Supermarkets price milk and eggs (and turkeys during Thanksgiving) below, at, or just above their cost. These items (and others) are called “loss leaders” or “leader priced items.” Every time you buy milk or eggs, your local supermarket is, most likely, losing money on that transaction. If one were to analyze a supermarket’s value by sampling its profitability when selling milk and eggs, the analysis would be both inaccurate and incomplete.
So, how do supermarkets – both in-person and through on-line stores – stay in business and make money? They count on shoppers to behave in 2 very specific ways over time. First, they count on shoppers purchasing more than milk and eggs. Yes, people need the “staples,” so those goods are offered at a reduced price point to get us in the physical or on-line store. And, then, once we are there, they provide us with super large rolling baskets, or targeted ads on-line – to pile in far more, higher priced food items. That’s one way they make money – on volume.
Second, supermarkets count on us being creatures of habit and shopping the same store brands over and over again. So, their primary concern is never about how much profit they might make from our rolling basket or on-line grocery cart in 1 visit. They count on us coming back, week after week, month after month, and, indeed, year after year. They profit from long-term relationships, not from single transactions.
Think about this widely-accepted business model when a board member, a president, a CFO, or an advancement leader, asks about the “return” on an individual direct mail appeal. Or, the “expense” of a gift officer traveling to visit (when we once again can!) with prospective donors for the purposes of cultivation or stewardship.
When done well, advancement is not about the number of donors, or gifts, or dollars in any single year. It’s not about any single gift from a donor. It’s about building life-long relationships with donors where charitable giving and involvement accumulate over time to provide a lifetime value for the institution.
Effective advancement programs build those structures, processes, and relationships to encourage habits of giving and involvement over the long-term. Assessing the “return” on the cost of a single activity – when that activity is part of a well-planned, relationship-based program – is not only unhelpful and wasteful, it suggests that we don’t even understand our “business model.”
Originally posted July 2020 on www.jasonmcneal.com
