Crystal ball fundraising: Lifetime Value

Photo: Oxfam Novib

Photo: Oxfam Novib

Some time ago on the KISSmetrics blog a case study was shown on how to calculate the Lifetime Value of your customer (let’s say donors in our case). You might have seen below infographic already, but it’s such a great and clear example I want to make sure as much fundraisers as possible have seen it.

It’s not the calculation that is so interesting, because with some common sense (and a skilled data analyst) you can put something similar together yourself. What is most interesting is that this infograpic underlines the importance of using Lifetime Value (LTV) in your acquisition strategy.

In fundraising we’re always struggling with acquisition. I yet have to meet the fundraiser who says that it’s going easy and smooth year after year… It’s always difficult for everyone! Having said that, most of us are still recruiting new donors and even growing income. How come? Because we invest in the future.

Acquisition normally means large financial investment. How much do we think is reasonable to invest? How much are we willing to put in? This should not be a gut feeling, but a well thought calculation: the Lifetime Value calculation.

If we have to spend $190 to recruit one donor, most of us will think this is not worth it. It’s bloody expensive to begin with, but what happens in the future?

By calculating our donors’ LTV we are projecting how much future income we expect to receive from them. When an average donor stays on board 12 years and has an anual value of $120, than the most simple definition calculates a Lifetime Value of $1,440. Is the $190 dollar that you have to invest for recruitment still not worth it?

Again, it’s not about the exact numbers, it’s about how we look at investment over the longer term. Have a look at the infographic below and tell me what you think!