I’ve argued cost-to-acquire (CTA) and lifetime value were the two metrics that mattered most.  The idea is that if lifetime value is going to be higher than the cost of acquiring, acquire that donor.  If not, you need lower acquisition costs or higher lifetime value.

That makes great sense as far as it goes.  The advice to look at CTA and lifetime value by channel, commitment level, identity, etc., is particularly helpful.

But what if you don’t have that info?

Perhaps you’ve just started a program or channel and don’t know what long-term revenue or retention will be.

Or you’ve changed your program sufficiently that old assumptions no longer hold.  Say you’re an organization shifting from a premium model to a non-premium one.  Your assumptions about CTA and lifetime value go out the window – you were talking to different people with a different program.

If you don’t know lifetime value, the temptation is to test tactics and pick the one with the lowest CTA.

Down this road madness lies.

Let’s take a simple example of two mail packages that cost $.50 each in the mail:

Pretty simple.  If you are going by CTA, you’d pick package A.

But would you rather have one $50 donor or two $20 donors?  Almost certainly the $50 donor:

• Their retention rate will be higher
• Their revenue per year will higher
• Their solicitation cost will be half of the two $20 donors
• They will be more likely to transition to monthly or mid/major giving

Package A gets you slight economies of scale (cost per communication decrease when more people get them) and increases in the likelihood of planned giving.  Seems like a clear win the $50 donor and package B.

So how do you take this future giving into account?  As mentioned before, you’d ideally have lifetime value, but assume you do not.

I would advocate looking at gifts-to-pay back: cost to acquire divided by average gift.  Let’s look at the same example above with this metric filled in:

This puts our intuition about which we would prefer to the test.  The donors in panel B will have to give one gift on average to make the acquisition investment worth it.  The ones in panel A will have to average 1.5 gifts over their lifetime.

Is this perfect?  Not even close.  It ignores:

• Upgrades and downgrades
• Differences in retention rates among groups
• How long it takes to get additional gifts
• The cost of solicitation
• Transition to other programs and/or channels
• And much, much more

That’s why you want to get and use lifetime value.  And that’s why you want to invest so much time and energy in improving inputs to it like retention rate.  Those investments not only make your program more profitable; they also open new vistas for acquisition.

But if you don’t have lifetime value, let’s not throw out “better” in our search for” best”.  In the absence of other information, gifts-to-pay- back is a shorthand way of accepting that some donors are worth more than others and it’s worth more to acquire them.

Nick