What you want to know about donor segmentation
We all know the golden rule: “Treat people the way you’d want to be treated”.
However, as a fundraiser, this doesn’t always make sense. You simply don’t have time to meet with every donor in-person or write thousands of handwritten thank you letters.
Instead, it’s better to treat everyone the way they want to be treated.
In other words, you can’t lose sight of the fact that each donor gives, communicates, and behaves in their own special way. For that reason, it’s critical to create donor segments that group together people with similar characteristics.
This article will cover three popular methods of donor segmentation: RFM, geographic, and contact preference. By using these methods, you’ll be able to create more personalized appeals and get more out of every ask.
RFM Donor Segmentation
The RFM segmentation model scores donors across three categories; the recency, frequency, and monetary value of their donations. Within each category, donors receive a score from one to five, with five being the highest score.
By measuring donations across these categories, you understand someone’s giving behavior, allowing you to send targeted appeals to donor segments with similar giving patterns.
Recency of Donations
The recency category measures the time passed since a donor’s last gift. To create a scoring system for this category, you have to determine what your organization’s definition of “recent” is.
It’s common practice to consider a “recent” gift as one made in the past six months. So, someone who gave a gift under six months ago would receive a score of five, and, for example, someone who gave a gift over two years ago would receive a score of one.
Frequency of Donations
To understand donor giving patterns, you also need to consider how frequently they give. For example, if a donor gave $50 every six months for the last five years, they are obviously more engaged than a donor who gave the same amount for the first time a month ago.
To score donors within this category, you need to establish a timeframe for donations to occur within. For example, to receive a score of five, a donor would have to contribute four or more gifts over the last five years. Choosing a five-year period allows you to work with a large sample size without including unrepresentative donations from too long ago.
Want to learn more about integrating an RFM segmentation model into your current CRM? Book a demo with KIT today.
The monetary value of donations
“How recently?” and “how frequently?” are interesting questions. But, “how much?” is the question we really want to ask. Understanding the average monetary value of someone’s donations tells you the typical impact their gifts have.
Similar to the Frequency category, it’s best to calculate someone’s average gift size within a five-year period to work with a decent sample size of donations. Then, you have to determine how you’ll score your donation sizes. For example, donors who give over $500 on average would receive a score of five, and those who give under $50 would receive a score of one.
Create your donor segments
Once you’ve established your scoring criteria, rank your donors across each category. For example, a donor who gave $600 for the first time last month would receive a score of 5-1-5. While they’ve given quite recently and a relatively large amount, they would receive a score of one in the frequency category.
Once you’ve scored each donor, you can create segments by grouping donors with similar giving histories. For example, you could send a personalized impact report to the donors that scored 5-1-5 or 5-1-4 (donors who have recently given a large amount) to encourage them to continue their generous support.
Establishing a sense of community is vital to encouraging donations and other forms of support. Often, a nonprofit is supported by its literal community, defined by a geographic area.
In fact, nonprofit researchers have discovered the neighborhood effect: a psychological phenomenon where donors give more to those who live in a similar national or local geographic area.
Taking this theory one step further, contacts in your database who live in your community would also be more interested in donating, volunteering, attending events, or even being peer-to-peer fundraisers.
So, fundraisers can create a segment of nearby contacts and send them frequent communications that offer ways to get involved in the organization’s community initiatives. Create this segment by defining what postal codes and addresses fall within your communities borders.
Contact Preference Segmentation
Nonprofits are in constant communication with a wide range of donors. On Monday, you might write someone a letter, and on Tuesday, you might send someone else an Instagram message.
In other words, every donor has a unique communication style, and by understanding these styles, you can make faster and more meaningful connections.
To create contact preference segments, you should send out an annual survey to establish your donors’ contact methods. Here are some popular contact methods you could include in your survey:
- Home Phone
- Cell Phone
- Direct Mail
- Social Media
Try to have your survey be one of the first things donors fill out. This way, you’ll know the best way to contact them from the beginning of your relationship. Additionally, sending this survey out annually allows you to update your donor information regularly.
Also, check out hotjar’s blog on survey data analysis to learn more about making sense of your findings.
As fundraisers, we aspire to treat each donor equally. We want donors who give different amounts to feel equally valued and donors with diverse backgrounds to feel equally represented.
However, by respecting what makes each donor unique, you can craft more personalized appeals and raise more for your cause. More than that, you can make each donor feel like they are getting the most out of their relationship with your organization.
Nonprofit Research Analyst at KIT
When Jack isn’t cheering for the Raptors or watching an 80s action movie, he’s studying the social sector and producing content for nonprofit professionals. As a Nonprofit Research Analyst at KIT, an AI-powered insights and reporting toolkit, he is especially passionate about helping fundraisers save time and raise more money for their cause.