Data is one of the most valuable assets for your nonprofit. Behavior data, conversion data and contact data can all be used to understand both your health as an organization as well the impact you’re making on the cause you care most about. Perhaps the most interesting thing—and maybe even the most important thing—that data reveals is your dependency quotient.
Your dependency quotient indicates how reliant your organization is on the top 5 donors in your database. Too high a dependency on these donors could indicate risk. The value that data contributes is not only in the diagnosis, but also in the remedy. By paying close attention to your data, you can use responsive fundraising tactics to increase giving across the longtail of your donor database and offset heavy reliance on the top donors. For at-risk organizations, this could be a life saver.
What Is the Dependency Quotient?
The dependency quotient measures how much you rely on your top donors to give what you need in order to operate your nonprofit. As you might have guessed, the higher your dependency quotient is, the more unstable your fundraising structure. Conversely, a lower dependency quotient might indicate that your fundraisers are missing major opportunities to grow your nonprofit.
Find Your Nonprofit’s Dependency Quotient
Calculating your dependency quotient is relatively easy math. Take the total donation amount from your top 5 donors and divide that by your total expenses as an organization.
For example, if your top 5 donors gave $600,000 and your annual expenses totaled $1,000,000, your dependency quotient would be 60%. It’s not terrible, but it’s not great. In that case, you might consider brainstorming strategies for diversifying your fundraising efforts.
On the other hand, if your top 5 donors gave $600,000 and your annual expenses totaled $3,000,000, your dependency quotient would be 20%. In that case, you might want to explore ways to inspire more giving from your donor base, or your major donors, specifically.
In both cases, your organization should rely on responsive fundraising techniques to get the quotient to a healthy place for your organization.
How Responsive Fundraising Tactics Can Help
After you’ve done the math for your organization, here are a few ways you can use responsive fundraising to make your annual revenue more stable.
Visibility Into Donor Engagement
Part of the story for organizations with a high dependency quotient is they aren’t doing enough to engage individual donors. We know that fundraisers excel at building relationships with major donors. We’ve also seen individual donor relationships be compromised in order to facilitate those relationships.
Responsive fundraisers use the tools at their disposal to track donor engagement to understand what their donors care about most. If your dependency quotient is high and your engagement level is low, it might be an indication that your communications aren’t resonating with donors. They want different information or they may want the same information delivered a new way.
Encourage your team to work together to identify ways to test your donor engagement strategy. Use surveys to uncover what your individual donors need from you in order to feel more connected. Then, deliver that.
Improved Donor Relationships
The result of delivering the right information in the right ways is better donor relationships. Responsive fundraisers know that the core of fundraising success is with donor relationships. Without your donors, you can’t do the important work your beneficiaries need.
For those organizations with a low dependency quotient, better donor relationships will inspire more generosity from those who are already engaged. For example, if you listen to donor signals you might see that a section of your monthly donors always open emails about your volunteer days. Responsive fundraisers might send a personalized suggestion to those donors come to the next event. With more volunteers, you can reach your goals faster, and thus, have more exciting news to share with your larger donor base. More progress and exciting initiatives provides different opportunities to encourage donors to give more to keep the momentum going.
By tracking your dependency quotient and your average annual gift size, you will see confirmation that your responsive fundraising tactics are working.
Giving to Donors Improves Generosity
Generosity begets generosity. We’ve seen it happen time and time again. What your dependency quotient reveals to your responsive fundraisers is how often you’re giving to individual donors.
A high dependency quotient tells your teams that you need to do more to serve your donors and their specific interests. Use marketing automation workflows to create engagement campaigns that speak directly to what donors care most about. Give them ways to connect and feel closer to your work that are relevant to their behavior.
For organizations with low dependency quotients, more meaningful engagements can also result in higher average gifts. The more you show individuals that you care and appreciate their dedication to your cause, the more generosity you’ll see.
Personalization Converts Advocates
Finally, responsive fundraisers know the exponential impact of personalized engagements with donors. If you have an unhealthy dependency quotient, you might be treating your donors more like ATM machines than humans who have a deep connection to your cause.
Use the information you have about what worked with your top donors and apply it to the rest of your individual donors. Again, marketing automation and other powerful software solutions can help you make these tactics scaleable. But simple changes like donor segmentation or monthly engagement analysis meetings can help you make a more personalized experience for your donors. Thus, inspiring bigger gifts from people who feel a stronger connection.
Get More from Your Responsive Fundraising Strategies
The dependency quotient is just one element of responsive fundraising that can make your entire organization healthier. To learn more about how responsive nonprofits are thriving, check out our Responsive Fundraising Blueprint. It’s a free resource to tell you why the time to change is now and actionable steps for how to evolve.