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Number of donors cancelling their direct debits has ‘skyrocketed’ since start of credit crunch

A survey of six years’ worth of direct debit cancellation rates by Rapidata – the leading Bacs*-approved bureau for the processing of direct debits – has illustrated the combined effect of the credit crunch and the recession on regular giving.

The findings, contained in the new annual publication – Rapidata’s Charity Direct Debit Tracking Report 2009 – show that the numbers of people cancelling their direct debits each month began to substantially increase in the months following the collapse of Northern Rock as credit crunch took hold.

But monthly cancellations ‘skyrocketed’ in the summer of 2008 as the UK worried about the effects of the forthcoming recession, and are still increasing now.

Scott Gray, managing director of Rapidata, says: “Our analysis shows that from April 2003 until the summer of 2007, there had been an overall fall in average monthly cancellation rates, which was a very positive trend. But that trend was abruptly halted and violently reversed after Northern Rock.

“Cancellation rates skyrocketed last summer so that, for example, in July, 54 per cent more people cancelled their direct debits than in the average July for the pre-recession period, while in December, there were 67 per cent more cancellations than for the average pre-recession December.

“We’ve had a very close look at these figures and what they suggest is that the monthly cancellation rates during 2008 were so high that they were not likely to have been subject to the same factors influencing cancellations before the credit crunch hit. There have been a lot of surveys suggesting how donors intend to revise their giving during the recession but this tells us what they actually are doing.”

The monthly cancellation rate is the percentage of live direct debits that are cancelled each month. Average monthly cancellation rates for each year are:

2003/04 3.54%

2004/05 3.45%

2005/06 3.18%

2006/07 3.05%

2007/08 3.32%

2008/09 4.64%

For the first time, the financial year 2008/09 saw monthly cancellation rates exceed five per cent, on four separate occasions – July, September, October and January.

Rapidata’s Charity Direct Debit Tracking Report 2009 sets out several recommendations to win back cancelled donors, including:

* Acknowledge the cancellation quickly, in writing, and thank the donor for their support
* Offer alternatives to cancellation, such as giving at a lower level or taking a payment holiday
* Make sure donors can reactivate easily and securely through the charity’s website
* Attempt reactivation sooner rather than later: try it within six months and don’t leave it 12 months or more
* Regularly test sample reactivations: for instance, try telephoning a sample of 100 donors who cancelled within six months to test for reactivations.

But Gray says an even bigger factor is the need for a “culture shift” away from an emphasis on acquiring new donors to looking after and stewarding the donors you already have.

“The findings in this report point to trend for more donors to cancel their direct debits, which will mean increased costs in acquiring new donors to replace those you have lost.

“Wouldn’t it be better to spend some of that money in trying to keep your existing donors? Companies spend huge amounts on customer retention; charities need to follow suit.

“This requires a culture shift in the way many fundraisers view their operations. For too long, too many fundraisers have focused on getting new donors, almost at the expense of looking after the donors they already have.”

Gray concludes: “We can’t predict what will happen to monthly cancellation rates over the coming year. We don’t know whether they will plateau at around 4-5 per cent or whether they will reach as high as 7-8 per cent this summer, or when – of if – they will return to pre-recession rates of 3-3.5 per cent.

“What we can say with absolute certainty however, is that if economic factors continue to drive cancellation rates, then charities need to take steps to reactivate the donors they have lost and, perhaps more importantly, prevent donors from cancelling in the first place.”

Posted by Scott Gray on 30/06/2009 within Direct Debit

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