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Raising and Spending Money

Advice of Ten Years Ago

History does not repeat, but sometimes it rhymes.

Yikes!

Yes, an “urgent” fundraising appeal went out from the LNC leadership recently. That’s another cry of wolf. But you can only cry “Wolf!” so often, even if the wolves are howling at the door.

In the age of the Internet, anybody who has a clear and attractive message can raise huge amounts of money. Ron Paul proved it. Barack Obama is in the White House because he could and did.

A strong and clear message – coupled with the donor’s confidence that we will use their money wisely, that we are a strong custodian, and operate with purpose – is the recipe for success.

How would you score our current leadership on how they spent your money? Do you think their tickets should be punched for another two years? Or is it time for a different approach?

We need new leadership to put the LNC on sound financial footing. The party must build a prudent financial reserve – first with what we can, then more as time passes.

A new and revitalized LNC will manage the LNC finances as well as we would expect any family living in freedom to manage their finances. Our donors and partners deserve no less.

Aside:

When the dominant coalition on the 2008-2010 LNC passed their budget, they implicitly went through an allocation exercise on our behalf. Theirs was the budget under which the committee operates. That budget as carried out is described by the following pie chart. (Data per the LNC’s 2009 FEC filings. Allocations completed by the 2010 New Path Treasurer candidate.)

Someplace in the black “build the party” triangle is candidate and affiliate support. I have to say, and I know most of you agree: This is an utterly ridiculous allocation.

Let’s go back to saving for expected expenses. We all know that the LNC will have to run a National Convention. We all know that there will be a Presidential election every four years. We should not wait. We should start setting aside cash immediately for the next National Convention. We should invest in ballot access steps we can take this year, and set aside money every year so we can handle ballot access during the next Presidential election cycle..

Direct Mail: Not the Recruiting Answer

An important part of prudent financial management is identifying bad investments that the party should not pursue. One such investment is a massive cold call direct mail campaign. We rent mailing lists, send them unsolicited papermail letters, and wait for the cash to come in. We tried that in 1996-2002, pursuing right-wing, far-right-wing, and financial investment mailing lists. The Party almost went broke.

At least one recent treasurer, for reasons that are not clear, has been pushing for some time for a massive direct mail effort. This is his mistake. Direct mail to blind lists is the latest thinking–of 1995, that is. Modern voices talk not about blind mailings to mailing lists but about targeted mailings to warm contacts, reaching back to people who have already taken the initiative to contact us. Yes, if we could find a list of people highly likely to support our party, we should pursue them. Those lists are few and far between.

A direct mail campaign is highly sensitive to many variables. A mis-estimation of any of these variables could be financially disastrous.

In the best of circumstances, a direct mail campaign will incur significant upfront financial costs and may – may – produce net gains in later years. But the gains are not certain.

The LNC has tried direct mail. Response rates have generally been 0.5% (that is one half of one percent) or lower. At current lapse rates and contribution levels, such mailings bring in much less money than they cost, even allowing that those new members stay with us for a while and make further donations.

There are, of course, better ways to recruit members. In contrast to historical proposals from the LNC, I propose the latest thinking of the 21st century.

We first calculate how much money a typical party member will give to the LNC before his membership lapses. This calculation was performed by the 2010 New Path slate and is repeated here. To do the calculation, we need the lapse rate and the average donation–those numbers are available–and then we make a present value calculation at a discount rate of one’s choosing.

Using an 8% discount rate and the current contribution and lapse assumptions, the lifetime giving of one member is estimated to be $125 on a gross basis. To get a net value of the member, you have to deduct the cost of persuading him to join. What does this number mean? Simply put, the LP could spend up to $125 to acquire a new member and at least