Editor’s Note: The e-Book version of Retention Fundraising: the new art and science of keeping your donors for life is now available. You can click here to order either the e-Book or print versions.

Part 5 of the book is titled “Do The Math” and the chapters in this section deal with key metrics, ranging from how to calculate your retention rate to the importance and use of what I consider the ultimate fundraising metric — Lifetime Value.

Here’s a brief excerpt from Retention Fundraising on the importance of building the cost of key retention efforts into your acquisition efforts.            ————————————————————————————–

Whether you’re spending $1 or $125 to acquire a new donor, chances are you aren’t spending or investing enough. That’s because almost no one calculates acquisition costs with lifetime value in mind.

Acquisition costs should be calculated not only by the front-end costs of postage, printing, mailing lists, and creative but also by the steps you need to take immediately after a prospect responds and throughout that critical first year.

Let me explain.

Most respondents to an acquisition effort aren’t yet donors; they’re simply qualified leads who may eventually become donors. It’s what you do to transform their status from ‘lead’ to ‘donor’ that’s key to both lifetime value and your organization’s future.

For example, if you’re spending $800 per thousand pieces of mail and receiving a 1% response with a $20 average gift, that part of the acquisition process has so far cost $60 per new donor/lead:

1% of 1,000 = 10

10 × $20 = $200

$800 – $200 = $600 net investment

$600 ÷ 10 donors/leads = $60 per lead/donor

What you do next determines whether and how fast this investment is recovered and then begins producing net income.

If you do nothing but send out an acknowledgment and, say, four appeals per year, you might be able to recover an additional $20 per each lead during the first year. That still leaves you with at least a negative $40 per donor/lead for that year.

Worse yet, given today’s poor first-year retention rates, which average 25% or less, those original ten donors will dwindle to three or four the next year. And even though they’ll retain at a higher rate in years two, three, and four, there’s not much value dropping to the bottom line.

It’s in this situation that phase two of a solid acquisition program must kick in. And by phase two, I mean the expenditure of additional funds in those first days/weeks after the lead’s or donor’s initial response.

How? Well, I’d certainly recommend spending at least an additional $1-$3 on a thank-you phone call to welcome each new lead. This easy-to-execute and relative low-cost action will boost the first-year retention rate right then and there.

All of the testing I’ve done and all of the results I’ve seen from others indicate that first year retention rates go up an average of 20 to 30% thanks to that call. And often subsequent average gifts continue to increase as well.

Of course, if you’re hounded by the ghost of fundraising costs, this bonding process may scare you, because it’ll add another 15 or 20% to the cost of acquisition. But it’s the best initial investment you can make in boosting lifetime value, because it boosts retention rates dramatically. You’ll go into the second and subsequent years with far more donors giving higher average gifts.

If you don’t have a plan — and the money set aside — for taking these critical first steps to converting a lead to a more loyal and permanent donor, you’re really wasting money.

Roger

P.S. In Retention Fundraising you’ll find lots of information on the importance of Lifetime Value, various testing Lifetime Value testing strategies, and why Lifetime Value should be your fundraising GPS.

To order Retention Fundraising, click here.