Regular giving is crucial to your charity’s survival – but how can you ensure the reliability of this income stream? Start by benchmarking your Direct Debit cancellations, says Scott Gray...
In a rapidly changing and evolving charity sector, every donor and every penny counts when it comes to safeguarding the income from our fundraising efforts – none more important than regular income from your most loyal supporters.
Here’s why I think it’s so important for charities that rely heavily on, or those wanting to build on, their regular giving programmes to be mindful of their Direct Debit cancellation rates, and introduce the Cancellation Average Benchmark (CAB).
The popularity of Direct Debits
At Rapidata, we track and evaluate charitable Direct Debit payment activity and cancellation rates to enable organisations to understand trends, benchmark their own activity and anticipate future changes.
It’s a worthwhile exercise for the sector as the use of Direct Debits is growing continually, with the payment method now second nature for millions of UK consumers who make regular payments for everything from household bills to charitable donations.
In the UK, over 4 billion Direct Debits were processed in 2016, with almost nine out of 10 British adults having at least one Direct Debit in place. Research from Charities Aid Foundation also shows that Direct Debits have become even more important to charities in recent years, far outweighing other payment methods like debit cards and the dwindling cheque.
As a popular method that enjoys a high level of public trust, the long-term future for Direct Debit giving is strong, especially with charities continuing to improve their regular giving offerings both off and online.
A new standard for charities – the 3% Cancellation Average Benchmark
Rapidata has collated Direct Debit cancellation data for a 14-year period, helping to establish a clear picture of both longer-term trends, as well as the impact of major national and world events. Tracking results from the past three years have shown consistently low cancellation rate averages of below 3% in both annual and monthly averages.
These steady results are extremely exciting and may be the result of improved supporter stewardship and relationship fundraising, but one thing is for certain; it presents a perfect opportunity for charities to set themselves a clear benchmark target.
With this in mind, we recommend a new industry standard – a charity Cancellation Average Benchmark, or CAB – of 3% for Direct Debit cancellation rates. As a new standard for charities to work towards, it has been received positively by many charities already and it has been welcomed with encouragement by the Institute of Fundraising.
Reduce your cancellation rates
In short, we believe that any charity whose cancellation rate rises above 3% for any given month, aside from exceptional reasons from within the charity sector or outside major events that may impact the rate, should review their supporter care programmes and strategic operations.
The aim of the CAB is simple – to help charities reduce higher cancellation rates and therefore improve donor retention, their regular income and the reliability of this regular income stream. Once a charity has identified the reasons for any rises (often seasonal trends such as Christmas overspending triggering cancellations in January) they can work towards reducing repeat occurrences during similar months, or campaigns and events in the future.
There are more ways than you may think to prevent cancellations from escalating. Firstly, charities can ensure that they are carrying out appropriate and well-timed communications that maximise the relationship between donor and charity, ensuring that supporters feel valued and aware of the difference that their donation is making. Relevancy and timeliness is key and analysing your supporter payment journeys can offer insight and trigger points that can help determine the best times to engage.
Secondly, promoting flexibility in the relationship can positively impact the donor experience and dramatically reduce cancellations. Too often donors are recruited and then simply left in the regular giving pool without a great deal of attention. We have found that giving supporters more choice in their giving practices is important for reducing cancellation rates and boosting loyalty.
If we enable supporters to be flexible with their Direct Debit donations – whether this be through offering flexibility around payment collection dates or in a range of donation values, the choice to reduce a donation value for a period of time or even payment holidays when funds are tighter than usual – then we avoid total cancellations and maximise our chances of retaining these donors for the long term.
Benchmarking as a guide, not a hindrance
It’s fair to say that, despite our best efforts, there will never be a “one-size-fits-all” benchmark figure for our diverse sector, and there will be many charities that often exceed this monthly 3% figure, and a proportion that experience less every month.
It’s our aim that the 3% CAB will encourage organisations to evaluate and recognise their high cancellation periods and devise strategies that can help pre-empt these from reoccurring, particularly when it comes to known cancellation hotspots, such as the January/February post-Christmas peak period.
If your charity doesn’t currently track Direct Debit cancellation rates, then now is the time to consider doing so. Similarly, if you do track your rates and have noticed regular peaks of over 3%, evaluating how you can drive this down would be a worthwhile exercise.
Cancelled Direct Debits can significantly impact a charity’s income with the, often unnecessary, loss of regular funding affecting not only central programmes of work, but also resources, costs, campaigns and the ability to budget for the future.
As an industry, we need to work together to optimise our regular giving programmes. By harnessing the public’s appetite for supporting their favourite causes, we can safeguard crucial income and improve the donor experience way into the future.
Scott Gray is CEO of Rapidata Services and has more than 25 years’ experience in financial services, payments processing and regular charitable giving.