Donor Segmentation 101

When you pass the collection plate during a sermon, every congregant holds the same plate. Of course, fundraising is not quite the same. It’s important to not approach it as such. Do your fundraising efforts stop at the collection plate? Do you want more results from your existing fundraising? If you’re looking for ways to improve your fundraising efforts and outcomes, then donor segmentation probably should be your first step. Learn the basics of donor segmentation, why you should segment your donors, and how to segment.

What Is Donor Segmentation?

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People tend to donate to causes they connect with. You need to be able to speak to these different connections. Rarely, if ever, will you be able to connect with all through a one-size-fits-all communication.

No two donors are the same. But donors do act similarly or share similar characteristics. Donor segmentation is a fundraising strategy that places your donors in smaller groups, or segments, based on their shared attributes and similarities. The similarities might be based on demographics such as age, their history of giving to your organization, or their communication preferences.

How Donor Segmentation Improves Your Fundraising Efforts

Imagine you’re throwing a birthday party for family and friends. Your invitations to your friends might go out through a Facebook event page; your invitations to your grandparents might be through a phone call or mailed invite. You’d probably use a different tone when addressing friends. In your grandparents’ invitations, you’d likely not mention the open bar and swimming pool. You want both groups to attend the same party and enjoy themselves; you just use different approaches and appeals to get them there. Donor segmentation is similar, allowing you to better target your communications and fundraising campaigns, and to focus outreach efforts on smaller groups of donors.

Done well, donor segmentation helps you:

• Customize your tone and content to smaller target audiences, providing relevant, meaningful content.
• Encourage donors to engage at whatever point they are in the donor continuum.
• Strategically ask for donations.
• Minimize irrelevant noise to donors.
• Improve your return on investments for different categories of donors.
• Personalize communication to build credibility and trust with donors.

People want personalized communications from advertisers and companies, which report that personalized emails deliver six times higher transaction rates. Marketers in the for-profit world have noted a 760 percent increase in revenue from segmented campaigns. Similarly, people want targeted fundraising appeals that align with their interests, preferences, and abilities to donate. Segmenting your donors and then targeting your communications with them accordingly will produce positive results for your fundraising.

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The Process of Segmenting Donors

1. Gather data. First, you need to know various details for each donor, which you can gather from donor surveys and data from past donations. Review your records and databases to identify what data you have available. Do you only have records of past donations? Look for a preferred method of communication. Do your records show their age information?
2. Determine segments. Then, you must decide on a segmentation strategy, determining which characteristics of your donors matter for your fundraising efforts. When reviewing the available data, did any commonalities stand out? Will you be able to effectively tailor your messaging to certain groups? Are any groups, such as mid-level donors, underserved and might benefit from targeted attention?
3. Categorize. Third, you segment your donors, assigning them to the different categories you selected. Good donor management software or customer relationship management (CRM) software designed for nonprofits is helpful with this step.
4. Target communications. Next, follow your fundraising strategies for the different segments, tailoring your communications in content, frequency, and channel.
5. Measure and assess. Later, analyze the results of your fundraising efforts, and adjust your segments and your messaging as appropriate to be more effective. Results can be tracked through different metrics, such as email conversion rate and online giving.
6. Review regularly. People’s demographics, interests, and circumstances change over time, as does your organization’s needs. Review your segmentation at least annually to make sure the segments remain appropriate and ensure donor segment accuracy.

Use of a donor management system, like the DonorWERX software suite, helps with donor segmentation, storing details about your donors and tracking their donations. Ask DonorWERX for more details about their giving software and other helpful tools for segmentation.

One Popular Donor Segmentation Method

One popular method of segmenting donors combines different data points into an overall score. The RFM formula sorts your donors into 125 segments according to how they rank in three categories:

• Recency: How long since the donor gave any gift?
• Frequency: How often does the donor make a contribution?
• Monetary: How much does the donor give?

This method is particularly useful if you don’t have detailed demographic information about your donors. That’s because it relies on historical donation data only. Segmenting donors according to the RFM method will allow you to better tailor your approach and ask targeted donors. For example, a donor who donated $500 two months ago might not be receptive to a fundraising letter requesting a gift. However, someone who gave $50 a year ago might.

For another example, you probably don’t want to solicit an exclusively annual giver more frequently. You probably would also avoid asking for the same dollar amount from donors who give sizable gifts. The same is also true for those who donate small gifts sporadically.

Donor segmentation may seem time-consuming when you first start, but if done correctly, the rewards will be well worth your efforts. Not sure where to begin, or whether your segmentation connects with the right donors in the right way? Let DonorWerx‘s expertise help answer those questions and more.