When Fundraisers Fail: Implications for Donor Retention and Donation Platforms

Some donation platforms aim to raise funds for causes with a specified target amount (the goal) and a deadline. In such situations, it is possible that a cause is not fully funded, with the platform sometimes diverting the funds to a different cause rather than returning it to the donors. Donors’ future participation on such a platform is therefore contingent on the outcome of the fundraisers they participate in and how the platform deals with the fundraiser outcome. Theories in social exchange predict that a donor would reduce future participation in the event of a failure. Conversely, warm glow would predict no change in future participation. In this paper, we investigate the impact of fundraising experiences on donors’ future giving on such a platform. To this end, we use donor and cause-level data from one of the largest donation platforms and leverage a shock to the platform that exogenously shifted a donor’s propensity to experience a fundraising failure to document that if a donor’s first fundraising experience is a failure (with the money diverted to a different cause), then they are 32.8% more likely to not contribute in future (i.e., “churn”). Further, conditional on donating in the future, they reduce their donation amount by 61.9%. To understand the mechanism underlying our findings, we conducted a survey on MTurk and find that donors only blame the platform (supporting the expectation disconfirmation theory) and not themselves or other donors for the failed fundraiser. To obtain further substantive implications of our results, we formulate a structural model of a donor’s decision journey and use the estimates of the model to examine the efficacy of various churn-reducing tactics. We find a 2.5% increase in retention(translates to an extra $ 2.1M in donations) by using a ranking algorithm for first-time donors that orders projects by their success probabilities.