Handling 5 Common Donor Management Challenges

For many nonprofits, donor management can be daunting. Among the myriad challenges are how to categorize donors and potential donors — each with a different profile — into targeted audiences for fundraising messaging and appeals, and how to meet the high customer service expectations that charitable donors have honed as consumers. To top it off, nonprofits need to efficiently manage their donors despite limited budgets and staff. There’s no single, simple approach to donor management, though it can help to break down this formidable process into individual tasks and consider the latest and best strategies for handling each of them.

Key Takeaways

• On the front lines of fundraising, the three biggest donor management challenges are donor identification and acquisition, donor retention and donor engagement.
• In the back office, nonprofits face significant obstacles with data management and resource allocation.
• Organizations can manage these challenges by using constituent relationship management (CRM) systems — nonprofit versions of the customer relationship management systems used in the business world — to automate and enhance the donor management process.

5 Donor Management Challenges

Donor management is a nonprofit organization’s process of building and maintaining relationships with donors. This makes donor management the engine of nonprofit missions, as it brings in new funders and keeps current supporters coming back at higher levels of giving. So, getting it wrong can exact a high cost. Fortunately, innovations in data management and digital communications, such as analytics and personalization, have been improving nonprofits’ chances of getting donor management right. Here’s a breakdown of the five biggest donor management challenges and digital strategies to handle them.

1. Donor Identification and Acquisition

Donor identification and acquisition mark the beginning of the donor life cycle. Too often, though, these efforts lead only to one-time donations that hardly merit the time and money invested in them.

• Importance: Donor identification and acquisition contribute to nonprofits’ stability and growth. Relying on too few supporters can threaten an organization’s sustainability. When new donors are added, they diversify revenue streams, fill in for donors who have lapsed and, ideally, develop into long-term supporters.
• Challenges: Modern prospecting and marketing tools offer many new avenues for finding and attracting donors, but too many choices can be overwhelming. Prospecting platforms, foundation directories, charitable giving databases and wealth-screening services can identify potential donors. Email lists, social media campaigns and digital advertising can help acquire donors. But putting these and other tools to work costs time and money that are in short supply at many nonprofits. Fewer than six in 10 nonprofit survey respondents said they always or frequently use data strategically to plan communications, design campaigns or analyze donor engagements, according to a 2022 survey by NTEN, a nonprofit technology training group.
• Strategies: Experts advise pairing time-tested fundraising fundamentals with some of the most advanced new digital tools and techniques. For instance, prospecting for major donors has always required sifting through multiple sources to identify those with the means and interest to become significant partners in a nonprofit’s work. Today, organizations can automate some of that manual, labor-intensive work. Development teams can integrate select donor directories and research platforms with their own donor databases and even run predictive modeling to better pinpoint the potential donors most likely to respond favorably. Then comes outreach. And, as classic fundraising efforts have proven, nonprofits need to show up where donors with the right profile are now — meaning, where they are most likely to hang out online. Instead of trying to cover the waterfront, campaigns should segment potential donors and select the right digital channel for them, be it mobile or web outreach, TikTok or Facebook, or whatever appropriate combination of channels is warranted.

2. Donor Retention

Not to diminish the importance of donor identification and acquisition, but experts across the nonprofit world agree that donor retention should take precedence. Too often, though, nonprofits don’t follow up on donor acquisition with a deliberate donor retention strategy.

• Importance: Donor retention is not only more likely to generate more revenue over time, but that recurring funding comes at a lower cost than funding associated with acquiring new, one-time donors.
• Challenges: Donors should be made aware of compelling reasons to renew funding year after year, but many nonprofits fall short of providing them. Meanwhile, competing causes can lure supporters away. The result is that the average attrition rate for first-time donors is 80% in the United States, according to an academic study titled “Loyalty Meets Philanthropic Psychology.” Part of the problem is that competition among nonprofits increased in 2022 but charitable giving declined about 10.5% after inflation, according to Giving USA.
• Strategies: Nonprofit donor retention strategies should segment current funders by preferred source of information, key motivations and other attributes that facilitate targeted and personalized messaging and engagement, as well as flawless customer service. Donor management tools, such as constituent relationship management (CRM) systems — which are similar to customer relationship management systems for commercial companies — can target and even automate essential activities, including acknowledging gifts, incorporating personal details in emails and conveying impact metrics and narratives that really hit home with a particular set of donors in a nonprofit’s database.

3. Donor Engagement

Donor engagement provides both the means to retain donors and the impetus for them to raise their level of giving — and perhaps become ambassadors to other potential donors. It takes careful planning and insight to engage supporters in ways that are not only interactive, but inspirational.

• Importance: Penelope Burk, author of “Donor-Centered Fundraising,” captured the importance of donor engagement by discussing the impact of a simple thank you: “Donors feel nothing when they receive poorly timed, stiff, and impersonal acknowledgements for the gifts they make; but their hearts soar and their wallets open upon reading prompt, thoughtful, and original thank-you notes that express the sincere gratitude of the writer.”
• Challenges: Typically, resource-constrained nonprofits can be hard-pressed to devote the time it takes to nurture donor relationships. Many lack the donor management tools that can ease the task of all that real-world and virtual hand-holding — such as individualizing communications and outreach at the right giving level, for the most suitable project in their portfolio and/or in line with a known giving pattern, like time of year or tendency to respond to a crisis.
• Strategies: Nonprofits need to lean into donor engagement beyond mailings, through events, surveys, volunteer programs, frequent gift acknowledgements and other touchpoints mapped to different segments of donors and incremental steps along their giving journey. Using a CRM system, nonprofits can track information from all these activities to trigger alerts if gifts go unacknowledged or other tasks languish.

