Long-Term Donor Value (LTV) is a simple concept: how much more money will you receive from a donor than what you will spend on soliciting that donor? Simple yet difficult to accurately determine and use to make informed business decisions.
Each donor is different. You acquire them in different channels, they give you different initial gift amounts, they respond to different offers, media and packages. And then what happens? What kind of donors will they turn out to be? Will they give regularly and often year after year or only once a year? Or worse, will they give only once, period? Will they migrate to giving online or become a monthly donor? Will they disclose a capacity and an affinity for giving a large gift for a specific purpose?
Unfortunately, most nonprofits make decisions about which lists to use based primarily on the response from lists used the last time they mailed. Those decisions are based heavily on response rate and average gift amount. The two metrics can be combined into “Revenue per 1000 names mailed” or (RPM). A list that produces a 0.25% response rate and a $25 average gift has an RPM of $625. A list with twice the response rate and half the average gift also has an RMP of $625.
This similarity can be misleading. Lists that produce a high initial response rate may not produce the best long-term donors.
You might think that, once a donor gets into your database, their long-term value depends entirely on how you thank them, steward their gift, and appeal to them for more gifts. Ironically, the way you acquired them initially makes a huge difference, even after three years.
As we frequently see, lists that produce higher average gifts at a low response rate often have far higher retention rates and donor value after three years than lists that those with high response rates and lower average gifts.
Consider this real-life scenario:
We see here that the size of the initial gift suggested makes a huge difference. All of the positive net income generated here is attributed to the new donors acquired at $15 or more. It can be scary to see that 44% of your newly acquired donors are coming onto the file below $15.
So what would you do to increase your long-term donor value in the future? How about looking at different TYPES of list sources? Or selecting only $15+ donors?
Taking a long-term look at your prospecting lets you make better investments with your donors’ money.