How to Segment Your Donors Using the RFM Model
The RFM Model of segmentation is popular for business marketers, but can also be used very effectively by non-profits to save money when deciding whom to select from the house list for their next mailing rather than mailing to the entire house list each time.
The Purpose of Segmenting
Before embarking on your segmentation mission, remember the two primary purposes of segmentation:
1. Segmenting your donors allows you to customize your appeal through variable copy. For example, a donor who made a contribution of $250 six months ago should receive a different message than the donor who made a contribution of $25 a year ago.
2. The second reason for segmentation is to measure and evaluate how specific segments respond to specific appeals.
Segmentation helps to determine: which donors are more likely to respond to a request for a monthly gift; which donors are no longer worth mailing to; which prospects are more likely to make a gift to a particular issue.
Ideally, you should only look at your house list of donors who gave in the last 5 years. Anyone who gave before that is not likely to give again (They should be considered as long-lapsed donors)
The RFM Model
With the above two aims in mind, here’s how to begin the segmentation process using the RFM Model. RFM stands for:
Recency refers to the time when a donor made the last donation.
Frequency is the number of times a person has donated.
Monetary Value is the amount in dollars that a person has donated.
RFM starts with your donors’ giving histories. For each of the three RFP measures, rank your donors in descending order and then assign donors scores from 5 to 1, based on the quintile they are in. (Total of 5 quintiles each)
For recency, rank your donor mailing list by the date of their last gift, from the most recent to the long-lapsed (5 years). Those on your house list who gave most recently, this fiscal year (the top quintile) get a recency score of 5. Those who gave last fiscal year will be ranked 4 and so on below:
Next re-rank donors by how often they give on the frequency scale, again ranking them from 5 for the most frequent times they have given to 1 for the least frequent times they gave in the last 5 years.
For example, if you solicited your donors 25 times in 5 years then grade them by how often they gave as illustrated below:
Finally repeat the process using the highest donation amount (monetary value) each donor gave each time, breaking them up into 5 categories in the last 5 years.
RFM sorts your donors into 125 segments (5 x 5 x 5 = 125) — and allows you to target your mailings to the most productive cells.
So, instead of mailing to all 125 segments, if you select scores at 3 or higher, say, plus a few other promising cells, such as 5-4-2 or 2-5-5. This should save you money and ensure a better than average response, since you have now selected donors from the above average and upper tier.
While data experts see a house list as a record of transactions, you should view it as a record of past behavioural data – a donor’s giving history and past preferences.
This should provide some important insight into how these past donors will respond to future approaches. This behavioural perspective becomes more important when used effectively in trying to decipher whom to select for your next appeal and how not to lose your best donors.
Important points to remember
1. Donors who give large amounts display a definite pattern of behaviour.
If they usually give once or twice a year they should not be approached too often because of the danger of donor fatigue.
Since they are your premium donors, you should pay close attention to their giving patterns and to the kind of mailing they responded to in the past. Check to see if it was to a special mailing—a unique issue, an individual’s story, a special project or event, etc.
Verify if they gave at the end of the year or during a certain month. All these factors are very important in deciding when and how much to request and how often to ask them.
2. For donors who give smaller amounts, check their past transactions to understand where they fit.
If they give frequently you know they are loyal donors who believe in your cause. Ideally, you should try to convert them to monthly giving if possible.
You should include them in most mailing cycles, but it is equally essential to allow them to choose their donation timing. One way to do this is to keep them updated with regular newsletters containing response cards. This is a soft sell technique that allows them to decide when to give.
If they gave recently they are considered “hot” candidates and you should mail them immediately again. You can also cross-sell them to attend an event, a speaking engagement or even to become a volunteer. In other words, get them more involved right away.
New donors with little history — those recently acquired are usually more receptive and should automatically be included in the next mailing.
Lapsed donors should not be abandoned but simply put aside for a while. Try mailing them again after skipping them for the next two or more mailing cycles. Besides, they may require a different strategy — but more about that in another article.
3. Finally, the old adage “garbage in, garbage out” has never been truer than when it comes to data collection and good record keeping. Make sure you have a well-organized, well-structured database that contains accurate information on when, why, how often and how much your donors give.
Want to use the RFM Model of segmenting donors right in your database, Sumac has a tool for that!