2 Simple but Important Metrics Your Nonprofit Needs to Measure
Today’s post comes from our partners at Fundraising Report Card. The Fundraising Report Card works in tandem with CRMs like Salesforce to help nonprofits visualize and analyze their donor database.
Nonprofits have a lot of data. Which, in today’s ‘big data’ landscape, is a good thing. But nonprofits (just like companies in the private sector) aren’t always sure what to do with all that information. Collecting data is tricky, and maintaining it can prove even more difficult. That's why it’s important to take a step back and think objectively about why you’ve collected all this information to begin with.
Imagine for a moment that you're the Executive Director at your organization. Even within one department, there are many different objectives for your data. Let’s take the development department as an example. The major gifts team will want to dive deeper into capacity analysis. The annual fund folks will be concerned with donor upgrades. Meanwhile, planned giving is focused on bequest potential.
Fortunately, there are a few metrics that bring these different groups together. Each relates to one common theme: fundraising effectiveness. An easy way to bring everyone together and to cut through the noise of all the data is to start measuring these KPIs (Key Performance Indicators):
- Donor and donation retention
- Donor lifetime value
Donor and donation retention
Before you dive head first into retention it is, let’s make sure we’re on the same page for the definitions of these terms. Retention is the number of ($) donations or (#) donors from last year who gave again this year to your organization. First, retention refers to a certain point in the donor lifecycle. It can come at different points for different organizations: often monthly, quarterly, or annually. A common place to start is by looking at things annually (year over year).
Next, let’s distinguish between the two forms of retention: donor and donation.
Donor retention rate
Donor retention rate is the number of donors you keep compared to the number you had at the start of your period of measure. This does not count new donors, and is basically the opposite of donor churn. To calculate donor retention rate you’ll take all retained donors in a year and divide that by all donors from that year.
Retained donors ÷ all donors = donor retention rate
Donation retention rate
Donation retention rate is revenue renewal values – the dollars that renew – and is generally measured on an annual basis. The important point here is that donation retention rate focuses only on the money, the actual revenue you retain, rather than donors. If your existing donors start giving more, through upgrades, your donation retention rate might grow even if you’ve lost donors.
Retained donations ÷ all donations = donation retention rate
Donor and donation retention rates become more powerful when analyzing different segments of your donors. Your major gift team can calculate the retention rates amongst major donors, while the annual fund group can calculate retention across their segment of donors. Retention is the metric that can bring your team together. Every department should measure how well they are bringing back existing donors.
Donor lifetime value
Another crucial metric all fundraising teams should calculate is donor lifetime value. This metric has it’s roots in the for-profit sector and for good reason. Companies use this metric to calculate customer acquisition cost, but nonprofits can apply the same logic to fundraising.
Lifetime value (or LTV) is a prediction of how much money you can expect to receive from a donor before they churn. This metric can help you and your team make important decisions about how much to spend to acquire and retain donors.
Calculating LTV is simple, but it relies on a few other metrics that can be tricky to calculate. You'll need donor lifespan, average donation amount, and frequency of donation. The formula looks something like:
Lifespan × Average donation amount × (Total # of donations ÷ Total # of donors) = LTV
Pulling this information from your database might be difficult, but it’s worth the hassle. Once you know your LTV you can start being savvier about your marketing expenses. If you know your LTV you can set your donor acquisition cost.
Lifetime value and retention rates are only scratching the surface. But, if your team wants to start being more data-driven, these two metrics are a great place to start.
If you’re interested in getting started today you can drag and drop your data into the Fundraising Report Card. You’ll get insights into your Retention, LTV and more in just a few clicks.
Want to dig deeper into engaging your nonprofit community in a way that inspires your donors? Check out the webinar below: