The Two Fundraising Metrics That Matter Most
Tomorrow, we’ll talk about those metrics you should eliminate with extreme prejudice. So it’s only fitting that we should talk about those metrics you’ll want to embrace and socialize in your organization – Key Performance Indicators (KPIs) .
First, I should mention that DonorTrends is offering Agitator readers a free test drive of their excellent Donor Dashboard here. This will quickly give you the vital fundraising metrics of your own organization. Roger pointed this out earlier and also mentioned their free guide, 5 Vital Metrics to Monitor and Improve the Health of Your Fundraising Program Both are well worth a mention now for those joining this series already in progress or those that don’t commit Agitator posts to memory.
That dashboard rightly highlights what I’d argue is the most “K” of fundraising KPIs: donor lifetime value.
Wait! Please don’t leave!
The formula above is an overly-complicated version. Just ignore discount rate because the cost of money is so low. What you really want to focus on is: “what is the net value of a person’s donations to an organization going to be?”
The key inputs to finding the answer are:
- What are they giving?
- What does it cost to get them to give that, initially and ongoing?
- What is the likelihood that they will give gift #2 from now (and three and four and five) – that is, what is their retention rate? That’s the calculus portion of this – you sum each donation that someone will give, discounting it by the likelihood that they will give it
Retention rates, like compound interest, are magical, rippling through your program for good or ill for years to come and lifetime value is the ultimate way of representing this.
Total donor lifetime value – where you estimate the amount that all your current donors will net over their lifetimes – also becomes an excellent yardstick for your decisions. Should you try adding a premium to your mail piece? Well, near-term revenues will increase, but long-term retention and donor population will decrease. How does that balance out? Similarly, the upfront cost of trying to convert donors into monthly givers is usually high. Does it pay for itself in the long term?
Any decision that subtracts from your total donor lifetime value must be seriously questioned (unless the short-term revenue is somehow necessary to keep the lights on and nonprofit functioning).
Donor lifetime value’s partner in crime is net cost per new donor. The biggest reason for having this metric readily at hand is also the simplest: if you have a post-acquisition donor lifetime value of, say $59, you should not spend $60 to acquire a donor. This should inform how deeply you go into modeled acquisition, lapsed donor retention, and more.
That’s at a macro level. But the lifetime value/cost to acquire duo should also be analyzed by all your major segment types. Some examples:
By identity segment. A disease charity of my acquaintance found that (not surprisingly) those donors who had the disease themselves had a donor lifetime value over twice as much as those without the disease. The problem was that the organization was paying the same amount to acquire each type of donor because their acquisition sources and messages were undifferentiated.
This disparity in value meant they could change their online ads to focus more on those who suffer from disease and invest more in content marketing efforts to attract sufferers to the organization pre-donation.
Of course, these types of investment might look poor in the near-term because they often result in lower response rates. But as long as the organization was getting two disease sufferers for every three non-disease sufferers lost, the trade-off would be worth it.
By medium. Let’s say the post-acquisition lifetime value of a direct mail donor is $300 and the value of an online donor is $200. Let’s also say it costs $150 to acquire a mail donor and $125 to acquire an online donor. If you only knew the latter fact, you would think you should reallocate your spend to online. BUT.. when you know the higher lifetime value for mail, you would shift it the other way.
By commitment level. Higher commitment donors have higher lifetime values. When you ask for and get this information at point of acquisition, as demonstrated here, you can increase your efforts to retain these donors and save their higher values. Moreover, you can also train your acquisition efforts to find more donors like these committed donors, making sure you are bringing the right people into your organization.
By lifecycle segment. It’s a not-uncommon dictum that you should spend as much to reactivate a lapsed donor as you would to acquire a new donor from outside your organization. But look at your lifetime value for reactivated donors versus newly acquired donors and my bet is that the former is worth more than the latter. Thus, you may want to reallocate your acquisition spend.
Almost all the other KPIs you could be tracking roll up to one of these two KPIs. This isn’t to say that you shouldn’t track metrics like:
- Retention rate
- Second gift conversion
- Upgrade/downgrade trends
- File size trends (by identity segment)
- Reactivation rates
- Average gift trends
Each of these is important in diagnosing where you may have a problem or opportunity in your program. But lifetime value and cost to acquire are the “check engine” light – simple ways of seeing right track/wrong track for your program.
What KPI’s light up your dashboard?
This article was posted in: Breaking Out of the Status Quo, Direct mail, Donor acquisition, Donor retention / loyalty / commitment, Fundraising analytics / data, Metrics, Nonprofit management, Uncategorized.
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