Yesterday I explored ‘vanity metrics’ and briefly explained why they’re not very helpful for serious decision-making. Or how, in the case of Benchmarking, they’re often ignored or mis-applied. Today, we’ll move to metrics that truly matter.

By my definition an important metric – a metric that matters – is one that triggers the “What-should-I-do-differently-to-improve?” question.

Here are my picks for Metrics That Really Matter because they lead us to ask key questions. Questions, that when answered can dramatically improve the productivity of a fundraising program.

Acquisition Metrics

At the risk of boring the non-arithmetic (but pleasing the CFO), I believe there’s a far better way to assemble a more meaningful Acquisition Response Report — one that will actually help you steer into the future. Here goes:

1. Look at the number of donors brought in and subtract the percentage who the organization historically loses in Year 1.

   By way of assumptions for this illustration, let’s say the organization brought in 1,000 donors on a 100,000 piece mailing (a 1% response rate) and drops 70% of them because they won’t give again in Year 2.

2. Next, take the total money spent on acquisition, let’s say $75,000, minus total money raised, let’s say $20,000, with an average gift of $20.
3. Then, divide those acquisition numbers by the number of donors who will stick around in Year 2.
4. This gets us to the true amount of money per donor — a negative -$183.33 in this case — we need to raise from each of the remaining 300 donors in order to break even on acquisition.

The questions triggered from this more realistic and non-vanity metric are: “What fundraising plan for a single donor will raise $183 over the next two or three years?” … ”Does the plan make sense?” … and, “Can the plan be scaled in volume?”

My experience over the years with literally hundreds of nonprofits is that those in charge of acquisition almost never manage around this key metric. They never ask or answer the key questions this metric triggers. Instead they hand the ball off to colleagues in the silo charged with results on ‘renewals’ or ‘appeals’, then watch them get crushed.

With just a bit more focus and questioning on this important metric, the future of their organizations (not to mention the war between the silos) could be much brighter and calmer.

Value Metrics

Number of New Donors Making Second Gift. This is a harbinger, if not a dead-on predictor of the retention rates and Life Time Value (LTV) an organization is likely to enjoy. Ask and correctly answer the question of how to get more second gifts and get them earlier and you’ll have a head start on a higher retention rate.

Number of New Donors Retained Into the Second Year. Tom and I have preached and preached about lousy retention rates and begged everyone to fix the leaky bucket of retention. It begins with the new donors, what we do to hold them, what we do to lose them. There are tons of questions and hypotheses you should be putting forth around this metric.

An issue related to retention is attrition. Here the questions start with: “Why did so many donors leave?” Ask and answer this question by identifying the causes of defection and you’ll not only boost your bottom line, you’ll make your acquisition investment pay off faster and better.

Multiple Year Retention Rates. Same as above, but by tracking these year-by-year you can spot trends, problems and opportunities, because year-over-year comparisons of this metric will trigger additional questions and answers for improving your program.

Lifetime Value of a Donor (LTV). At the end of the day all the actions you take to improve retention, average gift and donor commitment will be reflected in the LTV value of each donor and all donors collectively. This is the Key Metric on which you can benchmark, guide and then track the success — or failure — of your intermediate and long term strategies.

Lagging, Leading and Key Performance Indicators

All of the Metrics That Really Matter set forth above are what statisticians call ‘lagging indicators’ in that they reflect what has already happened and are generally not predictive of the future.

Take most fundraisers’ favorite lagging metric or combination of lagging metrics — RFM. The problem with Recency, Frequency and Monetary Value is that it’s limiting and somewhat illusory. It is a snapshot of the past. Good for trend analysis. So-so for segmentation and projection. Not good for guiding you in figuring out how to create greater breakthroughs in creating better donors.

No fundraiser worth her/his salt should be content with a situation where we have only indicators or metrics that merely point to a problem, yet offer no prescriptive remedy AND little indication of future direction.

For example, while year-over-year retention rates will help you spot trends so you can begin asking questions (“Why are they leaving?” What actions can we take to motivate them to stay?”), in and of themselves they offer neither prescriptive nor predictive guidance.

A transaction or behavior-based model, one based on RFM for example, that identifies the percentage of donors on your file likely to respond to your next appeal can provide a forecast, but still offers ZERO insight on what actions you might take to increase the number of ‘good’ folks in your donor base.

That’s the problem with most Key Performance Indicators (KPIs) in use today. KPIs are, too often, a crutch. The term is overused, describing any form of measurement data, and over-applied by measuring and reporting on everything that is easy to measure and count. KPIs should exist to reduce the complexity of organizational performance not confound it.

Consider a personal example we can all relate to — cholesterol level as an indicator of heart health. This is, by my definition, a good KPI. It is a good indicator of heart health and its predictive quality is quite clear: keep it in the high range for too long and you are very likely to suffer a heart attack. As importantly, this KPI is actionable because we know the causes of high cholesterol and have very specific remedies from diet to medication.

In yesterday’s Agitator Comment section, Simone Joyaux wrote, “I’m hoping we measure/examine process, not just results. I’m hoping that we measure relationship building, not just solicitation.”

Indeed, measuring the strength of the donor relationship is essential for improving retention and lifetime value. That’s why a set of new KPIs called Donor Commitment Scores has been developed by our sister company DonorVoice.

Donor Commitment Scores can applied to an individual donor, a segment of donors or the whole file. The score measures or indicates the:

• Strength of the donor relationship, so it serves for a point in time as a sort of temperature reading;
• The likelihood of retention, so it is quite predictive of whether the donor will stay or go;
• It is highly prescriptive, because what you can do to increase Commitment is easily determined.

It’s my experience that most organizations need fewer, but more meaningful KPI’s — hopefully as good as the cholesterol test. KPIs that are:

• Indicators of strength or weakness (the easy part);
• Forecasts (harder); and,
• Prescriptive (hardest but mandatory).

(A sub-point on the prescriptive requirement. To get this right requires understanding of cause and effect. In the case of retention, it is not caused by the mechanics of the mail program, namely frequency of appeals. It is certainly true that not mailing (or not asking) will crush retention, but to be a true CAUSE it must work both ways. If this were a TRUE CAUSE then retention rates would be close to 100% if only you mailed enough.)

Should you be revising your Metric Toolkit?

Roger

P.S. We’re preparing an e-book on Metrics That Matter:  How to Calculate and Employ Them for  Building Your Bottom Line. Available free this fall only to Subscribers to The Agitator. Subscribe here.