Starting Over #10: Understand Money
As part of the Agitator’s Barriers to Growth series I noted that the shortage of investment funds for fundraising is often perceived as a major hurdle.
And indeed it is. At least in the minds of far too many boards, CEOs and fundraisers. There’s an all-to-common mindset that fails to understand the importance of investment. This results in a pay-as-you-go vision that is myopic at best and disastrous at worst.
Nowhere is this myopia more noticeable and dangerous than when it comes to donor acquisition and retention. “Oh heavens no, we can’t spend $50 to acquire a $25 first time donor.”…. “And, no, there’s no way we can spend an extra $5 or $10 on top of that for thank yous, onboarding, and retention efforts.”
It’s both ironic and paradoxical that at the same time boards and CEOs are repelled by what they consider a “loss” in acquisition or retention spending, they are quite content to settle for a 3% annual return on the certificate of deposit in their reserves or perhaps even a 7% to 10% return (at best) on their endowment portfolio.
Yet study after study, experience after experience shows that money invested in the average fundraising program yields 3 to 4 time more than that invested in reserve and endowment portfolios. (See the analysis of this investment paradox of 32 UK charities conducted by Giles Pegram and summarized here.)
For this reason, a key action in any ‘starting over’ effort is to change the way we look at costs of fundraising and investment in growth. The current tendency to focus on the cost of fundraising project by project must be shoved aside in favor of treating ‘costs’ as investment and then measuring the return on that investment through the lens of Lifetime Value of the Donor.
As simple — and silly — as it seems, most fundraisers (and boards and CEOs) are unaware of the fact that the acquisition ‘loss’ ($50 to acquire a new $25 donor) actually turns into a profit of $250 or more far more in just 60 months (a 57% annual return on the investment), while every $25 invested in that 2% Certificate of Deposit in the endowment yields a whopping $2.50 in profit over 5 years.
For this reason it’s beyond my understanding why any organization interested in growth isn’t out there borrowing as much money as possible, or seeking loans/grants from its major donors to finance their fundraising program.
Of course, the obvious reason is that most organizations don’t have the foggiest idea of what Donor Lifetime Value is and what it means. Just as a shocking number of groups have no idea what their Donor Retention Rate is.
Lifetime Value — the Fundraiser’s GPS
As I emphasize repeatedly in my book, Retention Fundraising, over the long haul, Lifetime Value (LTV) is the most significant measure for benchmarking and steering your fundraising efforts.
In fact, as Charlie Hulme, head of DonorVoice’s U.K. operation, puts it, “Unless you believe you’ll find the cure/right the wrong/feed every child with your next appeal, it’s unethical not to focus on lifetime value.”
Yet Lifetime Value remains one of the most overlooked and least understood metrics in our trade — even though it’s one of the easiest to figure out.
Once you know a donor’s lifetime value or the lifetime value of your donor base, you’ll better understand how to allocate your resources, both in terms of donor acquisition (what lists and packages and techniques to use) and donor retention (how much to spend on important efforts like ‘thank yous’, second gift strategies, monthly giving efforts, and improving donor service).
I asked the folks over at our sister company DonorTrends to give Agitator readers a benchmark of average 5-Year Lifetime Values by nonprofit sector. Their LTV Benchmark Chart is below.
In addition to producing the chart, the crew at DonorTrends also offered to pitch in on this ‘Starting Over’ series by volunteering to calculate the 5 Year Gross Lifetime Value of any Agitator reader’s donor base free of charge.
Get The Lifetime Value of Your Donor Base in 20 Minutes
That’s right. DonorTrends will calculate the LTV of your donor base without charge. No matter where in the world you’re located. And they’ll do this in just 20 minutes as you watch and participate in the exercise.
All you have to do is contact Corky Miller at 866-948-9363 Ext. 106 or email him directly at CMiller@DonorTrends.com. He’ll take it from there and you’ll get an LTV analysis for your organization.
OR … Do It Yourself
If you prefer to do all this yourself, here are some tools to aid you.
- Start with this earlier Agitator post, LTV…The GPS for Fundraisers, which will give you the basics of this simple calculation.
- Or use Harvard’s online guide to calculating LTV which you can access here.
- Finally, once you have that Lifetime Value number you’re ready to calculate the comparisons between what the board investment committee is getting and what the money invested in your fundraising program returns.
- To that end we’ve prepared we’ve prepared The Agitator GUIDE TO CALCULATING INVESTMENT COMPARISONS.
Don’t Wait. Get Going. Start Calculating.
The information and tools in this post are all you need to arm yourself with some of the most potent information any fundraiser possesses. The ability to quickly and clearly explain to a board, a CFO, a CEO, and yes, a Donor how that $25 or $50 invested today will be transformed into $250, $350, $500, or more tomorrow.
P.S. If you have any questions or want to brainstorm about what your analysis means and how to put it to work don’t hesitate to email me: Roger@TheAgitator.net
This article was posted in: Board Meeting Swipe File, Direct mail, Donor acquisition, Donor retention / loyalty / commitment, Fundraising analytics / data, Nonprofit management, Starting Over.
You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.