In a Nutshell
The 'annual donations in the pipeline' recruited so far this academic year is up ~500% relative to the same time last year ($404k vs $70k). However, ~40% of the new dollars recruited will only become active after 1-3 years, which presents challenges in limiting donor churn. Taking this delay and historical rates of churn into account, we estimate that the expected present discounted value of these pledges is about $1.1m.
We think that this step change in growth is a direct result of increasing our capacity by hiring Evan in July 2018, which has allowed us to expand the number of chapters we have, improve chapter management and focus on improving OFTW's donation infrastructure.
Our members have donated ~$110k to our charities in the first half of the year (July - Dec 2018), compared to ~$67k in the same period last year (July - Dec 2017).
It is roughly 6 months since we hired our first full time member of staff, Evan McVail, with funding received from the Open Philanthropy Project and a private donor, as we wrote about here. This post gives an update on our progress in these six months, from July 1 2018 to December 2019. We will release a full Annual Report in the summer, at the end of the academic year.
The 'annual donations in the pipeline' recruited so far this academic year is up ~500% relative to the same time last year ($404k vs $70k). (This is measured by the blue line in the figure below). This is the headline figure that we have traditionally used to measure growth, and in previous years the total amount in the pipeline has roughly doubled each academic year. Our rough baseline goal for this academic year was to double our dollars in the pipeline, from ~$325k on June 30 2018, to ~$650k on June 30 2019. We have almost achieved that baseline goal already (currently at $625k). Our 'stretch' goal for the academic year is to hit $1m by June 30 2019.
This growth has been driven by both new and established chapters. The figure below shows that the increase in dollars committed this fiscal/academic year are roughly evenly split between new and existing chapters, and we give some examples of the strongest performing chapters below.
Success of new undergraduate chapters. A number of chapters that started in fall 2018 have had early success in recruiting donors, including:
McGill (122 donors, $47k)
Georgetown (112 donors, $40k)
Tufts (53 donors, $20k)
Duke (35 donors, $15k)
Growth in chapters in year 2+. Our most established chapters have grown significantly as OFTW has become more ingrained in the culture of a school, including:
Wharton ($61k by Jan 2019 vs $22k by Jan 2018)
Columbia ($66k by Jan 2019 vs $16k by Jan 2018)
Penn Law ($52k by Jan 2019 vs $3k by Jan 2018)
We think two key factors may explain this growth.
Higher quality chapter management. We now have more capacity to mentor and provide support to chapters as a direct result of hiring Evan. We think that this has resulted in large increases in the number and size of pledges from chapters outside of Wharton MBA.
New and improved donation platform. We switched to Donational in ~August 2018, and think this has greatly improved our ability to get "full future dated 1%" donations, particularly for undergraduates. The new platform has school-specific donation pages which allow us to set school-specific donation defaults at 1% of average graduating income. Allowing students to pledge more than one year in advance has also been reported to help get full 1% pledges, rather than 'symbolic' $10 per month pledges. Additionally, the platform reduces churn by automatically updating card numbers/expiration (with information from the card networks) when a donor is issued a new card, which we believe will decrease churn by 5%-10%.
The proportion of pledges at higher percentages of (average) income has increased.
The proportion of pledged money that does not become active for more than 12 months has increased significantly. The pie chart below shows the distribution of money in the pipeline by when donations become 'active'. More than 40% of money in the pipeline will not become active for at least 12 months. A few factors explain this. First, our new platform allowing donations to start further in the future. Second, we have had significant growth in the number and size of our undergraduate chapters, who are more likely to pledge for a date further in the future (especially freshmen and sophomores). Finally, this reflects our shift towards asking people to pledge an expected 1% amount to coincide with their graduation, rather than entering a 'symbolic' $10 pledge (which we have found very hard to 'convert' to a full 1% in the past).
This growth in donations that do not become active for 1-3 years presents a new challenge in retaining donors. We have very little data on donors pledging income more than 12 months in advance. The figure below shows a broadly flat relationship between the number of months delayed (up to a maximum of 12 months, for which we have a reasonable sample size) and the number of months a donor is retained for. However, we think that retaining donors whose pledges do not become active for 2-3 years will be much more challenging, and will require quality engagement, likely at the chapter level.
We are currently unsure how to adjust our headline growth numbers to account for expected higher attrition for future-dated donations. The next section explores this and churn more generally, and includes our current best projections for the expected lifetime value of a donor.
Donor churn and lifetime value of a donor
Donor cancellations and deactivations spike in the month of donation activation, but donor retention declines only gradually thereafter. Donations are deactivated when a donor’s payment method cannot be charged (e.g. insufficient funds, cancelled card) and the donor does not respond with updated card information. Cancellations occur when a donor actively cancels their donation. Negative values on the horizontal axis represent when a donor churns before their future-pledge has started.
Historically, we have lost about 15-20% of the value of donations by the time donations become active, about 40% of value after one year, and about 70% of value after 4 years. The yellow line in the figure below indicates the sample size for each month at which we can calculate these numbers.
OFTW has not historically focused on churn reduction but we have made significant improvements this year. In past years, most of our efforts have been on new donor recruitment via new and existing chapters. However, this year we have tried to decrease donor churn by improving our donor engagement. A new experiment by the Alumni Engagement team shows promising results, increasing retention from 75% by month 6 to 91%; experiment consists of a personal email to each donor in the weeks before their donation begins. We plan to roll this out to all meaningful Wharton donors in 1H 2019, and other schools in the future. We are also experimenting with automatically producing 'personalized impact reports' that we will send to donors every 6 or 12 months, giving details of their total donations and estimates of the outcomes this has produced.
We estimate our lifetime value of donors signed up in 2018-19 so far to be $4.1k for MBA students, $3.7k for law students and $1k for undergraduates. This implies that the expected present discounted value (PDV) of all pledges gathered this year is approximately $1m. Full calculations include a 5% annual discount rate, and monthly estimates of the probability that a pledge will be active, adjusting for future-dated sign-ups and historic rates of churn. We believe that this estimate is fairly conservative as it only makes downward adjustments for churn and discounting, and therefore assumes: (1) no change in donations due to income growth, (2) no increase in the proportion of someone's salary that is donated.
Monthly disbursements to our recommended charities are at about ~$20k, and we expect this to increase to ~$30k per month in fall 2019. The figure below shows our monthly disbursements broken down by charity. Note that the figures for the latest month (Dec 2018) includes ~$11k in annual donations and $4k in one time donations, so we expect the January numbers to drop back down to around $20k once finalized.
~70% of our donations go to our Top Picks portfolio.
Our cumulative donations to date stand at $396k, with the majority of money going to charities that have been in our Top Picks portfolio.