Writing
 Direct Marketing for Public Radio, Part 5: Case Study and Analysis By B. R. Forbes Originally published in the Development Exchange journal i.e. development, July 1989. The previous installments of this series on Direct Marketing have included an overview of direct marketing, market research, and using computers; direct mail; telemarketing; and developing a direct marketing plan. This final installment looks at practical aspects of direct marketing for public radio. Fictional station "WDEX-FM” was created to demonstrate situations which are common to many public radio stations. Case Study: Fast Bucks for WDEX-FM Monday morning, Chris Ramirez was in a quandary. Four months ago, Chris was proud and elated to be hired as Director of Development for public radio station WDEX-FM. Already the bloom was off the rose. Chris has just been informed by the station manager, Pat Cheng, that the WDEX-FM parent organization (a college) would be cutting back their support over the next two years: $25,000 in the coming year and $40,000 in the next. Although not a devastating blow to the station's half-million dollar budget, the cuts would be substantial. In exchange for this reduced support, the station could eliminate many programs considered "sacred cows" to the parent organization — and allow Pat more programming flexibility. Pat is quite pleased with the increased control over programming and is confident that Chris can make up the dollar difference -- plus the anticipated overall budget increase of 5% -- through membership income. Of course, the station can't increase either the on-air fundraising activity or program underwriting because Pat feels that air already sounds "too commercial." And, in order for the entire station to stay on budget, Chris can only depend on the already approved 5% increase in the membership budget. "But how can I raise 25% more money with only a 5% increase in budget...!" groaned Chris. "By the way, you'll have a plan ready for our Wednesday morning meeting, won’t you?" asked Pat. "Since the fiscal year begins next month, I'd like to present the plan to the Board that night." Additional Information Here's some additional information about WDEX-FM that will help us in analyzing their case. TSA Average Weekly Cumulative Audience: 80,000
(Note: An inactive record, such as an unfillfilled pledges, lapsed member or general inquiry, is eliminated one year after it is added to the file.)
On-air pledge drives are conducted twice a year, in early April and late September. This is the only way WDEX-FM generates new members. Forty percent of the fulfilled pledges are new. Pledgers receive one original pledge form (mailed first class) and then a reminder one to two months later (bulk rate postage). Pledges are often made over the phone but are sometimes ascribed to renewal income (300 payments), unspecified/white mail (200), and monthly donors (200). Renewal reminders are sent during the two pledge drives, to the people who contributed during the same time the previous year. Each person receives a maximum of two reminders which look the same. Renewal notices include the name and address of each member and offers pre-printed check-off boxes for the levels of membership: $15 (senior citizen/student), $25 (membership), $30 (T-shirt), $40 (coffee mug), $50 (tote bag), $75 (umbrella), $100 (recognition in program guide) and $250 (challenge grant during on-air fundraising drive). About three hundred members during each drive make a pledge but return the mail renewal reminder instead of the pledge form. Additional gift requests are mailed after Thanksgiving to all current and lapsed members. Letter requests "whatever you can afford to give." Because of the backlog during October and November, the mailing always seems to go out later than planned — and so is mailed via first class mail. "Unspecifled" money is received in the donors' own envelope and is not attributed to any specific activity. Gifts under $25 are received primarily as a result of the on-air fundraising drives (100 each drive) and through unspecified/white mail (100), These donors are not considered members. Volunteers for the station are active and very loyal and range from high-level professionals to students. They practically run the the on-air fundraising drives. Board of Directors is representative of the community and is active in setting policy and developing programming. However, not all Board members support the station financially. Three of the wealthier members do give at the highest membership level of $250 and two (a restaurant owner and a marketing firm owner) are underwriters. Others include a professor of business of the college parent organization and a vice president of the station's bank. Print materials, such as pledge forms, renewal notices, and envelopes, are printed just before each mailing because the station has limited storage space. Premiums, such as umbrellas, tote bags, T-shirts and coffee mugs, are all purchased after each on-air fundraising drive to reduce unwanted inventory. They are also promoted in every renewal notice, pledge reminder and additional gift appeal so that “members won’t feel left out” in being offered these incentives. Computer programming is done by BJ, who is also the chief (and only full-time) engineer. BJ is busy wiring and testing the new back-up control room and working on maintenance and has had little time to work on the home-made membership program. Donor information kept on the computer includes full name and address, the program during which each member makes a pledge, and the complete giving history. A fairly large studio is used twice a year for the telephone volunteers during the on-air fundraising drives. The rest of the year, it is used for storage, large meetings, staff parties, and, occasionally, for taping performances and interviews. Developing a Marketing Plan for WDEX-FM Developing a workable direct marketing plan for WDEX-FM involves seven steps:
