Donor Segmentation: Hidden Gems, Champions, Distinguished Philanthropists! Oh my!

By Noelle H. Lowery

With all thoughts in the nonprofit world turning to year-end campaigns right now, many nonprofits also are on the lookout for new donors. After all, these entities just spent the last nine months asking all of their loyal, established contributors for their continued financial support.

However, new donor acquisition can be a pricey proposition. In fact, new donors are considered “investments” by nonprofits, and it can take up to two years for a nonprofit to break even on these costs. Typically a nonprofit’s average return on investment for a new donor from the initial donation is 50 cents. When it comes to looking at the lifetime value of a donor (LTV), we need to think about how much that donor will give over the course of their relationship with the organization. In most cases, it significantly surpasses the investment made to acquire that donor in year one.

Sharity Global President Carol Wick believes nonprofits should wait on expanding their new donor audience until they have maximized the giving potential hidden in their current donor lists. “Identifying the right donors is the biggest mystery for nonprofits, but it doesn’t have to be complicated,” she emphasizes.

“Start with your center circle, those closest to your nonprofit,” she adds. “If you haven’t convinced your inner circle to give, you shouldn’t be looking outside that network. You have to know who you have on your list and how much they potentially can give.”

The process is called donor segmentation, and it involves dividing your current donors into segments based on shared qualities. Donors can be segmented based on their geographic location, age, education level, donor status, length of the donor relationship, and communication channel preference. Donor segmentation allows nonprofits to create distinct and separate fundraising strategies for their donors, providing specific messaging and asks tailored to the donor’s segment.

Donor segmentation also allows nonprofits to wealth screen their donors. Wealth screening allows nonprofits the ability to determine a donor’s capacity to give by sorting through top indicators of wealth such as land holdings, business ownership, and investment portfolios.

“There is so much potential with those that are already connected to your organization,” Carol says. “You are sitting on wealth. You probably just haven’t segmented and targeted your donors with the right types of asks. That’s why wealth screening is so important. It can help you know how much to ask those people for and how to start segmenting your donor list. Too many nonprofits are leaving money on the table by not asking the right amount.
One tool Carol advises Sharity clients to use for donor segmentation and wealth screening is iWave, the Canadian-based software company whose next generation platform is simplifying fundraising for nonprofits around the world. By providing the most comprehensive philanthropic, wealth, and behavioral data available, iWave arms nonprofits with the metrics and information vitally necessary to target their most viable funding opportunities.

Recently, Carol sat down with Jeremy Davies of iWave (insert link to video) to discuss their innovative approach to fundraising intelligence. Carol and Jeremy take a deep dive into iWave’s data and donor segmentation services, focusing on expanding fundraising opportunities in current donor lists. iWave helps nonprofits uncover a donor’s history of philanthropy (Propensity), the strength of a donor’s connection to the nonprofit’s cause (Affinity), and the ability of a donor to give a major gift (Capacity).

Most importantly, iWave’s wealth screening function helps nonprofits find the hidden gems (mid-level donors who could be major donors), champions (top donors dedicated to your cause and organization), and distinguished philanthropists (major gift donors with additional giving capacity) buried deep in their donor lists.

“There are sleepers in your database that you haven’t had a chance to talk to,” Jeremy told Carol. Donor segmentation will reveal them.

While donor segmentation definitely helps with year-end campaigns, it can be especially valuable to the long-term, multiyear nonprofit budgetary process and creating a successful and growing annual fund. In fact, Carol suggests that nonprofits begin incorporating donor segmentation into their multi-year budget planning.

“Most nonprofits think of their annual fund as a plan they create year to year just like you create a budget year to year,” she explains. “Sharity clients go into multi-year plans with multi-year budgets, and we see large increases in fundraising. Donor segmentation is critical to this plan and the strategy.”