What’s the Lifetime Value of Your Donors?
There’s a saying: If you want to achieve your goals faster, measure your progress more frequently. This is especially true for fundraising.
Measuring and tracking your fundraising efforts tells you which strategies are working and which ones aren’t. With that information, you can channel your finite resources where they will create the greatest return on your investment of time and money.
Unfortunately, too many nonprofits ignore this simple wisdom and don’t track their efforts or don’t track them consistently enough to learn anything useful.
“72% of nonprofit executives think fundraising efficiency is important, yet only 50% have systems in place to measure it.”
Source: Connecting Dollars to Outcomes, a Netsuite survey of 353 nonprofit executives
While no single measurement can supply all the insight needed to gauge the health of your nonprofit fundraising program, one of the most useful metrics you can track is Donor Lifetime Value.
Donor Lifetime Value
Donor Lifetime Value (LTV) is the projected revenue that a donor will contribute to your nonprofit over the course of their giving history with your organization (donor lifetime). In our experience, too many nonprofits don’t track this metric. Those that do often don’t track it accurately or consistently. But when you do take the time to calculate donor lifetime value, this metric can be key to formulating your fundraising strategy.
Calculating donor lifetime value can help you make important budget decisions — like how much to invest in certain solicitation methods and appeals. It can inform development office staffing decisions. Perhaps most important, understanding donor lifetime value can also help you determine how much you’re willing to invest in donor acquisition.
For example, if the only data you have is that the average gift of a new donor is $50, how do you know if spending $100 to acquire a new donor is a smart choice or not? On the other hand, if you know that each new donor equates to an average lifetime value of $1,500 to your nonprofit over the course of their relationship with your organization, spending $100 to acquire a new donor starts to look like a real bargain.
There are a few different industry formulas for calculating donor LTV, ranging from the simplistic to the overly complicated. Most involve inputting metrics such as donor lifespan, average donation amount, and frequency of donation.
Calculating Donor Lifetime Value
To determine donor lifetime value for your organization, you’ll need some basic information about your donor file:
1. Starting year: The farther back you can go in time — provided you have reliable donor giving data — the more accurate the calculation will be.
2. The number of donors who made initial contributions for each year listed.
3. The total number of gifts ever given (across all years) by the donors who made initial contributions in the year listed.
4. The total dollars of all the gifts ever given (across all years) by the donors who made initial contributions in the year listed.
Plugging in your data, the IPM Lifetime Value Calculator will calculate:
- Average total amount given per donor to-date
- Average number of contributions per donor to-date
- Average gift amount per donor to-date
- Average donor LTV for all years
Keep in mind that while you can calculate donor LTV for your entire database, you may find value in segmenting your database and figuring donor LTV by initial contribution, most recent contribution, and/or solicitation method. The key with tracking any metric is first knowing why you’re tracking it. When choosing how best to calculate donor lifetime value for your nonprofit, first consider what it can tell you about your donor file and how you plan to use that information to make smarter choices.
Regardless of your fundraising strategy, consistently tracking results provides vital information to identify trends, make informed decisions, and improve fundraising performance.