Direct mailings to multiply in 2004

From ANIMAL PEOPLE, December 2003:

WASHINGTON D.C.–Donors can expect to get
more direct mail appeals than ever in 2004, and
more from animal charities they never heard of
than they thought possible, due to a recent
change in U.S. postal rules.
Direct mailers will now be allowed to use
nonprofit bulk rates to send appeals in which
they have a financial interest.
Translation: if a charity cannot afford
to pay the mailer up front, the mailer can front
the money at credit card rates, send the appeal
out by the cheapest means, and pay itself back
with the returns, even if the charity that the
mailing is done in the name of does not net a red
cent.

That always could be done, and often
was, but until mid-November 2003 that modus
operandi was riskier for the fundraising
companies, because a for-profit fundraising
company that fronted the cost of doing an appeal
mailing could not legally send the appeal at the
nonprofit bulk rate. Because the fundraising
company in such a case is investing in the
mailing in the hope of making a profit, the
appeal had to be sent at the standard third class
bulk rate, or first class.
The idea behind the old rule was to
discourage unscrupulous fundraising companies
from turning small and inexperienced charities
into mere cover for direct mail mills, by
extending credit to them to do mailings in the
name of “prospecting” and “list-building” that
would bring in little more revenue than the cost
of the mailer’s services.
Instead of curtailing speculative
mailings that chiefly enriched fundraising
companies, however, the rule may only have
reduced the chances of a small and inexperienced
charity breaking even on “prospecting” and
“list-building.”
More mailings rather than fewer may have
been done just to pay off debt accumulated on
previous mailings, with little or no money going
to charitable programs.
The old rule was most prominently
enforced against the Boston firm Vantage
Financial Services. The Postal Inspection
Service warned Vantage in 1990 that it had
improperly used nonprofit rates for mailings in
which it had a financial stake, then charged
Vantage with postal fraud in 1998.
Reported The Chronicle of Philanthropy,
“According to the government’s complaint,
Vantage signed agreements with its nonprofit
clients stating that if the amount of money
raised in a campaign was not enough to cover its
costs, Vantage would be permitted to continue
soliciting funds until it took in enough to
eliminate its losses–even though none of the
money it raised subsequently from donors would
actually go to the charity.”
In November 2003, only days before the
rule change that made the Vantage practices
legal, Vantage agreed to pay $4.5 million in
civil penalties.

How mailings work

There are two basic types of direct mail
fundraising: appeals sent to established donors
and supporters of a charity, which are often
done by charities themselves, using lists that
are jealously guarded, and “cold” mailings,
done to complete strangers using rented lists.
“Cold” mailings are typically jobbed out to
professional fundraising firms.
Lists made available for rental or
exchange typically consist of lapsed members,
irregular donors, and donors whose contributions
each year amount to less than the cost of
soliciting them. The response rate to cold
mailings tends to fall below 1%. A “successful”
cold mailing breaks even. Any benefit to the
charity comes when–and if–the respondent
becomes a regular donor. However, respondents
to cold mailings relatively seldom become
frequent donors or high donors.
Frequent donors and high donors tend to
be won through meaningful personal contact and
responsive service.
The direct mail fundraising industry
defends high-volume, low-yield prospecting and
list-building as essential to discover potential
donors to new charities and little-known causes,
and argues that without doing such mailings a
charity cannot build a donor list large enough to
grow and fulfill its mission.
In truth, direct mail prospecting is
cost-competitive with telephone solicitation and
bulk e-mail, as shown by fundraising data from
the years 2000-2002 recently published by the
state charity regulation bureaus of California,
Pennsylvania, and Washington.
Regardless of the solicitation method
used, fundraising companies hired to do
prospecting and list-building rarely achieve a
net return on investment of more than 50¢ on the
dollar–whereas, the overall average net rate of
return among animal charities reviewed each year
by ANIMAL PEOPLE is $2.62, and few charities
could stay below the ceiling of 35% for combined
fundraising and administrative expense
recommended by the Wise Giving Alliance without
achieving a net rate of return of at least $2.00
per dollar invested.
The first table below shows the net
return on investment achieved by 10 major
fundraising firms representing established animal
and habitat-related charities.
The California and Pennsylvania data
shows only the net returns achieved for the
listed charities. The Washington data does not
permit that kind of breakout; instead, it shows
the net returns achieved within the state on
behalf of all charities represented by the
fundraising firms.
Fundraising firm CA/PA net WA net

Creative Direct Response 45¢
(Doris Day Animal League)

Harris Direct 49¢ 77¢
(Defenders of Wildlife, Farm Sanctuary,
Greenpeace, National Wildlife Federation, PETA,
World Wildlife Fund)

Facter Direct 26¢ 45¢
(American Humane Association, ASPCA, Defenders
of Wildlife, IFAW, Greenpeace, NWF, Tony
LaRussa’s Animal Rescue Foundation ,
World Wildlife Fund)

InfoCision Management 43¢
(ASPCA, Greenpeace, IFAW, NWF, Wilderness Society)

L.W. Robbins 47¢
(Friends of Animals, Fund for Animals, Performing Animal Welfare Society,
Primarily Primates, Tony LaRussa’s ARF)

MKTG TeleServices 16¢ 50¢
(NWF, WWF)

Public Interest Communications
30¢ 42¢
(Defenders of Wildlife, DDAL, EarthJustice, NWF, WWF)

Share Group 79¢ 45¢
(ASPCA, Defenders of Wildlife, Fund for
Animals, Greenpeace, NWF, Wilderness Society)

Telefund 59¢ 41¢
(ASPCA, Defenders of Wildlife, EarthJustice, Environmental Defense,
Greenpeace, Nature Conservancy)

Vantage Financial Services 25¢
(Humane Society of the U.S, National Anti-Vivisection Society)
Fundraising firms representing more
obscure charities typically return even less
money to their clients.
How well individual charities fare
appears to be mainly a matter of name
recognition. The flukes below appear to be Farm
Sanctuary, which was more successful than a name
recognition test might indicate, and Defenders
of Wildlife, which lost $32,778:
Charity Spent CA/PA Net/$1.
American Humane $ 55,127 9¢
American SPCA $1,090,692 28¢
Ark Trust $ 163,958 5¢
Defenders/Wildlife $ 583,690 0¢
Doris Day Anml Lg $ 323,316 39¢
Earth Island Inst $ 42,500 35¢
EarthJustice $ 239,373 16¢
Environ Defense $ 956,858 54¢
Farm Sanctuary $ 39,023 50¢
Fund for Animals $ 42,366 27¢
Greenpeace $8,744,635 83¢
IFAW $ 17,330 52¢
Natl Audubon Soc $ 778,019 29¢
Natl Wildlife Fed $1,283,095 24¢
NRDC $ 480,187 52¢
PETA $ 151,571 48¢
Sierra Club $ 934,541 63¢
Wilderness Society $ 36,558 4¢
World Wildlife Fund $3,068,597 39¢
TOTAL $25,027,317 56¢

Acknowledging that cold prospecting is
expensive is far from agreeing that high-volume
prospecting is the best way to build a charity.
In the 14 years that ANIMAL PEOPLE has annually
reviewed animal charities’ financial filings, no
charity that ever spent more than two-thirds of
its budget on prospecting has managed to get
below the 35% ceiling for fundraising and
administrative expense. Conversely, the
fastest-growing animal charity over that time,
the Best Friends Animal Society, has never
exceeded the ceiling, even counting all direct
mail expense as fundraising.

(See “Who gets the money?” on pages 12-20.)