For any nonprofit organization, developing a strong and consistent revenue stream is vital to long term success.
This requires quality donor relationships and quality donations. To track the quality of your donor relationships, we're going to focus on tracking Monthly Recurring Revenue (MRR). It's a great way to measure the health of your nonprofit.
In this article we will look at:
- why some businesses switch to recurring revenue models,
- what subscription giving offers nonprofits,
- what monthly recurring revenue is,
- an example of monthly recurring revenue in action, and
- how your nonprofit can look ahead with subscription philanthropy.
Now, each nonprofit has its own fundraising cycle. Often, once a campaign wraps up, it's on to the next one. There is little time to linger, and less time to reflect.
Pile on top of that the reality that donations can fluctuate seasonally, it can be difficult as a nonprofit to plan ahead and cultivate consistent streams of revenue.
But don't fret, where there's a will, there's a way!
One of the best ways to combat this uncertainty and create a sustainable organization is through engaging your givers with the help of an effective recurring donation strategy.
You might also be interested in the article: Date your donor
Sure, that annual gala is great for donations—you might even depend on it each year... But imagine if you could depend on something like that each and every month.
That's where monthly recurring revenue comes into play.
Month after month after month...
You spend money to make money.. you get the picture!
Subscription businesses are found in almost every industry from newspapers and radio stations to software companies like Adobe, Microsoft, and Slack.
Let's take Adobe as an example.
In 2011, Adobe announced their Creative Cloud and in 2013 they told the world that they would no longer release stand alone software products with perpetual licenses. Instead, they would transition fully to a subscription model.
Dan Cohen, Adobe's VP of business operations and strategy at the time, pointed out in an interview with McKinsey that "[w]hen [they] looked at how other software companies were faring during the [2008] recession, [they] saw that companies with high recurring revenue had smaller declines in their growth rates and valuations."
At the same time, they experienced a drop of their own, which in part gave them the idea to transition to a subscription based model.
By transitioning to the cloud they were able to push updates without having to wait for a new product release and they were able to get a better read on their user's needs. They could see more intimately how users interacted with product. As Mark Garrett, their CFO at the time, put it "[w]e are using predictive analytics and our own marketing tools to listen to our customers and strengthen our relationships with them."
This strategy worked. Adobe's recurring revenue grew and their stock price rose.
But what about subscription giving with nonprofits?
Now you may not be coding and updating software, but you are cultivating relationships with your "users" (think donors). Transitioning to a Subscription Philanthropy model gives you a whole suite of tools that you can use gain new insights in how to grow your donor base. Plus, with monthly recurring revenue, your revenue becomes more stable and easier to predict.
Now, before you get caught up in all those exciting new tools and metrics, let's do a bit of a deeper dive into how you can use Monthly Recurring Revenue (MRR) to build your nonprofit's sustainable future. 🤿
First, let's discuss Monthly Recurring Revenue (MRR)?
Monthly Recurring Revenue (MRR) is a type of income that can be found in subscription businesses. For you, this means predictable donations on an ongoing basis via subscription giving. The idea is to get your supporters hooked on contributing to your cause month after month—building lifelong donorship.
As mentioned, this allows you to focus less on the chase for new donations and more on cultivating deeper relationships with your existing donors.
Try our Donor Lifetime Value Calculating Tool for ✨FREE✨
When you focus on donor relationships with this model, interactions become less transactional. Since donations are automatic—donors are subscribed—your interactions will not always be undercut with the unspoken fear of "are they just asking for money." Instead, you can focus on experiences. You might share some exciting news via text or you might invite your donors to an exciting event—free of charge!
When building a sustainable nonprofit organization through donations and memberships, maximizing your MRR is crucial for creating stability in your financials and cash flow.
Let's look at an example involving Monthly Recurring Revenue (MRR)
If 1,000 people donate $5 per month to your cause, you're bringing in $5,000 per month.
That amount may not sound like much, but those 1,000 people's $5 per month becomes $300,000 over five years, and that doesn't even account for additional donors.
This is why developing a Subscription Program strategy from DAY ONE is crucial for any nonprofit looking to plan for sustainability. In the long term, that customer can end up donating a lot more than the would otherwise in a one off donation.
It's a similar case for Adobe.
In 2011, a perpetual license for Photoshop cost $699 for the full version, but through the Creative Cloud customers could access Photoshop for $49 a month, or $348 a year.
With the subscription model, Adobe doesn't have to worry about convincing users to upgrade and purchase new software with each release because their users are already paying for it each month. If someone uses Photoshop for three years, Adobe has already made more from that user than they would have otherwise.
When incorporating subscriptions into your business model, you’ll not only create consistency in funding coming in, but also you'll develop a more dependable source of giving for future initiatives—like hiring more staff, launching events, or growing your organization's footprint.
In short, having a consistent flow of donations allows you to scale responsibly without worrying about how you'll fund those projects down the road.
You can also annualize your monthly predictions
Annual recurring revenue is a great indicator of nonprofit success. Be sure to keep track of what your percentage monthly recurring revenue yields each year so you can have something to benchmark against to gauge your nonprofit's performance over time.
Many small-business owners use their Annual Recurring Revenue (ARR) figures to set goals for themselves and grow their businesses sustainably. You compare your own donor metrics with our Calculating tool here for FREE!
Remember: With recurring donations or memberships, payment frequency matters! Selling t-shirts that say I love Animal Rights one time isn't nearly as effective as getting someone to make a recurring donation every month.
How do I look ahead with Subscription Philanthropy?
It has already been touched upon that Subscription Philanthropy and MRR helps you more clearly look toward and plan for the future of your nonprofit. Because recurring givers keep coming back, measuring MRR gives you a sense of the base monthly donations that you can expect to receive in a given month. You are also able to engage with a wide range of metrics to help you track, grow, and target your growth. These include retention and churn, average revenue per donor, donor acquisition cost (DAC), and more.
Let's take a quick look at some of these metrics.
✨What is retention and churn?
Retention and churn measures the percentage of donors who stay and those who go. It helps you identify what campaigns and strategies are working and which ones might need a little more love.
✨What is average revenue per donor?
Average Revenue Per Donor looks at the average donations a donor gives over any particular period of time. It can be used comparatively, to look at the lifetime value of your donor (when combined with the average length a donor stays "subscribed"), and to help measure the health of your donor relationships.
✨What is donor acquisition cost (aka DAC)?
Donor Acquisition Cost (DAC) is the amount that you spend to acquire a new donor. Thanks to monthly giving, you're not spending all that marketing budget to chase down a one time donation. You're investing in a long term relationship with your donor. And once you've made back your initial investment in donor acquisition, the rest is pure profit!
And more!
You can discover more value value with your existing donors when you Subscribe to Subscription Philanthropy. 👇
Get started with Subscription Philanthropy
Harness Giving lives and breathes the subscription economy to make the entire donation process easier for donors and nonprofits alike. Whether you are a major player in your local philanthropy scene, or just starting out, we can help make your organization a recurring donation powerhouse.
Want to see Harness Giving donation platform in action? Schedule a FREE demo with our sales team.
