Boost Donations with Data-Driven Fundraising: Calculating and Using Lifetime Value

Return on Investment, Acquisition Rate, Conversion Rate, oh my! These and so many more fundraising statistics are helpful in their own way, dear nonprofit fundraiser, but so many can tempt one into simple snapshots of the past, leading to short-sightedness in the future. How can one avoid the temptation of the myopic and rejoice in clear-eyed, future-focused fundraising success?

Lifetime Value. (Cue angel choir).

Lifetime Value (LTV) transforms all of the donations you receive and the money spent acquiring them into a single, powerful number. That number can predict the future and, more importantly, grant the foresight to inform strategy so you can change that future, and raise more money at less cost to do more good.

But how does Lifetime Value help inform, and how do you find that powerful number for your own organization?

The Value of Lifetime Value

LTV analysis shows how much you should allocate in resources to acquire new donors. As nonprofit employees who are incredibly conscientious with every expenditure, it’s easy to get discouraged when you think “I just spent $15 to gain a $10 donor.” That blood red -$5 can haunt a first-time fundraiser’s dreams! To truly understand the value of that interaction, one must move beyond transactional-based thinking to see fundraising as what it is: relationship building. LTV analysis gives you the opportunity to determine the long-term impact of the $15 investment in a donor and the relationship that’s been established.

Calculating Gross Lifetime Value

Here’s how to do a quick LTV analysis: First, find the average donor lifespan for your organization. That’s the average number of years donors give consecutively. As an example, someone donating in 2012, 2015, 2016, and 2017 has a lifespan of 3 years for the unbroken streak leading to this year. Computing the average of all of your donors gives you your average donor lifespan. Do most of your donors pull out their wallet 2 years in a row? 3 years? 5 years?

Next, find your average annual gift amount. Do so by taking the sum of all gifts per year per donor and dividing it by the number of donors.

Now, we can find the gross lifetime value by multiplying the average donor lifespan by the average annual gift amount. Boom! There’s your number. To apply it to an individual donor, we can use our example $10 donor and estimate a donor lifespan of 5 years, that donor LTV is $50 ($10 average annual gift amount * 5 years).

Calculating Net Lifetime Value

If you want to get extra credit, you can determine net Lifetime Value by subtracting the costs associated with acquiring new donors. In our example, we are actually seeing a 70% return on our initial investment of $15 ($15 / $50 = .3 or 30% initial investment, 100%-30% = 70% return).

To get more precise in your calculations, segment your donor file into key groups: major donors, monthly donors, annual donors and lapsed donors. This helps determine the acquisition cost unique to each segment, and you’re likely to find wildly variance from group to group.

What costs should I care about you ask? Well, let me share the wise words of Roger Craver in Retention Fundraising:

Acquisition costs should be calculated not only by the front-end costs of postage, printing, mailing lists, and creative but also by the steps you need to take immediately after a prospect responds and throughout that critical first year. Let me explain. Most respondents to an acquisition effort aren’t yet donors; they’re simply qualified leads who may eventually become donors. It’s what you do to transform their status from lead to donor that’s key to both lifetime value and your organization’s future. With this newfound knowledge, you can then begin to make better long-term strategy decisions on the investment to acquire donors.

Increase Donor Retention with Lifetime Value Analysis

But wait, there is one more thing (no, I’m not wearing a black turtleneck). LTV can help you determine strategy on donor retention. You cannot hide from the light LTV shines on donor retention. Any improvement in donor retention has an immediate impact on the LTV value of your donors. In fact, Adrian Sargeant notes that a 10% increase in donor retention can have up to a 200% increase in LTV.

LTV can be as simple as the example I provided earlier, or much, much more complicated. As with any sort of data analysis, you work with the data you have available. It’s unrealistic to think that you would be able to determine if women who give from a direct mail campaign have a higher lifetime value than men who give from an email campaign if that data isn’t tracked in your database. That being said, this may be the charge to help you determine what data you should be tracking and begin to do it.

Ready for more? Watch for our 45-minute recorded webinar Boost Donations with Data-Driven Fundraising: Lifetime Value and the Salesforce Nonprofit Success Pack. In it, we not only dive deeper into strategy but empower you to do the following:

Determine the gross LTV for your organization
Create and execute strategies to define and incorporate fundraising costs in LTV calculations
Use LTV to drive decisions for your fundraising program to improve donor retention and lapsed donors reactivation
Combine LTV with other fundraising metrics to be a well rounded data-driven organization
Determine Consecutive Years Giving for each Contact and Average Donor LIfespan for your organization in the Salesforce Nonprofit Success Pack using User Defined Rollups
Calculate gross Lifetime Value in the Salesforce Nonprofit Success Pack
Create a Dashboard to display essential fundraising metrics in the Salesforce Nonprofit Success Pack

Watch

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