February 27, 2015 | Read Time: 5 minutes
Meet Barbara. She’s a lawyer, animal lover, and volunteer at her local orphanage. Because of these attributes, her name appeared on a list of prospective donors generated by Epsilon, a direct-mail company, and was provided to Save the Children, an international nonprofit that assists poor children in developing countries.
The result? Barbara donated $250, and Save the Children found a new donor.
That’s the story told on Epsilon’s website, and it’s a tidy summary of the logic behind a new force in donor acquisition: the data cooperative.
Over the past five years, data cooperatives have become the “in” tool for nonprofits looking to grow their direct-mail lists.
To join the co-ops, nonprofits provide a list of donor names to an outside party like Epsilon, along with basic information about when those donors gave and how much they donated. In return, the nonprofit pays a fee—typically $65 to $85 per thousand names—to withdraw names from a database run by the same outside party.
The withdrawals aren’t random: They’re based on sophisticated data modeling that takes into account the type of donor the nonprofit is looking for as well as donor transactions provided by other nonprofit members of the cooperative.
Fears Ease
Data cooperatives have been a fixture in the for-profit world since the early 1990s. Blackbaud formed the first nonprofit data cooperative in 1998 but had the market to itself for nearly a decade. Many organizations feared they would lose or alienate donors if they exposed them to a barrage of mail from organizations.
“The objection was always, ‘We don’t want our donors going out of house,’ ” says Bruce Hammer, vice president for sales at DonorBase, a nonprofit prospecting database.
By the middle 2000s, however, those fears began to subside.
When the recession hit in 2008, organizations could no longer lean on traditional methods of donor acquisition like list exchanges with other nonprofits or list rentals. As financial pressures accelerated the search for new donors, cooperatives sprouted up to meet the need.
“Nonprofits that have relied really heavily on list exchanges have tapped out those sources and seen their universes shrink,” says Brent Eskew, executive vice president for sales and marketing at Wiland, a marketing company.
A Handful of Companies
Together with DonorBase and Epsilon, Wiland is now among six firms running major nonprofit cooperatives. The newest member of that fraternity is Apogee, which came on the scene in August 2012. Its database already contains 1.1 billion charitable transactions from 66 million donors, according to Apogee’s vice president, Matthew Frattura. It can cross-reference that information with a larger shopper database containing information on more than 200 million Americans, roughly equivalent to the entire consumer public.
“It’s an old axiom in the analytics world: the more data, the better,” says Mr. Frattura.
It’s hard to divine the differences between cooperatives. None are eager to reveal the secret sauce that informs their data modeling. Some claim to focus more on the giving data they receive from nonprofits. Others give more weight to other consumer transactions.
“I want to look at all of the data,” says Mr. Eskew, adding that his company, Wiland, has more than 160 billion transactions on file from “literally thousands of sources.”
Mr. Hammer of DonorBase says his firm can track “thousands of demographic and lifestyle attributes.” He insists, however, that the most meaningful data are those provided by the nonprofits.
“The most powerful are the transactional stuff,” he says. “When did they give last? How much did they give?”
Doubts Remain
As for privacy concerns, Mr. Hammer says nonprofits should make sure cooperatives protect donor information properly and ask if they resell data to third parties. There is, he concedes, a loss of control that comes with entering a cooperative arrangement—although he and others point out that sharing donor data is an old practice in the nonprofit world. Plus, all the other information cooperatives analyze—like demographic characteristics and consumer transactions—is already in circulation.
Even so, some skepticism remains.
“Everyone’s legal department gets worried about sharing names,” says Elena Consalvo, senior director of mass-market fundraising at Save the Children.
Still, Save the Children plans to mail 5 million households in 2015, up from 1.6 million when Ms. Consalvo joined the organization in 2011. She says about half that growth is due to cooperatives and that the lists she gets from Epsilon typically perform twice as well as a regular file.
Longterm Prospects
As long as cooperatives generate a good return on investment, it’s unlikely they’ll fall out of favor.
“The reason nonprofits are participating is because it’s working,” says Allison Porter, president of Avalon Consulting, a firm that specializes in nonprofit direct mail. Her long-term concern is that too many nonprofits will join the cooperatives, resulting in the same names receiving an overabundance of mail.
“The big question is: Are we getting oversaturated with these co-ops?” Ms. Porter asks. “Because we’re hitting these super donors over and over again.”
In an effort to offset oversaturation, the cooperatives continue to tweak their unseen models.
Mr. Eskew, for instance, says Wiland incorporates advances in machine learning, sophisticated algorithms that learn from new data, to boost its return on investment. Better technology and more data on consumers also promise to make analysis more meaningful.
“The amount of data has exploded and with it the ability to make accurate predictions,” he says, “The technologies and the methods have both improved.”
If these improvements are mere window dressing, the numbers will eventually bear it out. If they aren’t, expect more nonprofits to flood what is an already-crowded space.
That’s the beauty and the curse of living by the numbers.
“We keep analyzing the return on investing and saying, ‘Is it still worth it?’ ” says Ms. Porter. “And it is.”
