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).

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. It guides you how to focus your efforts and budget as you foster the relationship.

A donor whose first-ever gift to you is $5 will most likely continue to give you $5. And her total giving over the entire relationship — her 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!

(This post first appeared on March 24, 2015.)