Adopting a donor portfolio management approach

Charities play an essential role in contributing to the community. However, it is widely recognised that government support for charitable organisations is dwindling, and the industry has experienced overall slow growth of donors and donations (McNair 2024). Nonprofits spend substantial resources on donor acquisition activities; however, approximately half the newly acquired donors are lost after the first donation (Sargeant and Woodliffe 2007). Thus, managing the current porfolio of donors effectively and adopting a strategic approach towards it becomes critical.

A donor porfolio management strategy is mainly viewed as a relationship management strategy. Maintaining donors is costly. Besides the usual marketing costs, there are other behind-the-scenes costs: banking costs, insurance premiums, audit and accountancy fees, legal fees, agency fees, IT charges, database entry and maintenance, staff salaries, and overheads incurred in running an office. Meanwhile, charitable organisations need more resources. Academics have argued whether strategies for managing customer relationships in the for-profit sector can be easily translated into strategies for managing donors in the nonprofit sector (Khodakarami, Petersen and Venkatesan 2015).

Our team's empirical research (Khan et al. 2022) has demonstrated different donor groups (Graf, Reeher, Malbin and Pagagopoulos 2006) based on their donation size: micro, small, medium, and large. In line with strategies followed by business marketers (Johnson and Selnes, 2005), we propose a framework for charitable organisations to manage an entire porfolio of individual donors—from large givers to contributors donating minimal amounts. Business organisations have learnt important lessons from such an approach. Rather than having a myopic view of donors, which usually involves focusing only on the big ones, we propose that charities adopt a donor porfolio management framework.

While many different porfolio analysis models prevalent in the business world, a two-dimensional matrix which was developed in 1970 by Bruce Doolin Henderson (1915–1992) is one of the most famous strategic planning tool (Lu and Zhao 2006), which managers easily understand. Henderson’s matrix was developed for the BCG consulting firm in Boston, Massachusetts, USA (Mohajan 2017), and is recognised for its graphical representation which helps demonstrate the position of various income-generating units (donors) and assists in effectively allocating resources to these units (Armstrong and Brodie 1994). This matrix, focusing on a business entity’s cash flow and profit, is used for future planning by organisations, as it assists in evaluating the size of different quadrants and maintaining a balance between different (donor) groups.

The two-by-two matrix above is a table split into four quadrants, created based on donors' donation size and the cost involved in maintaining (or engaging) them. It can be viewed as a planning tool to help charities decide how to prioritise their donor groups. Lessons from the business world – and the lifecycle theory – show that elements in each quadrant do not remain static. Strategies can be implemented to gradually move low-sized donors into champions or stars. Quadrant 4 may appear as a ‘loss-making’ porfolio yet requires attention to either phase out or convert into ‘devout supporters’.

More importantly, the original Boston Consulting Group (BCG) framework emphasises the importance of ensuring a balance across all four quadrants. No champion or star donor exists forever. A charity must have the foresight to ‘invest’ in currently small donors who may have the capacity to become ‘large’ over time.

While a handful of studies recommend a donor management strategy, these either look at big international donors (Saleh and Kaaria 2024) or endowment porfolios (Blanchett 2014). Our research's main contribution is a strategy for managing individual donors through an effective use of marketing principles of segmentation (Waters 2008).

This approach has limitations. First, this conceptual framework needs to be applied to assess its efficacy. Another obvious limitation is its two dimensions, which may need to be modified in some cases. Moreover, the proposed porfolio is limited and applies only to non-profits or charities receiving financial donations.