Using the information available on WDEX's direct marketing efforts, a bit of "membership math" is in order. Some of the ratios and averages which are useful in "taking the temperature" of a membership marketing program are: a) Membership household/listener ratioa) Membership household / listener ratio: 6.25 : 100 This compares the number of current member households to the number of average weekly cumulative individual listeners, as reported by a rating service such as Arbitron. For WDEX, the ratio is calculated by dividing 5,000 (the number of member households) by 80,000 (the average weekly cumulative audience) resulting in a ratio of 6.25 member households for every 100 listeners or 625:100. This is expressed as a ratio rather than as a percentage because the households a station may have on file may contain more than one listener/member. The comparable public television figure may be expressed as a percentage because A.C. Nielsen, the primary rating service used by television, reports viewing households rather than individual viewers. WDBX's ratio of 6.25 : 100 is rather low compared to the national average of about 11 : 100. This may either be a problem with acquiring new members or with retaming current members. b) Renewal rates: Overall: 66.7% The overall renewal rate can be calculated at least two ways. WDEX does keep track of the number of renewals received through each source of income. This number, 3,200, is divided by the total number of members reported for the previous year, 4,800 for a renewal rate of 66.7%. The other way of calculating renewal is to subtract the number of new members acquired during the previous twelve months (1,800) from the total number of members (5,000), which leaves 3,200. This is the number of renewing members which is then divided by the number of members from the previous year. To find the weakest links m the renewal chain, renewal rates should also be calculated by the year of acquisition and by the source of acquisition. Since WDEX keeps track of the date of acquisition, the renewal rates for members based on the length of their membership can be calculated: 2-year members: 59% (1,000 divided by 1,700)c) Average gift: Annual/Individual: $37.73 What’s important here is the average annual amount given per individual. Although the average annual gift may first appear to be $40.00 ($200,000 total income divided by 5,000 members), remember that included in that $200,000 total are about 300 contributions (from, we assume, 300 separate individuals) of under $25. Analysis of each income source by average individual gift is also helpful. In this case, the average gift per payment is $34.48, which is $200,000 divided by 5,800 payments. (The monthly donors are considered to have one gift each, no matter the number of installment payments.) This is helpful in tracking individual activities which are targeted to increasing the average gift of each income source. Based on 1987 figures, public radio stations receive an average of about $44.00 per year, per member. d) Pledge fulfillment rate: 81.8% The total number of fulfilled pledges, 4,500 (3,800 plus 200 of the monthly donors plus 300 received with renewal notices plus 200 received as white mail) is divided by the total number of pledges, 5,500 (4,500 divided by 5,500 equals 81.8%). Calculating pledge fulfillment rates by program during which the pledge was made is also helpful in targeting increased fulfillment efforts. Overall, public radio enjoys about a 90% to 92% on-air pledge fulfillment rate. e) Donor pyramid ratio: Top 22% of members give 50% of dollars A fundraising rule of thumb holds that about 20% of the individual donors should be giving about 80% of the dollars in a strong fundraismg program. However, a quick analysis of WDEX's membership indicates that the top three levels ($250 or more, $100 to $249, and $26 to $99) represents about 22% of the membership yet give only about 50% of the dollars. The ratios of percentage of members to percentage of dollars can be tracked to indicate the success of activities aimed at increasing the number of upgrades. f) Average length of membership; 1.8 years The average length of membership is important for monitoring renewal rate and the potential for upgrading, which improves over time. This is calculated by multiplying the number ot members by the number of years of membership at each year, then dividing by the number of current members. For example:
Therefore, the average length of time anindividual reminas a member of WDEX is about 1.8 years, or 8,775 total member-years divided by 5,000 members. The average for most non-profit organizations is around three to four years. f) Average life-time value of membership: $67.91 The average life-time value of a member is calculated by multiplying the average annual gift/payment per individual ($37.73) by the average length of membership (1.8 years) equalling $67.91. In this case, $37.73 is assumed to remain constant for the past and future years — but more sophisticated calculations are possible. This is helpful in deteniumng how much each individual is worth to the station - and bow much the station can spend to acquire and maintain that member. Of course, this value varies for the different levels of the donor pyramid and should be analyzed at each level. This helps to determine the amount of money that should be spent on direct marketing efforts to acquire and maintain the members at each giving level. 2. Detailed Direct Marketing Audit For each level of WDEX donor, a "direct marketing audit" should be conducted (see the previous installment of this series.) An audit identifies and tallies the revenues generated and the costs (which include the costs of staff time) of each activity. This will help determine the cost-benefit ratios for all activities. 3. Identifying Greatest Areas Of Potential
The three steps in identinng a station's greatest areas of potential
are: determine the weakest areas, project the level performance
that should be expected, and identify the direct marketing activities
that can assist the station in reaching its goal. For example,
the membership household/listener ratio of 6.25:100 is far below
the national average of 11:100. Since the station manager does
not want to increase on-air solicitations, the development director
can either explore ways to acquire members off-air (such as
through direct mail, telemarketing or special events) or work
on improving the renewal rate. Some target areas are:
Assuming acquisition of 1,900 new members through on-air fundraising, plus 3,300 renewing members (66.7% of 5,000), plus 995 from the areas of potential, these activities will generate a total of over 6,000 members for WDEX - a member household/listener ratio of about 7.75 : 100. (This assumes that the number of listeners do not increase.)
