Finding the Important Groups in your Donor Base - RFM

For those who find this topic interesting, we will be hosting a free beginner’s workshop that will walk through a no-code method of calculating RFM scores. In addition, it will begin to discuss some of the more advanced things you can do with an RFM score. Learn more about the Webinar here.  

Otherwise, enjoy the article! 

Analysis Paralysis 

Sitting down to do a mailing can be intimidating. We all instinctually know that receiving something that is tailored to our own interests and how we engage with a charity helps us feel that much more connected. And that this can lead to donations that wouldn’t otherwise materialize.  

However, when we are confronted with lists of thousands and thousands of addresses/emails, personalization does not feel possible, never mind achievable.  

There are, of course, fantastic donor research services out there. Like Environics and Charity CAN. Services that can provide you insights on donor interests, economic ability to give, or even dig down into the trends in your specific base. Then they will flag these different values on donor records so that you can organize your lists around them.  

But a lot of our organizations don’t have the funding to access these types of services. While it would be nice to filter donors based on their favourite colours and what part of our mission inspires them. That isn’t a realistic goal for most of our shops.  

What Data Do We Have? 

So, what are we left with?  

The most common data every organization will have on their donors are: 

• When they last gave 

• How frequently they have given 

• How much they have given 

While this doesn’t feel like a lot this can provide us with some important insights when organized properly.  

Introducing RFM 

An industry standard tool for Analysis in both For-Profit and Not-for-Profit spaces is something called a Recency Frequency Monetary Analysis (RFM Analysis). This is a tool that leverages these three common data points to show you how active your donors are at a glance.  

It removes the herculean task of looking through every donor’s history and deciding what to do based on each one. Instead, it turns donor history into a 3-part rating that can be customized to meet different organization needs. 

You would use the following measures for the period you are interested in (usually lifetime or 5 years): 

• Donor’s Date of Last Gift -> Recency 

• Donor’s Total number of gifts during the time period -> Frequency 

• Donor’s Total amount given during the time period -> Monetary 

These values would be pulled for all your donors. Then ideally when the RFM analysis is done, the Calculated RFM ratings and score would be added back to your database for future reference. 

Comparing Apples to Oranges 

However, before we continue, there is one key distinction in donors that vastly changes how you examine them through the RFM lens. That is the monthly versus one-time donors split.  

Frequency is an integral measure as it shows you if a donor is consistent in their support year over year. However, Frequency can be massively skewed by your monthly donors. One-time donors who consistently support your organization will usually give 1-3 times a year. This value while great for that type of donor, needs to be quadrupled to reach the average monthly donor’s 12 gifts per year. Similarly, Recency is affected by the monthly versus one-time divide as most gifts are processed on the same day every month.  

This means that it is often best to calculate RFM for One-time Donors and Monthly Donors separately. 

Calculating Ratings 

Now that you have all your data and have split it so that One Time and Monthly Donors are examined separately, you are ready to do some rating. You take each of the 3 measures mentioned above and change them into a numeric rating from 1 to 5. Low means less engaged and 5 means more engaged.  

As an example, if you were creating the Recency rating for the “Date of Last gift”, someone who gave last week would get a 5 since they recently engaged with your charity. Whereas someone whose last gift was 5 years ago would get a 1.  

This rating process can be done in a couple of different ways.  

However, the easiest way to start is to simply sort the data into ascending/descending order for each of your measures. Recency, Frequency, then Monetary one at a time. For each measure, you would split the donors into 5 distinct levels of engagement (segments) and add a rating to each segment.  

If you don’t have well-defined targets for these measures a logical place to start is to split them into equal fifths. The first fifth (20%) of donors with the lowest values will all be assigned a 1, the next fifth a 2, and so on. This allows you to see what the average values among your current database are and gives you a good baseline to work from.  

See the example below of sorting and rating Frequency (Number of Gifts). 

Once this is done for all 3 measures you will have a list of Donors that have been segmented by Recency, Frequency, or Monetary engagement levels. 

A Combined Score 

The 3 ratings of RFM can be further simplified into a single number, or RFM Score, that represents all their engagement. This varies from 0 to 500 (low engagement to high engagement).  

The wonderful thing about RFM scores is that they are customizable and can adjust to what your organization values most through weighted percentages. Think of how different assignments in school were given weighted percentages to show how much of your grade each one was worth. 

For example, let’s say your charity is interested in embracing Community Centric Fundraising. So, you are less interested in the overall amounts donated, and are aiming to focus on frequent and consistent engagement with your cause. 

When we are assigning each of the 3 ratings a percentage value that adds up to 100%, this would be considered. We might say Monetary is only worth 20% of the score, whereas Recency and Frequency are 40% each.  

This lets you decide what is most important to your organization and make sure your RFM scores represent that. 

Once you’ve decided on your percentage weightings you will need the following equation. This will be the only equation you need throughout this entire process, and it is an easy one. 

Let’s break that down.  

• Recency -> The 1 to 5 rating based on how recent the last gift was 

• Recency percent -> The percentage weight you give to recency  

• Frequency -> The 1 to 5 rating based on how many gifts a donor made 

• Frequency percent -> The percentage weight you give to frequency  

• Monetary -> The 1 to 5 rating based on how much money a donor gave 

• Monetary percent -> The percentage weight you give to Monetary 

By multiplying the RFM ratings by their percentage weightings you can create a single score that shows how well engaged your donor is. This is great for tracking year-over-year shifts in engagement as it allows for broader understandings than just monetary totals. 

You can use an Excel equation to calculate this quickly for all the donors you are analyzing. 

What Does RFM Give You? 

Now that we have reviewed some of the basics of theory and calculation, we can think about how this would be used day to day.  

One way would be segmentation. As we talked about before, this type of analysis is great for building out segmented fundraising campaigns. Now that each donor has been given a score based on their Recency, Frequency, and Monetary contributions it is much simpler to build segments.  

Recent first-time donors would be individuals where Recency = 5, Frequency = 1, and Monetary could equal anything. Champions who might want to further engage with you would be Recency = 4-5, Frequency = 4-5, and Monetary = 4-5.  

With some more advanced data practices, you can build on this. Creating dashboards and reports that track these segments for you. Giving you a much more robust set of reports to see how healthy your donor base is. Below is an example from one of our clients at Sentinel Consulting. 

With reports like the one above you can identify changes in your donor base year over year and easily target key segments for fundraising campaigns.  

One of the most important segments to highlight is your “Can’t Lose Them” donors. The donors who have been key contributors to your organization over the years that are beginning to fall off. Reaching out to this group can provide a huge ROI (return on investment) if you are able to reactivate them.  

Next Steps 

Get out there and practice! Start looking at the data you have on your donor base and ways that you can make it work for you!  

As we mentioned at the beginning Sentinel Consulting will be holding a free beginner’s workshop on no-code methods of calculating RFM scores. If you’re a visual learner like me and would like access to a recorded session where an expert walks you through it, sign up here.  

In addition, if you are more interested in some of the advanced dashboards and segmentation options that are available, contact us here. We love getting the chance to talk shop. 

If you would like us to tackle a topic or problem of interest to you, please let us know here. 

Sentinel Consulting is a consulting firm that focuses on helping non-profits strengthen their operational efficiency. We speak the same language as our clients because we were all fundraisers at some point in our careers.