Google search “big data,” and you should expect big results.
Do you see what I see? 403,000,000 possible links to click on.
“Data” as a concept is like a black hole. Where do you even begin? As nonprofit professionals we’re trained and equipped with tools that help us build relationships, establish compelling cases for support, and ultimately further our organization’s mission—we’re not data scientists.
Contemplating data from the perspective of a small or mid-sized nonprofit is even more challenging. If you’re reading this, you likely wear many hats at your organization. How then (and more importantly, why) should you begin the process of learning a foreign concept like “data analytics?”
Instead of focusing on the abstract, let’s focus on reality. Data doesn’t need to be intimidating, and understanding your organization’s treasure trove of information can have a positive impact on your bottom line. Let’s simplify the discussion around data, identify areas where it can truly be meaningful for us, and cut out the rest of the noise.
Third Space Studio, a niche consulting firm run by Meredith Emmett and Heather Yandow, produces some of the most compelling “small” nonprofit research in our sector. Their annual Individual Donor Benchmark Project (IDBP) provides incredibly necessary insight into the realities and trends seen among smaller nonprofit organizations. One of the most compelling outcomes from the IDBP’s research was the conclusion that “having a fundraising plan is the key indicator for successful fundraising.” Without a plan, the research suggests, an organization will not achieve as much as they were capable of achieving.
This forces us to address the question, “How do you come up with a fundraising plan?” You could “use your gut,” or “do what we’ve always done,” but neither of those techniques are reliable long-term solutions. Let’s use data to help drive the planning and strategy process—that is one area where it can, and should, shine.
Measuring certain metrics, understanding historical trends in donor behavior, and entering the realm of what is called “descriptive analytics” can help you determine what strategy to take. Once we have a strategy, we can implement tactics. And, once our tactics have been put into place, we can measure their effectiveness by looking back at the metrics that guided our initial strategy decision. This process of using data for decision making takes us away from relying on gut feelings and the “status quo,” and forces us to develop a “feedback loop,” where our activities are informed and measured by real numbers.
This leads us to our next question, “Which metrics should I measure?” In order to inform your fundraising strategy there are a few key metrics you’ll want to know. We’ve written extensively in the past about a variety of meaningful metrics and why you should measure them, but it’s important to keep in mind that there is no “one size fits all” solution. Below we’ll review two commonly measured and useful fundraising metrics—donor retention rate and donor lifetime value.
Simply put, donor retention rate is the number of donors you keep with respect to the number you had at the start of a given period of time. This does not count new donors, but it will include upgraded and downgraded donors.
To calculate donor retention rate, you’ll take all retained donors in a year and divide that by all donors from the prior year. This number, multiplied by 100, is your donor retention rate. The equation is pretty simple:
Donor Retention Rate = (Retained Donors in 2018 ÷ All Donors in 2017) x 100
You can think of retention rate as a measure of how well your organization is nurturing relationships. The higher the rate at which donors maintain their year-over-year giving, the better your organization is likely doing building and cultivating relationships with, and that are meaningful to, those supporters.
It’s important to know and measure your overall donor retention rate, but it is even more important to keep track of segmented retention rates. For example, how well is your organization retaining first-time donors? This would be the rate at which first-time donors from last year being are retained the next year. What about repeat donors? At what rate are retained donors from last year being retained again this year?
Having insight into your organization’s donor retention rate, and its related, segmented retention rates, will have major implications on strategic decisions moving forward. What would your organization’s data look like if you were to review these segmented retention rates? Knowing that answer will inform your strategy for retaining donors moving forward!
Donor Lifetime Value, or LTV, is a prediction of how much money your organization can expect to receive from a donor during the lifetime of their giving (from first donation to last donation, acquisition to lapse). This information can help you make important decisions about your fundraising budget and where to allocate resources.
The higher your donor lifetime value, the better. A high LTV means you can expect to receive a lot of revenue from your donors before they lapse. This means you can afford to spend a bit of money on appeals, campaigns, support, and so on to acquire and retain them.
The equation for LTV is relatively simple, but requires a few other metrics that can be tricky to calculate. To calculate your LTV, you’ll need to know your average donor lifespan (how many years a donor maintains their giving), average donation amount, and frequency of donation (the number of gifts a donor makes in one year). Using that information, the calculation looks something like this:
LTV = Lifespan × Average donation amount × (Total # of donations ÷ Total # of donors)
Getting your hands on the input metrics (lifespan, average donation amount, and frequency of giving) can be challenging, but they are certainly worthwhile. Although we won’t dive too deep into it in this post, you can read our suggestions in another post about how to pair LTV with donor acquisition cost (DAC) to begin the process of measuring how “profitable” your fundraising initiatives really are. For example, you can compare LTV with DAC to determine which of your acquisition channels is bringing in the most “profitable” donors. This concept is pretty advanced and involved, but please know that calculating LTV is well worth the time it takes!
Similarly to donor retention rates, we’ll be interested in segmented values of LTV. For example, what is the lifetime value of a donor that came from a Facebook ad? How does that value compare to the LTV of a donor that first contributed at your local event? Calculating LTV by segment allows you to begin to compare long-term effectiveness of different fundraising campaigns and initiatives.
Knowing lifetime value is incredibly important, but knowing how different segments of your supporters compare on this key metric can be revolutionary for your planning and strategy.
After identifying which metrics you are going to measure and calculating them, you are left with interpretation—essentially answering the question, “What do these numbers mean?” Your acquisition and retention strategies should be based around the answer to this question.
If you can, you’ll want to calculate at least five years of retention rates and lifetime value metrics. From this you should be able to identify trends—peaks and valleys—in both categories.
Data is meant to help drive a discussion (that’s why data visualization, another topic for another article, is so important). At your organization, with your team, you’ll want to discuss why retention rates peaked in a specific year (for example), and why lifetime value was lower in another year (again, as an example). What events and activities could have taken place in those years to influence your key metrics?
After analyzing your historical trends, you should be able to identify some of the crucial events or activities that played a role in how the numbers came to be. Good! We’ll use this knowledge of what happened in the past to inform aspects of future strategy. If you think it was the specific campaign you sent out one year that boosted retention rates, you might want to consider incorporating that campaign again.
This is why data is critical for planning future strategies—by discussing what the numbers mean, we see the bigger picture. Data without narrative is useless; data with a story is compelling. In order to craft your story, you will review trends over the past five years among your key metrics.
We’re not leaving you high and dry on this quest to use data at your grassroots development shop … far from it! All we’ve learned about leveraging data in our sector has stemmed from building Fundraising Report Card. If you don’t know by now, Fundraising Report Card is a free data analysis tool used by thousands of organizations across the world. You can visit us at https://fundraisingreportcard.com/ to start your free subscription today.
You can also download our Free E-Book “Metrics that Matter” at: https://fundraisingreportcard.com/data-driven-fundraiser-book/
Date: Wednesday, May 1, 2019
Time: 12 pm ET/9 am PT
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