Gift String Logic for Year-End Appeals

Gift String Logic

Gift String logic offers an unlimited field for calculating and conjecturing; speculating and psychoanalyzing. There have been–and continue to be–thousands of psychological studies and in-depth comparative testing on the layout of the gift string (vertical vs horizontal), the optimal starting amount and incremental increase of each option, and the order in which these options are presented. We explore some of these topics here, but (spoiler alert) the specific formulas, logic, implementation practices, and results of Gift Strings vary wildly among organizations.

Not only do outcomes vary, but the resources invested in defining Gift String logic varies greatly between organizations; and appropriately so. For large membership-based nonprofit organizations like the World Wildlife Fund, the Red Cross, or the American Cancer Society, a 5% increase in the average gift size represents a significant up-tick in revenues and justifies investment in expert file segmentation, complex conditional logic, and predictive analytics.

But for most small-to-mid-sized groups with under 10,000 pieces per appeal, the best use of resources is typically to define sound Gift String logic rules, standardize implementation, use consistent methodology to analyze results, and make incremental adjustments over time. This article is geared toward helping these groups place themselves at the most beneficial point on the Continuum of Gift Logic Complexity and Assessment, and provide some basic tools for establishing and developing this practice.

continuum

Definition of terms:

There is perhaps no industry more fond of jargon and catch-phrases than the marketing industry, and direct mail agencies sprinkle into this mix their own proprietary terms. In this primer we will use simple, descriptive terms as defined below:

Gift String: Also referred to as the “Ask String,” and refers to the series of gift amount options from which a donor select a gift amount. Gift Strings are used on both printed return devices and online giving forms, and ideally provide an open-ended option called “other amount” and three specific gift amounts of incrementally decreasing size: the first and largest is the Anchor Amount, the middle we will call the Target Amount, and the lowest is the Baseline Amount.

Anchor Amount: The “stretch” option and highest gift amount in a gift string which is typically the first of the options presented, and which functions as a mental “anchor” that sets the giving expectation at the highest gift amount. Noble prize winning psychologist Daniel Kahneman speaks of anchors in his best seller “Thinking, Fast and Slow” as having a priming effect. Any prime will tend to evoke information that is compatible with it and proceeding information will be considered in relationship to it. So practically speaking, using an Anchor Amount creates a donor perception that the Target Amount is “less” than the Anchor Amount, rather than the Target Amount being perceived as “more” than the Baseline Amount. This presumably makes giving the Target Amount easier.

Target Amount: Typically the middle of three options, the Target Amount represents a true upgrade in donor giving. Gift strings are designed with the realistic hope of a donor giving at this increased level, under the influence of the anchoring affect. In actuality, studies have returned mixed findings on the effect of the placement or amount of this middle option, and the majority of donors renew at a level similar to their previous giving.

Baseline Amount: The amount most similar to a donor’s previous giving, it is the smallest gift in the list of gift amount options. The Baseline is typically derived by applying a formula to a donor behavior or demographic data point (such as Largest Gift) and establishes the pattern of increased gift amounts. For example, a donor whose largest gift in the last five years was $50 will have a Baseline Amount of $75 ($50 multiplied by 1.5), and the Targeted and Anchor Amounts will be determined by a combination of percent increase and Gift Spikes.

Gift Spikes: Gift amounts that have the highest frequency in your file are called Gift Spikes. These frequently occur at amounts that the organization has asked for in the past. For example, an organization that offers Student Memberships for $25, Individual Memberships for $50, and Family Membership for $100 will probably have the following gift spikes:

Gift Spikes

The size of gifts your organization has asked for in the past will define the gift spikes, but let’s take one step back and think about why you might have been asking for those amounts in the first place…

There are certain “comfortable” numbers between 1 and 1,000; and calling them “round” or “prime” doesn’t quite account for their attractiveness to donors. Our recommendations are based on findings from psychological studies of the effects of Weber’s Law, and the Appeal of Scale, as well as nonprofit industry standards.

Donors are more likely to give gifts of round numbers at levels similar to previous giving, and of increased size along a scale where larger amounts have a greater step of increase between them than do smaller amounts.

Recommended gift string amounts for donors giving under $1,000:

$25, $50, $100, $250, $500, $1,000, $1,500, $2,000.

We recommend building your Gift String scale by first reviewing the list of recommended scale points above, then analyzing your organization’s gift spikes to establish the optimal gift string options for your donors. You may choose to change your standard request amounts to optimize return if your current “ask amounts” are not the most appealing to donors. For example, if you are currently requesting gifts of $75 or $150, consider replacing these amounts with $100 and $250, both of which are more appealing to donors, and both of which result in increased revenue from renewals.

Largest Gift: This is quite simply the largest gift a donor has made to your organization, typically filtered by date to reflect only the most recent five years, and for year-end appeals, typically filtered for fund or gift attribute. For example, the Largest Gift for a year-end appeal would likely filter out any in-kind gifts and event sponsorships so that those gifts are not skewing our understanding of the donor’s giving to annual funds. We recommend using this data point to set baseline gift string amounts, rather than the commonly used Last Gift amount. This practice reflects an assumption that a donor whose gift three years ago was larger than the gift she made last year remains able to give at the higher level.

