TDWI Upside - Where Data Means Business

Q&A: Nonprofits Have Huge Need, Little Understanding of Analytics

An expert in nonprofit management discusses how nonprofits of all sizes can benefit from the strategic use of analytics.

There are close to 1.8 million nonprofit organizations in the U.S., and most of them have yet to discover the benefits of analytics. "In terms of basic analytics, it's shocking," according to Jon Biedermann, a VP at DonorPerfect, which makes web-based software to help nonprofits manage donors, mail campaigns, grant and gift tracking, and accounts payable. "When I speak at seminars, it's surprising how few people understand and are using analytics -- and these are often large organizations," Biedermann says.

DonorPerfect has long produced software for midsize nonprofits -- those with contributions of half a million to 10 million dollars a year. The company recently teamed up with Exago -- a business intelligence and reporting solution that includes data visualization -- to incorporate user-friendly analytics tools in its product. Upside talked with Biedermann, who has over 20 years of experience in the nonprofit field, about some of the benefits nonprofit organizations can realize from using analytics.

Upside: What are some key differences between nonprofit and for-profit organizations? How do users of your software differ from other business users?

Jon Biedermann: There are actually huge differences -- nonprofits are in many ways completely different types of organizations. We're talking about community colleges, zoos, animal shelters, all types and sizes of foundations, and community service organizations such as Little League, social advocacy groups, and food banks. They all use our software.

As far as users, there's a 75 percent chance the user at a nonprofit is a woman; the average user age is 35 to 50. Especially with smaller nonprofits, users are sometimes board members; others are employees. We have to make sure that our software is designed to be easy for them. Everything has to be adjustable -- fonts should be larger, for example. It all needs to be easily understood information that users can immediately translate to what it means for their organization.

Nonprofits in general tend to be years behind in terms of technology, including analytics. It's a universal truth about these organizations, and it has to do with money, with access to the Internet, and with the pace of software adoption. Many nonprofits are just starting to get comfortable with the cloud, for example. The revolution over the past few years with big data in business is really just beginning for nonprofits.

All this means that there's an enormous opportunity to apply analytics to improve operations and help users contribute more to their nonprofit's mission.

What do nonprofit organizations use DonorPerfect for?

In general, they manage the process of tracking donors and managing transactions around donors. Nonprofits actually have a wide variety of complicated business rules that for-profit businesses don't have to worry about.

One example is the need to track what we call soft credit. Many times, you'll have a donor who you'll approach for a sizable gift, for example, $10,000 or a sponsorship. The potential donor might say, "Let me talk to my company, or my board, and get back to you." Eventually, the actual gift comes in from the company, not the person originally contacted for the donation. However, the only reason you're getting the gift is because of the original contact. That person gets the soft credit, and the hard credit goes to the company itself. You need to track both relationships, though -- the hard credit and the soft credit.

You also need to track that donation carefully in terms of reporting it. You don't want to double count it, but you still need to have it appear correctly. For example, a common data query would be, "Show me all the people who gave more than $5,000, or who influenced gifts of more than $5,000." In the case I just described, you want both the company that actually made the gift and the original contact to show up. That's something you really can't do in QuickBooks.

Without data management and analytics software in place, how do nonprofits usually track finances?

They use Microsoft Excel, or Google Sheets. Nonprofits often start out using QuickBooks, but that's not a great fit. With a special event where there are lots of cash donations, such as a "casino night," we might be talking $12,000 or $13,000 in cash, but it's probably not broken down by who gave what. In QuickBooks, you'd have to enter the total as a single amount.

Using DonorPerfect, how can users run analytics on the data after it's been collected?

That's what we're using Exago for -- analytics. Our software now goes well beyond simple queries. It helps users dive into the why of giving. What is the retention rate for your donors, for example? It's very common for nonprofits to struggle with keeping donors. Right now, the annual donor retention rate for nonprofits in the U.S. is around 45 percent. That's terrible. Imagine that you're running a business, and the majority of your customers don't come back. Soon you wouldn't have a business.

We're saying to our customers, "Hey, you really need to watch that number. If you increase the retention rate, you drastically increase the lifetime value of the donor."

We take the tool that Exago provides and repackage it into something easier to understand. Our customers are using analytics and don't even know it. That's the difference in our product.

Once a nonprofit runs analytics and sees that their donor retention rate isn't what it should be, how can they use analytics to fix that?

They might run additional analytics to discover some predictors that say when people will give again. It's actually a fairly simple answer, but only if you have the software to show you this: the people who are most likely to give again are the people who most recently gave.

Really? It's the people who most recently gave? That seems counterintuitive.

Right. Board members often think that -- they don't want to ask someone for a gift again because they just gave. That's not the right strategy, however. The longer a person goes without giving, the smaller the likelihood that they will give to you again. You have to reengage donors much, much sooner than most organizations do. Our data shows that three months is the perfect time. Any sooner and people are bothered, but any later and you start to lose people.

That's an example of the kind of things that analytics can show. When you reach back more than three or four months, you're losing donors and losing money -- thousands and thousands of dollars -- because you aren't going after your customers in a timely manner.

The fact is, if you give by direct mail to nonprofits, they contact you again within a few months. This has been a direct mail practice since forever, but many nonprofits these days don't have a direct mail office -- they use email only -- so they don't know this. Our analytics can help explain these truths through actual data. Then, if someone on the board says, "I think we should only contact our donors once a year," you can prove that's a terrible decision.

Where does the data come from that users input into DonorPerfect?

The majority of it comes from paper checks, believe it or not. Only about 10 percent of giving for typical nonprofits is through the Internet and over the phone. The rest of it is good old-fashioned mail.

Given that, is data quality a problem? How do you address that?

DonorPerfect has features such as batch entry. When users enter checks, it acts as a calculator. The user first adds up the total amount from the checks to be entered, then once they're done entering, our batch entry software checks that the amount entered matches that number. More sophisticated operations might use check readers to automatically read the checks, which cuts down on data entry errors. It's not cheap, though, so smaller nonprofits don't have that.

What is the cutoff point at which analytics software can pay for itself for a nonprofit? How small can a nonprofit be and still benefit from (and afford) analytics?

For us, a nonprofit's income could be as little as half a million dollars in contributions and they would benefit from our software. Our average customer is right around a million dollars.

Where are nonprofits in terms of an adoption curve for analytics? Are they still at the beginning?

Ha! We're not even at the beginning of the curve -- we're still flatlining. We just launched DonorPerfect with Exago a few months ago -- we've actually been around a long time -- and it's exploding. There's huge potential out there. Customers are definitely seeing the value.

There are many, many nonprofits that are just beginning to grasp the idea behind analytics. They're starting to get the picture that their data is very powerful, and the more decisions they make based on data, the better off they are going to be. That's where DonorPerfect can help.

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