I’ve been asked by a number of sector commentators to clarify the thinking that underpins my £2 billion estimate of the impact of the proposals in the Etherington review.
It is difficult to be definitive because there are so many assumptions that need to be made to generate meaningful figures, but here is the logic behind my estimate of the dramatic fall in voluntary income that lies ahead.
Taking first the impact of the proposed shift from opt-out to opt-in: direct response channels are responsible for (or support) around 50-60 per cent of voluntary income to the sector. We don’t know exactly how much, because some giving is spontaneous – some legacies, for example – but if we take a conservative perspective and say 50 per cent, that would seem reasonable.
There is no reliable data on how opt-in would hit our ability to communicate with newly acquired donors, because we’ve not robustly tested a switch from opt-in to opt-out. In other sectors, the opt-in rate is around 20%. Most commentators believe that charities should be able to do substantially better than that – but opt-in rates will rarely top 80%. It will vary by cause and organisation, mode of giving, or channel.
In the case of the latter, more personal channels such as direct dialogue would be likely to secure higher opt-in levels than impersonal channels such as the mail. So it seems reasonable to take the mid-point in this range and to assume that a 50% opt-in is secured. This is a little lower than recently published Save the Children figures where the number opting out moved from 5% to 55% – so my figure is modestly conservative.
In this scenario, that will allow us to retain 25% of newly recruited donors (we hit 50% at the moment) into year two of a relationship. Given that the average lifetime is a little over 4 years, by the end of a five year period we would expect to see that effect wash through the system, halving income from what it is now. Halving the monies accruing from the source of 50% of the sector’s voluntary income predicts a drop in giving of 25%.
Now of course, the impacts won’t all be negative because as some sector commentators point out, the switch may boost trust in the sector, and thus giving. It is true that there is a link between trust in the sector and participation in giving – my own research some years ago showed that; but the effect is small. It would take a massive increase in trust to significantly bolster participation. A sustained 10 point increase in trust would increase participation in giving by a maximum of 5%.
So making some allowance for the positives gets me to my 20% drop in income by the end of year five. Rounding our current estimates suggests a decline of £2 billion in individual giving.
On the proposals relating to the telephone, it seems fair to conclude from sector sources and my own research for charityfacts some years ago that the phone contributes to around 10% of an organisation’s income. This figure too is conservative, since it is used for upgrades, invitations to events and so on, but also (and more critically) for welcomes and ongoing stewardship. These things all have a marked impact on loyalty, as research by Penelope Burke and Blackbaud, for example, has shown.
Requiring charities to secure opt-in and to renew that each year could , in effect, eliminate this channel within five years. I say that because opt-in rates to the phone will be lower than for other forms of communication – but also because the Data Commissioner is now requiring an annual renewa, which will mean we will lose people simply because we won’t always be able to reach them to obtain that permission. That effect will be compounded over time and has no relationship with channel satisfaction.
The impact of the proposal for a fundraising preference service is particular difficult to quantify. I say this because all the indications are that this is the charity minister’s baby. He has been pushing hard for this since the publication of the Etherington report. It is therefore highly likely that he will insist on an advertising campaign that extols the virtues of signing up and pressing reset on one’s charitable engagement. Neither the Marketing Preference Service nor the Telephone Preference Service have that kind of promotional support at their disposal. They focus rather more on below-the-line activities that quietly promote the services to disaffected consumers.
When I researched opt-in rates to the TPS ,I found that currently there are 21.6 million registered telephone numbers. Given that the total population of the UK is currently around 64.1 million, the impact of the preference service could be huge.
So in forecasting, the issue is: how big do we think the take-up will be? My own sense of this is that there will be an initial surge in publicity and thus an initial surge in interest. By the end of year five we might therefore find that 10% of current donors are signed up to this scheme, with relatively modest annual increments thereafter, particularly as the baby boom generation begin to age.
At this point, a further set of assumptions must come into play. Are the effects of the opt-in, the controls over the use of the telephone and the impact of the FPS, additive? One could easily imagine a scenario where the donors affected in each case were all discrete segments and that therefore each proposal had a separate or additional impact on giving. One might also take the opposite view and assume that individuals opting out will also avail themselves of the TPS. There would therefore be an overlapping effect of the various proposals. To me the latter scenario seems the most likely and thus the more prudent one to adopt.
So in summary, I conclude that from a conservative perspective the impact on giving of the current proposals would see a drop in voluntary income by the end of year five of around 20 per cent. That’s £2 billion less that will be spent on saving and enriching lives in this country and beyond.
To those who might question my numbers or take issue with my underlying assumptions, I have a simple message – please join the debate and post your own estimate ! One wonders if either NCVO or the minister have bothered to conduct any analysis of the impact of their proposals. One wonders too if the Institute of Fundraising, which has rushed to endorse these proposals, has any real sense of the likely impact on its members.
It would be good to develop a collective view and a range of possible scenarios. Our own recent survey of fundraiser opinion suggested that a £1.7bn drop by the end of year five would be likely. That’s a little lower than my own estimate, as articulated above, but is still in the same ballpark.
Adrian Sargeant is professor of fundraising at Plymouth University