4. Data Management

Data management makes donor management possible. Yet many nonprofits lack the necessary digital skills and tools to collect and analyze valuable donor-related data.

• Importance: Nonprofits need to curate personal information about donors and potential donors to understand who is in a position to give, at what level, when, where, why and how. In nonprofit development terms, this all translates into salient attributes, such as net worth, giving habits, location, motivation and preferred digital channel. All of these require the classic data management functions of collecting, organizing, storing, maintaining and analyzing data.
• Challenges: Nonprofits’ data management priorities should include data segmentation, integration, analytics and hygiene — all of which can be stretch goals, given nonprofits’ constrained budgets for digital skills and tools. Consider the following hypothetical event. Defining a segment of “middle-class Milwaukee millennials” might yield promising prospects for an organization to invite to a local musical fundraiser for social justice. Instagram might be the best channel to reach them. Any event attendees should be added to the nonprofit’s donor database and email list, thanked for their participation, provided with more information about the cause and examined more closely on an online donor lookup platform to analyze their giving potential. Now, consider wrangling all the accrued data into spreadsheets, which is what four in 10 nonprofit communications and marketing departments do, according to the NTEN survey. This example shows just one way the lack of adequate digital skills and tools can constrain a nonprofit.
• Strategies: Donor management software, such as CRM systems, can streamline and automate development teams’ work. A leading practice is to integrate CRM systems with tools for accounting, email marketing and other relevant tasks. CRM system use needs to be structured into standard operating procedures that ensure data quality, updates, backups and protection of donors’ personal information in today’s era of cybercrime. The downsides of poor data handling can be many. For instance, poor data hygiene, such as misspelled names, duplications or out-of-date contact details, can reflect badly on an organization and discourage donors from investing in it.

5. Resource Allocation

Nonprofits’ resource constraints can create a vicious cycle. That’s what happens when fundraising is hindered by the lack of adequate resources, which impedes the ability to raise sufficient resources for an organization’s mission and work.

• Importance: Three measures of any donor management strategy should be efficiency, effectiveness and predictability. Development teams need to spend more time on the front lines of fundraising and less time in the back office, which puts a premium on automating donor management tasks for greater efficiency. When it comes to effectiveness, nonprofits need to allocate their limited budgets to fundraising campaigns and other activities that perform well. This puts a premium on tracking fundraising metrics, such as donor acquisition rate, donor retention rate, average gift size, donor lifetime value and the commonly used RFM score (recency, frequency and monetary value). As for the third measure, greater predictability can help smooth budgeting and planning operations across the entire organization, which underscores the importance of data analytics.
• Challenges: Nonprofits relying mainly on spreadsheets for donor management find themselves with little support for donor management analytics or automation, undermining the ability to devote resources where they could have the greatest impact.
• Strategies: CRM systems are designed specifically for the task of managing donor relationships, including innate abilities to automate emails, create tasks, update records and run analyses. Strategic integration of CRM systems with an organization’s other systems and applications, such as financial systems, elevates the potential. In a simple example of automation, a CRM system integrated with the donation form on an organization’s website can eliminate the need for staff to do data entry. In a more complex example of predictive analytics cited by the Chronicle of Philanthropy, the Kennedy Center for the Arts combined information on donors, ticket purchasers, members and other patrons using machine learning to analyze past behavior and suggest what patrons would do next.

Solve All Your Donor Management Challenges With NetSuite CRM

NetSuite for nonprofits can help nonprofits take on the five biggest challenges of donor management: donor identification and acquisition, donor retention, donor engagement, data management and resource allocation. NetSuite CRM can sort donors and potential donors into more effectively targeted segments, automate personalized communications, integrate with other fundraising tools to streamline operations, and analyze campaign performance as well as donor profiles. What’s more, NetSuite Social Impact works with many nonprofits to facilitate their digitization of donor management with cloud technology donations, product discounts and other valuable support.

Nonprofits may be dedicated to solving pressing global problems, elevating local culture or advancing social justice. But to achieve their lofty missions, these organizations must first master the art of donor management to fund their work. The challenges are great, especially donor retention, but new data management and digital communications tools are helping nonprofits do good in the world by helping them establish effective donor management processes.

Donor Management Challenges FAQs

What are common challenges associated with donations?

Five common donor management challenges are donor identification and acquisition, donor retention, donor engagement, data management and resource allocation. The first three require strategies for getting donors and keeping them close in order to sustain funding across the donor life cycle. The last two are needed to strengthen these strategies with digital tools that leverage donor data and measure the performance of donor outreach activities.

What are the biggest challenges facing nonprofits?

U.S. philanthropy faces diminishing numbers of donors and donations but increasing competition among nonprofits. Donor management has become a strategic priority in this environment. But this presents additional challenges for typically resource-constrained nonprofits lacking the digital skills and tools to modernize donor identification, acquisition, retention and engagement.

What do nonprofits look for in donor management systems?

Nonprofits use donor management systems to collect, organize, store, maintain and analyze data about donors and prospects, ranging from their contact details, age, communications preferences and favorite causes to the history of their donations and other interactions with their organizations.

How do you manage donors?

Donor management is data-intensive, requiring nonprofits to collect, sort and analyze information that can inform their meetings, communications and other engagements with donors and potential donors.