There’s no question that retention is a common fundraising KPI charities want to improve.
And although acquisition is one of the best ways to build a bigger donor pool, a low retention rate can drag down overall growth even with a positive acquisition rate.
With that in mind, – retention needs to be a consistent priority for the nfp sector. But do charities know the value of a donor to their organisation?
Some may say it’s only one individual donor, but what is one donor worth to you? And more importantly, what are they worth over their lifetime?
Donor Lifetime Value
There are ways to measure many KPIs for charities; there are targets set for increasing revenue, acquiring new donors, and even keeping donor attrition at a minimum.
But, it's a surprise that charities often don't have a concrete way to measure the impact of keeping donor retention as high as possible. What is the value of actually retaining more donors?
Donor lifetime value is essentially how much revenue an individual donor will give to your cause from the moment they initially donate to the time they stop supporting.
Charities must start to place a monetary value on each donor’s giving throughout the relationship. By assessing the value of a donor to their organisation, they can accurately predict an increase and decrease in income and set more effective goals and plans to work towards.
By working out the value of a donor, you'll be able to see what pool of donors are more valuable to your organisation. However, it's worth noting that although donor lifetime value is an essential factor in your fundraising strategy, many factors may represent lifetime value as higher or lower, such as, someone giving a one-off large gift that skews their lifetime value.
How to Measure Donor Lifetime Value
There’s no exact formula for calculating donor lifetime value, but the easiest way to understand it is:
The length of time a donor remains active x their average donation amount x how regularly they donate = donor lifetime value
The Importance of Donor Lifetime Value
Evaluating the success of campaigns and events need to sit parallel to donor lifetime value.
For example, if a charity hosted a fundraising event that costs £8000 to put together, and at the end of it, the numbers showed you raised £8250 and gained an additional 73 new donors.
You'd come to the conclusion the event raised £250.
However, although the amount seems small, let’s say we use the average annual value of a donor to measure the effect of gaining 73 donors. If the newly acquired donors all donate the average amount of £260 for three years, their average lifetime value would be £780 over those three years. Resulting in an income of £56,940 all stemming from their first point of contact at your fundraising event.
What is the Value of a Donor?
According to data carried out from our fundraising fitness test, the average annual value of a donor is £260.
While an annual income of £260 may seem a small amount, one person's value is a lot. If a supporter decides to stop donating, the impact it has on income needs to be recognised.
It isn't just a loss of one donor and £260; it's a decrease in revenue over that one donor's lifetime.
Your donor value may differ, but it’s worth knowing so you can better tailor your fundraising efforts.