Note: It is imperative to record giving over time if you wish to be able to segment your file in a meaningful way. If your current “database” doesn’t record gifts, you are likely using Excel, Access, or your financial software to generate mailings. Please consider migrating to a donor software management product! For small organizations migrating out of Excel, we recommend Little Green Light–an excellent value at about $500 per year, it offers solid gift recording and reporting, as well as donor notes, membership tracking, mailing preferences, and easy email integration. Other slightly more expensive and more robust options we recommend for small organizations include: eTapestry, GiftWorks, NeonCRM, and Donor Perfect. We have a variety of materials showing side-by-side comparisons of these products in light of different organizational needs. Just shoot us an email, and we’ll provide access to download reports free of charge. 

Velocity: Velocity measures the rate of a donor’s increasing or decreasing giving.  A simple formula for velocity is Last Gift Amount divided by the Previous Gift Amount. If the quotient is greater than 1, the donor is accelerating; less than one, decelerating; and a quotient of one means the donor is maintaining giving.

Perhaps you know–or intuit–that donors lapse the year after reducing their gift size. Based on this experience, you might consider offering decelerating donors a lower gift string so as to retain them at some level, rather than lose them altogether. Lapsed Donors are commonly treated the same way as decelerating donors.

Consider how to increase giving and engagement with accelerating donors. For example, assign this group a higher gift string than their giving would automatically trigger, and assign high-capacity accelerating donors to personal cultivation by a face-to-face fundraiser.

High-Capacity: This characteristic refers to a donor’s suspected capacity to give based on his or her personal wealth, and is a data point returned in wealth screenings. Each organization defines what it considers a “High-Capacity” donor based on a ranking system provided by wealth screening services, which return enhanced data on a donor’s suspected net-worth; reported giving to other organizations and Federal Election Campaigns; a social influence rating derived from the number of private and nonprofit boards on which he or she has served; and a calculated giving capacity, which is a proprietary calculation expressed as a dollar range with a corresponding single number or letter rating. For example, an organization might define “High Capacity” as donors with a wealth screening gift capacity rating of 5, which corresponds to the range “$250,000 to $299,000 giving capacity over five years.”

Capacity ratings also allow you to segment non-donors into appropriate gift string groups based on their suspected ability to give. For example, a high-capacity non-donor would receive a gift string of $100, $250, $500; whereas low-capacity non-donor’s gift strings would be $25, $50, $100.

Note: The most popular providers of wealth screening services are WealthEngine  and WealthPoint (by Target Analytics, a Blackbaud company).

 

Samples of Gift String Logic in Action

Below are two examples of gift string calculations. The first represents the simplest application of our Gift String and Gift Spike recommendations, the second sample explores how a moderately-complex gift-string logic might be applied within small and medium-sized organizations.

Sample Simple Gift String Logic

In this sample case study, the Largest Gift is used to calculate the Baseline (Ask 3) gift string option. The Baseline gift formula is Last Gift (LG) multiplied by 1.5, then rounded up to the nearest Gift Spike. The next highest ask amounts (Ask 2 and Ask 3) are simply the incrementally increasing Gift Spikes. Ask amounts are presented in descending order in order so that the largest ask amount is the anchor.

 

 

Sample Moderately-Complex Gift String Logic

In a slightly more complex solution, we have segmented the population into finer groups, and adjusted the logic to reflect both Largest Gift Amount and each donor’s giving velocity for current and lapsed donors, and suspected capacity for non-donors. The graph below shows specific gift strings that result when the above rules are applied.

Applying Moderately-Complex Logic

 

How an organization determines Gift String logic is similar to how individuals select an investment strategy; some are willing to take greater risks for higher possible returns, others prefer a more conservative approach with an aim toward slower, but sustainable long-term growth. We encourage you to be sensitive to the culture and risk-tolerance of your organization, but to also push the comfort zone and find the optimal ask amounts and incremental increases, and the point of the highest rate-of-return on the continuum of simplicity/complexity.

Three Rules of Gift Strings

  1. Be Consistent (a.k.a. “Do not confuse your donor”): If you present a gift string in the letter, it should match the amounts on the return device.
  2. Be Congruent (a.k.a. “Do not shock your donor”): The amounts you are asking for should be congruent with the donor’s past giving, affinity, or some other relevant data point.
  3. Be Careful (a.k.a. “Test logic on all records before printing”): Every donor file is different, and there will be exceptions to gift logic rules. Be sure to review gift strings for each donor in Excel before submitting the file to the mailing house. Simple formulas can be created to highlight problematic gift strings; such as where a baseline gift doesn’t increase adequately when applying the 1.5 multiplier (common in smaller gifts), or the Gift Spike increase is too great (possible with gift amounts that are just over the boundary when rounding up to the next incremental spike). Using automated testing allows you to confirm each donor is receiving a gift string in keeping with their giving behavior, gift capacity, and segmentation strategy.