, the costs for prospect research are calculated in the year they are incurred, but the benefits or return are not accounted for until they actually come in the door. As a result, development offices should consider their average donor cycles and measure ROI first on a yearly basis, and also look to establish three, five and even ten year averages to avoid the highs and lows associated with large capital campaigns.

One example of this structured approach to cultivating relationships among donors and measuring its ROI is St. Vincent’s Foundation in Birmingham, Alabama. Following a $23M capital campaign, St. Vincent’s applied a combination of weekly grateful patient screenings and a comprehensive moves management program in order to retain campaign donors and to reach out to new prospects. The result is remarkable; pre-campaign gift levels averaged $2M per year, and post-campaign gift levels average 50-100% higher, per year. Furthermore, when they evaluated the average number of gifts made at both the $1,000 and $10,000 level during the three years prior to their capital campaign and compared them to the average gifts made in the three years following the campaign, they found a 62% increase in $10,000 gifts.

 

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