The problem with address labels

About a month ago Gracie Bonds Staples had an article published in the Atlanta Journal Constitution on the use of pre-addressed address labels charities use in direct mail pieces. The article has since been republished in several newspapers around the country and helped rekindle a debate among fundraisers on whether these labels really were "worth it." I wrote my own letter to the editor, but they didn't publish it... so I thought I would repost here:

For too many years nonprofit organizations have deflected criticism on costly direct mail acquisition campaigns by assuring donors a 1% response is all that is needed to realize a positive net return. There is no doubt that charities are constantly under pressure from Executive Directors and Board Members to raise much needed donations as fast as possible. However, after reading Gracie Bonds Staples recent article online about the increasing use of personalized labels (Stuck with Labels; 6/8/06) I am more convinced than ever the time has come for a more sophisticated analytical approach to fundraising.

Fundraising is an investment. While it may be true that using a premium such as labels boosts the initial number of responses, but charities need to look past initial responses in order to evaluate a donor’s average lifetime value (LTV). Yet, there is often a tradeoff between the quantity and quality.

In my personal experience, I have found that personalized labels may have a good initial response from donors. Unfortunately, donors who give because they received a free gift are often driven by guilt and are not as likely to give subsequent gifts as are donors who give in response to non-premium mailings.

Sacrificing a higher initial response in favor of higher quality donors is not always easy. The multitudes of charity watchdog websites rate charities by the percentage of money spent on fundraising and are unforgiving for longer term investing in a channel with a higher return on investment (ROI). Viewing direct mail acquisition from an ROI perspective takes patience, but it will ultimately show labels to be a less effective long term strategic decision.

Board Members and donors who are interested in rewarding organizations that efficiently steward resources need to ask more than "does it increase initial results." Instead, they should ask, "does it boost overall return on investment?"