Another area of potential gain is evident when evaluating the
station's relatively low average gift and poor donor pyramid
ratios. Some activities that may increase overall giving levels
are:
These activities would produce a about $50,000 in income, (assuming these projections are relatively on target) -- just the 25% increase that is required by the WDEX general manager. 4. Identifying Ways To Cover Expenses All the direct marketing activities noted will take time and/or money to implement. WDEX needs to project what each activity will cost in terms of staff time, diversion of funds, and out-of- pocket expenses. Now comes the creative part: identifying ways to cover these expenses or using donated time and services. Here are some ideas: a) Divert Kinds from activities that are less cost-effective. For example:
For example, WDEX could get some of the print materials totally or partially donated or exchanged for credits on-air, in the program guide or on the print materials themselves. The marketing firm owner on the Board could also "donate" the services of his staff for telemarketing, training, writing the new member survey, or developing the graphics for the print pieces. c) Solicit a foundation or individual grant or loan. Some stations have been successful in securing a restricted grant specifically for member development. A major donor, a family trust, a community foundation or a private foundation may be eager to fund a project which will ensure the long-term support of WDEX. One station, KUSC in Los Angeles, received a sizeable loan from a foundation to begin their direct mail acquisition campaign. d) Establish a revolving account Some stations, such as WGBH in Boston, have established a "revolving account" for important but low short-term return activity such as member acquisition through direct mail. A certain amount of money, say $5,000, is allocated at the beginning of the year. All expenses are deducted from that account -- and all income is credited to the account. At the end of the year, the funds in excess of the original $5,000 are applied to the next year's operating fund and the $5,000 is again allocated for the next year's revolving account. The long-term advantage of acquiring new members (with a future income stream) justifies this funding approach to such a low short-term return activity. e) Request additional funds from the station manager Certainly requesting addition funds from the station manager is the most difficult alternative, especially if the budget is already in place. However, the general manager should be educated that "it takes money to make money." Still, the manager will have to determine which other department or project budget will have to be reduced. This should only be done as a last resort -- and always with scrupulously detailed and researched documentation and projections. When projecting budget figures for upcoming years, the WDEX development director should request that between 25% and 35% of the membership dollar goal be dedicated to the membership budget. (The National Charities Information Bureau's standards allow for up to 35% of total contributions to be devoted to fundraising expenses.) 5. Creating A Detailed Direct Marketing Plan Each direct marketing activity should be throughly planned in advance to indicate the budget requirements, staff time involved, projections of performance (along with the justifications for assumptions made), and a calendar or time-line. Each of these activity plans should be meshed with the overall membership calendar to avoid duplication and time crunches. (See the previous installment in this series for an example of a direct marketing plan.) 6. Marketing The Direct Marketing Plan The WDEX development director is not autonomous. Chris needs to win the approval and support of the general manager and the involvement of other staff members. In this case, the support of the chief engineer, BJ is particularly critical. Gaining staff support starts with involving them in the goals and the strategies of the station's direct markeung. Chris needs to get them excited about meeting the challenge of increasing membership by 25% by showing them how it can improve their own departments and job performance. Next, Chris should include them in the brainstornung of direct marketing activities; share the results of their current activities; show them what other public radio stations have accomplished; get their ideas and reactions to the activities that Chris would like to develop; and, perhaps, act on some of their suggestions. Finally, Chris should present the final direct marketing plan as the result of the input and involvement of the entire staff; impress them with the careful planning and solid projections; encourage questions about the assumptions made; ask for objections -- and meet them head on; and encourage their participation in making the plan work. 7. Implementation And Evaluation Once the direct marketing plan is carefully constructed and support by the staff, Chris should scrupulously follow it! Monthly reports should indicate progress made on the plan -- and the results of the activities. Adjustments should be made to the projections as assumptions arc tested. Chris should keep the staff aware and involved. By maintaining records of the timing and results of the direct marketing activities, Chris will be able to plan and project the results of the next year's activities even more accurately. |