August 28, 2008

Analytics vs Instinct

Many thoughts I have introduced in the DonorCast NewsWatch cover the topic of “quality” in data mining and predictive modeling. I came across this article and realized that while I have made suggestions and raised questions about how to, for example, build a model predicting major donor likelihood, I have done little to discuss implementation of this work. I want to use this post to address one of the implementation challenges I encounter most: analytics (i.e. modeling scores) vs. instinct (i.e. VP's institutional experience).

While analytics and predictive modeling is not a completely fresh concept in the philanthropy world, it is young enough to be both misunderstood and mistrusted by some. After all, higher education, health care, and the arts were successfully completing ambitious campaigns long before RFM scores became a standard tool. Many in the philanthropic community still rely heavily on “gut feeling” or instinct for determining a donor's intention or affinity, prospect assignment, or more broadly, campaign readiness and viability.

The post I found discusses a summary of Ian Ayres' conclusion from his best-selling book, Super Crunchers, that “intuition and experiential expertise is losing out time and time again to number crunching.” I agree with the author who asserts that while data mining can offer concrete, and in some cases unforeseen insight, there is still an important role in business (or in our world, philanthropy) for experience, personal understanding, and basic qualitative characteristics.

Josh and I both often recommend that analytics be blended with organizational experience and environment. Achieving an effective balance may prove tricky. Convincing members of the “gut” society to buy into analytics integration may prove trickiest.

To show the value of analytics integration, try a simple control group. If you create an annual giving model, take 100 names at random and make your appeals. Then take the 100 highest scoring in the model not in the control group and offer the same appeal. Compare renewal rates and gift amounts. You may surprise people with the results.

Analytics versus Good, Old-Fashioned Creative Gut Feeling

I really enjoyed a recent post I found on the Precision Marketing online magazine. Jenny Hoffbrand discusses Ian Ayres' new book called
Super Crunchers and a quote from the book that really summarizes the value of using analytics in the business as opposed to relying on your “intuition” or gut-feeling: “Intuition and experiential expertise is losing out time and time again to number crunching. Businesses and governments are relying more and more on databases to guide their decisions.”

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August 5, 2008

Profiling Your Donors: What Data Should You Append?

Here is thoughtful article that discusses some of the most common external data acquisitions that Josh and I encounter in our work. While Austin does a fair job laying out three basic sources of external data, I wish to add some specific examples where they might be used, as well as some thoughts to consider.

External data acquisition can be a powerful tool for any organization—but like most tools at our disposal—it should be applied strategically. Instead of starting with data, start with some program goals:
  • Identify new major gift prospects
  • Increase the participation rate in the annual fund
  • Discover planned giving opportunities

Once a goal has been identified, review your database to determine which data points are present and which are missing in respect to your goals.

Using the example program goals from above, here are some data acquisition points to consider.

  • Identify new major gift prospects (Wealth/Capacity Screening)
  • Increase the participation rate in the annual fund (National Change of Address Screening)
  • Discover planned giving opportunities (Deceased or Age Overlay)

What is a lesson that can be learned from this? Be very thoughtful when acquiring external data, as it may have more limited applicability than you might think.

Lastly, a development shop should never let external data be the band-aid to record keeping and data entry problems. No one should have better information or a deeper understanding of your donors than you do.

Demographics—Who Are They?
What you should know about profiling your donors
by Don Austin

At some point, most nonprofits ask the question, "Who are my donors?" It seems intuitive that if you know the characteristics of your donors you can market to them more successfully.

Answering this question usually means, "profiling" your donors. While this might sound easy, the process is not always straightforward. Profiling involves, first, overlaying demographic and lifestyle data on your donor file. Second, in the profiling step, you will have to choose between two methods to develop a picture, or pictures, of your donors.

Before you decide to begin this process you should ask yourself how you will specifically use the information and how you will justify the cost. You might find that a simple overlay of donor age will suit your needs.

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Book Review—Fundraising Analytics: Using Data to Guide Strategy

Here is a very in-depth and thoughtful review of Josh's book. The feedback for this work has been tremendous—it has even become standard reading for MBA programs.

If you have not yet had a chance to pick up a copy, read this review, and see if it might be useful in your work/professional development (I am betting it will be).

Fundraising Analytics: Using Data to Guide Strategy
Review by: Gayle L. Gifford, ACFRE, CharityChannel

Fundraising Analytics is a gift to the masses ... a lens into the world of the sophisticated fundraising operations that pump the big bucks into major US institutions. Written by Joshua M. Birkholz, the director of the analytics division of Bentz Whaley Flessner, a major fundraising consulting firm, the book’s subtitle is “Using Data to Guide Strategy” and that’s what the book delivers.

I read this book from the perspective of the majority of US charities (82%) – the ones with the budgets below $1 million. At first glance, this book might seem an irrelevant fantasy fit only for the top strata of charities. None of these nonprofits have the legions of prospect researchers, major gifts officers, data analysts, and annual fund managers discussed in this book. Heck, it’s a lucky find to encounter a small organization that has even one fundraising professional and/or a functioning donor database from which one might extract the kind of information that Birkholz discusses.

But don’t ignore this book. Ease your way. Try jumping ahead to Chapter 5, Data-Driven Prospect Management, and you’ll find a wealth of easily comprehensible wisdom on running a fundraising program that is worth the price of the book.

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