As a non-profit executive, one of the most important donor metrics to measure is the donor lifetime value. By comparing the amount you spend on donor acquisition with the amount the donor gives back over their time with your organisation, you may see how well your campaigns are doing.
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More than that, it may assist you in figuring out what kinds of donors you should focus on in future campaigns and how to best reach out to them. One of the non-profits’ most valuable Key Performance Indicators (KPIs) in guiding their strategy and future actions is the Donor Lifetime Value (LTV), which may be calculated. In this blog, we’ll discuss the same, so make sure you stand by!
Table of Contents
What Is Donor Value?
Donors’ perceived value or importance for non-profit organisations is known as donor lifetime value. Considerations such as their financial contributions, involvement with the organisation, future giving capacity, and non-monetary assistance (such as advocacy or volunteering) are all part of it.
To better prioritise fundraising, develop communication strategies, and build deeper donor relationships, non-profits must thoroughly understand donor value. Non-profits can better manage donors and grow their purpose when acknowledging each gift.
Why Is Donor Lifetime Value Important?
Here are the points explaining the importance of calculating donor lifetime value:
1. Informs Your Marketing Choices
This is the most well-known and apparent benefit of knowing your average lifetime worth. Plus, it’s excellent. Knowing your average lifetime value is $100, you may allocate funds more wisely between marketing to current contributors and obtaining new ones. On top of that, you can be even more precise about what is reasonable to spend on various donor categories if you’ve segmented your data into giving tiers.
2. Combine With The Expenses Of Acquiring Donors
An excellent way to summarise your marketing expenses is to divide your total marketing expenditure by the number of new contributors you recruited. You may now compare the costs of acquiring contributors at different giving levels with their lifetime contributions, provided you can additionally segment this data by giving level.
3. Provides Context For Data, Good Or Bad, Like ROI
Campaigns on social media, direct mail, significant contributions, donor reactivation, and a host of other topics may be approached for the lifetime value of a campaign or event, making the return on investment of a single campaign or event less significant. You will be considered successful if your lifetime value outweighs the costs of acquiring and re-engaging donors.
4. Highlights The Dominance Of Donor Retention Vs. Acquisition
The act of donor acquisition is crucial. But remembering things is vital. Permit us to use the same example once again. Contributions during the event averaged $300 from moderate-income donors. Our hypothetical calculations show that these contributors will still contribute an additional $500 on average before their contributions expire.
Your lifetime value as a donor will decrease, and you won’t see the $500 if you don’t do anything to keep them. This includes not sending thank you letters, fundraising emails, newsletters, follow-ups, future campaigns, or personalised contact. How can you maintain and increase your LTV? Get more people to stay as donors. The lifetime value of a donor goes up as the average number of donations goes up.
5. Documents the Changing Behaviour of Donors at Various Levels
Donor retention rates may also differ according to the amount given. Contributors with smaller budgets may donate more often but for smaller amounts, whereas medium-sized ones may provide more frequently for more significant sums. In that case, if you have trouble inspiring many recurring donations, following up with the mid-level contributors may not be cost-effective.
Conversely, poor mid-level donor retention might be explained by a lack of follow-up with that group or by using a general method that is the same for all other giving levels. You may now use your other data, such as donor retention, to make more practical conclusions, such as calculating donor lifetime value as the primary statistic in this example.
How Do You Calculate The LTV Of A Donor?
If you are wondering about calculating donor lifetime value, you have come to the right place. Your organisation’s donor lifetime value may be calculated using the following basic donor file details:
- First, the starting year. If you have trustworthy donor-giving data, the computation will be more accurate if you go back in time.
- Second, each year, the total number of contributors who made their first donation.
- Thirdly, the sum of all donations provided by contributors who first contributed in the given year was added together.
- The sum of all donations provided by contributors who made their first contributions in the indicated year is aggregated over all years.
The formula for calculating donor lifetime value (LTV) is as follows:
Donor LTV = Average Donation Value × Average Number of Donations per Year × Average Donor Lifespan)
This will compute:
- Total amount donated per contributor on average so far
- Donors’ average contributions up until this point
- So far, the average amount donated by each contributor
- Annualised lifetime value of a donor
In A Nutshell
Donor lifetime value (LTV) can be calculated for the entire database. Still, it can be more beneficial to divide the database into segments and compute LTV for donors based on their original contribution, most recent gift, and solicitation mode. Knowing your metrics’ purposes is the first step in monitoring them effectively.
Before deciding on a method to determine your non-profit’s lifetime value of a donor, consider what it may reveal about your donor file and how you intend to use that data to make better decisions. Maintaining a consistent monitoring system for outcomes is essential for any fundraising plan. It lets you see patterns, make intelligent choices, and ultimately enhance your fundraising success.
Now that you’re fully acquainted with LTV, start your fundraising campaign for free and implement these strategies!
FAQs (Frequently Asked Questions)
How can I increase my donor lifetime value?
To raise the donor LTV, follow these five steps:
- Determine and monitor donor lifetime value using fundraising intelligence
- Donor lifetime value (LTV) segmentation
- Maximise the longevity of donors by actively engaging with them
- Use power-ups to boost the size of your gift.
- Increase the frequency of your donations by prioritising recurring contributions.
What is a good lifetime value?
The organisation’s objectives determine the excellent lifetime value of a donor. Donors with a greater lifetime value are more invested and more likely to make substantial contributions over the years. Effective donor management tactics should be a goal for non-profits to raise their average lifetime value.
What to do if a donor area is weak?
Non-profits have many options when it comes to strengthening donor areas that are lacking. Finding and fixing the root causes of the problem, including ineffective communication or disinterest, may be part of this process. Improving donor communications, delivering more personalised interaction, or giving novel methods for contributors to assist the cause are all possible steps in this direction.
How do you build donor loyalty?
The best way to keep contributors coming back is to show them how their money is making a difference and establish genuine relationships with them. To do this, non-profits should engage contributors in the organisation’s purpose, share success stories, and provide personalised communication. Donor loyalty may be further enhanced by giving special chances, such as events or updates.
