The number that can make fundraisers seem like seers and mind-readers

By now just about everyone in fundraising is awake to the importance of donor retention (thanks, in part, to Roger Craver’s excellent book, Retention Fundraising).

Here’s a great post at The Agitator about how to measure retention before it happens: LTV … The GPS For Fundraisers.

You see, retention — the percentage of donors who give again — alone only tells you part of what you need to know. The higher the percentage, the better, of course. But what should you do about that?

Lifetime Value (LTV; some call it “Long-term Value,” meaning the same thing) tells you what donor retention is worth

Once you know a donor’s lifetime value, you’ll better understand how to allocate your resources, both in terms of donor acquisition (what lists and packages and techniques to use) and donor retention (how much to spend on important efforts like ‘thank yous,’ second gift strategies, monthly giving efforts, and improving donor service).

You see, a donor whose first-ever gift to you is $5 will most likely continue to give you $5. And his total giving over the entire relationship — his lifetime value — will come to somewhere between $50 and $75. If you aren’t paying attention, you could easily be spending quite a lot more than that to get that value. I don’t think anyone would feel good about that — least of all the donor.

If you are paying attention to LTV, you’ll skimp a bit on those $5 donors. You’ll communicate with them less, you’ll use your least expensive channels to do so, and you’ll thank them less elaborately. You shouldn’t just drop those low-end donors, even though that might seem smart: A small group of them — statistically insignificant, but financially meaningful — will upgrade to higher value.

If you spend less on a group of donors, generally their retention will get worse. But in this case, the money you save on low-dollar donors can be spent instead on high-end donors — and when you improve retention among them, your long-term financial picture can get a lot better. The impact is so powerful, you’ll look like you can read minds and see into the future.

That’s how you build a powerhouse fundraising program: Spending your dollars where they make a difference. Not throwing good money at low-return investments.

Know your donors’ LTVs — not just one big pot, but by giving levels. It works like a really powerful GPS!