How To Calculate The Lifetime Value Of A Donor
There’s no question that it pays to take the time to calculate the lifetime value of a donor, especially when fundraising is all about the numbers.
- How much money you raise.
- How many donors support your organization.
- How many donate year after year.
Dig past the dollar signs, and the numbers become fortune tellers, showing you how effective your fundraising efforts are and hinting at changes that could make big differences in the future.
Why it matters
Knowing the lifetime value of your donors is key. If the number is high, it indicates you are raising sizable gifts and convincing donors to give year after year. If the number is less than you would like, there could be problems: too many small, one-time gifts, too much or too little solicitation, too little engagement with donors.
Where to start
Calculating the average lifetime value of a donor requires data that you should be collecting about current donors. Here’s the equation, and a simple explanation of how to get the numbers you need to do the calculation.
- Average annual donation. This is total annual gifts divided by total donors. For example, if your organization raised $65,000 in 2015 from 1,000 donors, the average annual gift is $65.
- Attrition rate. To calculate attrition rate, calculate the number of donors who gave in a year. Let’s say 1,500 people gave in 2014. Then look at how many of those donors gave again in 2015. We’ll say it is 1,250. Divide donors in 2015 by donors in 2014. To get a percentage, you subtract that number, in this case 80, from 100. Your attrition rate is 20 percent. (By the way, fundraising experts estimate that only 5 percent of fundraising offices know their donor attrition rate.)
- Average lifetime value. Divide 65 by .20. Your average lifetime donor value is $325.
Knowledge is power
With this number in hand, you can study ways to improve it. For example, through some simple shifts in marketing, the average annual donation can be bumped up.
- Create donor response cards with higher suggested minimum gifts.
- Create premium donor programs that recognize higher giving levels.
- Place more emphasis on monthly or quarterly giving, which typically increases a donor’s overall gift.
- Coach phone volunteers to ask donors to up their level of giving.
You can also use strategic marketing to lower the donor attrition rate. In our example above, decreasing average attrition 5 percent would increase the average lifetime value of a donor to $433.
Retain donors and decrease attrition
Develop a thank-you program that includes written and person-to-person communication. For example, use your contact management system to send automated thank-you notes to new donors. Follow up with thank-you phone calls from staff, board members or those who benefit from gifts.
Keep donors informed. People like to know how their gifts are being used. Reach out to them with news about your organization. These pieces, whether direct mail, email or social media posts, are not blatant fundraising appeals, but are designed to inform donors so that when they are asked to support the organization, they will understand why their help is needed.
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