On Tuesday, our friends at the Agitator exposed the innumeracy of some when it comes to calculating retention and covered how to calculate it. That’s a good first step toward benchmarking your retention numbers.

And I have to confess that I have seen such fuzzy retention math even in the hallowed halls of learned conferences. One presentation I saw earlier this year used a 75% retention percentage that was “retention + reactivation.” In other words, they combined two rather different activities – retaining the active donors you have and working to regain the ones that you have lost – making it more difficult to understand which activity led to their success (or if it even was a success).

Talking about these two things together is like talking about how Aaron Rodgers and I combined for 326 passing yards last week – a way of camouflaging that one of the two things may not be pulling its weight. (I’m not naming any names…)

He and I had a good week…

So the Agitator, as a public service, showed how to calculate retention rate . I would add here that the average one-year retention rate last year was 46% (according to the Fundraising Effectiveness Project) so you have a benchmark to which to compare.

You will also generally find that multiyear donors have the highest retention rate, followed by first-year and lapsed reinstated, with new donors bringing up the rear. First-time donors have an average retention rate of about 27%; multi-year retention is 58%, according to Blackbaud’s white paper on the topic.

So what are the implications of this? The big one is on where to put your investment dollars.

Let’s say:

• You are planning to acquire 40,000 new donors this year
• You have a net cost to acquire a donor of $20.
• Your retention is at the industry average

Suddenly, the good fairy brings you $200,000 to invest in your direct marketing program. You have two choices:
A. Acquire 10,000 new donors
B. Increase your retention rates by five percentage points (up to 32% for first-year and 63% for multi-year donors).

(I should mention the retention gains here are not a fairy tale, regardless of how the money was obtained to get them – this is accomplishable with a program of listening to and learning about your donors, then acting on this new knowledge.)

Which should you do?

The obvious answer is C: see if you can get another $200K out of the fairy, possibly by threatening to say you don’t believe in fairies. But assuming you can pick only one, conventional wisdom would say that you have to invest in acquisition to grow your program.

It’s not a bad choice – it’s just not the best choice. Here’s what the future looks like with these donors in both scenarios:

Because of the massive hit the newly acquired donors take from acquisition to second gift, increased retention almost beats acquisition in year one. From then on, greater retention means that more donors stay on the file longer.

This is why running the numbers on retention is important. It isn’t just for its own sake – it’s for prioritizing your most precious resources of time and treasure.

It’s tempting to put that money into acquisition – the results are real, predictable, and immediate. But the benefits of increasing that magic retention number compound into the future and thus are often a better investment.

One way to do this is by determining the commitment of donors to your organization and acting accordingly, a system that is superior to RFM analysis in determining how to treat donors.  You can learn more about this process here (and we’d love if you’d like to make that investment).

And if you’d like to learn more retention tips, please sign up for our free retention tips and emails here: