Isaiah Berlin grouped thinkers into:

• Hedgehogs: like the hedgehog that has one strategy – curl up into a ball – these thinkers have a single defining idea
• Foxes: those who go wide and employ a variety of strategies.

Sixty-six years of debate later, there’s no definitive argument for which style is better.  What I’ll argue, however, is that if you were to make one goal or metric your hedgehog focus, it would be total lifetime value of your file.

Such a decision calculus gives the value of monomaniacal focus.  As we’ve talked about, Southwest airlines was founded on such focus: they are the low-cost airline.  If it increased costs, it was out. If it decreased costs, it was done.

Lifetime value is a great North Star for us fundraisers, because we represent enterprises that are supposed to serve our communities for the long-term.  We should be willing to forgo one dollar today because it will get us two dollars a year from now.  For those unfamiliar, lifetime value is the net value of a person’s donations to the organization.  Total file lifetime value is the sum of all your donors’ individual lifetime values.  You can get a calculator here, but to simplify, Roger has used the example of “gym member who spends $20 every month for three years. The three-year lifetime value of that customer would be $720 ($20 × 12 months × 3 years = $720 in total revenue).

You can see even from this example why many health clubs offer a free starter membership. Gym owners know that as long as they spend less than $240 to acquire a new member (the amount the member will pay in the first year — $20 a month × 12 months), the customer will prove profitable in a relatively short amount of time. This is the same way our boards, CFOs, and fundraisers should view the investment in acquiring new donors.”

Focusing on this one metric puts a different light on the decisions you make as a fundraiser. Should you…

• Add a premium to your mail piece? Well, near-term revenues will increase, but long-term retention and donor population will decrease.  How does that balance out?  In acquisition, you may acquire more people of lower lifetime value (because of the premiums required to retain their support and their transactional giving).
• Send that reminder email? Well, yes, you get $2.18 additional revenue per donor, per this study.  But what it actually says is that the annoyance costs and unsubscribe costs are net negative for total lifetime value of your file.
• Invest in monthly giving? Trying to convert one-time donors to (or acquire directly to) monthly giving is tough, with higher costs and lower initial returns.  But these donors also retain better and have higher lifetime values.
• Invest in legacy giving? By traditional short-term metrics, no, but there is a pot of gold at the end of that generational-transfer-of-wealth rainbow for the strategic and patient to collect.
• Invest in new donor acquisition? If the cost-to-acquire is lower than the individual’s Lifetime Value, yes.  If not, no.  Don’t just go with the lowest cost-to-acquire, as this example shows.
• Buy Roger’s book Retention Fundraising? There’s an excellent explanation of how to use LTV as a strategic tool in chapters 21 and 22.
• Run a matching gift campaign?   If they are crowding out other gifts and lowering long-term lifetime value, as happened here, no.
• Invest in getting donations on Facebook? Not if you can’t get the donor information that Facebook won’t give you so you can steward them to a higher LTV.

The view through the Lifetime Value lens  takes tactics that are often considered moneymakers and puts them into a longer-term context.  At the same time, it views investment decisions through the same lens, making the case for throwing a percentage  of fundraising costs on the ashheap of history and investing where it will make money.

In short, if you were to focus on just one thing, Lifetime Value would be it.

Of course there are challenges to using Lifetime Value.  It’s monolithic – if you have an average donor lifetime value of $128, there’s massive variation in that, from the many high digit LTVs to the red negative ones.  And Lifetime Value is, well, lifetime – you only know it for certain at the end of the lifetime.

We’ll talk more about how to differentiate and estimate on Wednesday.

Nick