Sunday, August 22, 2010

Last week I looked at the Long-Term Value of new donors. I used a 5-year timeframe to quantify LTV, as one possible approach.

An important companion metric to LTV is Long-Term Cost (LTC). LTC is sum of Cost of Acquisition (what it costs to acquire a donor) and the Cost of Cultivation (the cost to cultivate the donor beyond acquisition, using the same timeframe as used in LTV).

LTV and LTC are two building blocks to understand the acquisition program's ability to generate net revenue and to provide a return on investment.

Here's an example:

LTV = $350
LTC = $80 (COA is $40 and COC is $40)

The Long-Term Net is $270 (LTV - LTC) and the Long-Term ROI is 4.38 (LTV / LTC).

Try calculating these metrics on your various acquisition programs. The result will provide insight into where you should be spending your precious acquisition dollars for maximum growth.

Sunday, August 15, 2010

What's a New Donor Worth?

Long-Term Value (LTV) is an essential performance metric. Every organization should know how much their new donors are worth. With LTV you gain an understanding of what you can afford to invest in new donor acquisition -- a key to growing your organization.

While there is no crystal ball to tell you what today's new donors are worth, you can look at past classes of new donors to understand what they were worth over the long-term. You can then assume that today's donor, acquired through similar means and circumstances, is of similar value.

Here's an example. The graph here shows the 5-year value of the class of 2005 for one organization.

I've seen many sophisticated ways of estimating LTV. Some methods involve statistical models and present-value calculations. All this is fine and good. However, just taking a specific acquisition class and dividing their giving into the original number of donors in that class is a simple and solid approach. I have found that simpler approaches allow you to do more slicing and dicing. And this is valuable.

The graph above slices the LTV trends into three first gift ranges. It illustrates the importance of first gift amount in acquiring donors of value.

Recommendation: Start calculating the LTV of your donors -- by first gift amount, by channel, by offer.

Saturday, August 7, 2010

Base Your Decisions on the Facts

Check out a thoughtful post by my fellow colleague at TrueSense Marketing, Jeff Brooks: Donor's opinion can lead you astray of the facts.

I'll add to that by highlighting a small study on thanking donors. It illustrates Jeff's main point: the importance of basing decisions on the facts, rather than opinion or hunch. It also adds texture to his point about thanking donors: It also matters how we thank donors.

The organization used to mail its thank yous to upper donors with first class postage on the carrier envelope. Then as a cost-cutting measure, they switched the postage to bulk. You'd think a small difference like that would be hardly noticeable to a donor. Keep in mind, however, that postage will affect both speed and rate of delivery. Here's what happened to response rate:

First, notice that these donors responded in the 10% range to thank you letters. That's better than most appeal letters.

Second, look at the change in response rate. It's a 20% decrease! This shows why it's important to test before making changes. Get the facts. Can you afford to lose 20% of your income from thank yous?