A perennial question in fundraising shops between now and the end of January will be, “Did we make the numbers for 2015?”

Regardless of the answer, there are several questions that are far more important for the future of your organization, and there’s no better time than in these closing days of 2015 to ask and answer them.

The three most important questions:

“What is our retention rate?”,

“What is the 5 year Lifetime Value of our donors?”, and,

“What steps do we have planned for 2016 that will improve these two metrics?”

As I noted in the post Focus on Fundraising Metrics That Really Matter “making the numbers” is what I call a “vanity metric” (one that doesn’t matter one bit in terms of measuring the health of a fundraising program) whereas retention rate and lifetime value (LTV) are true “value metrics”.

Why? Because they are fundamental measures of how well your organization is performing in the eyes of donors. In most cases, high retention is an indicia of high satisfaction, loyalty and commitment; low retention, the opposite.

Donors (but also volunteers, advocates, activists, or any group of constituents) ultimately vote with their feet (and checkbooks). Displeased, unimpressed or disappointed with you, they simply stop giving or volunteering and drop out –a sure sign any organization is failing in basic relationship management. And, with a million-plus nonprofits in the U.S. alone, donors have plenty of other choices.

You’ll find a detailed explanation of these two key metrics in chapters 20 and 21 of my book Retention Fundraising: the art and science of keeping your donors for life. Meanwhile a brief summary.

In brief, the definition of retention rate is the percentage of all donors who give in two or more consecutive years, and lifetime value is the total amount of $ multi-year donors have contributed over time.

Retention Rate

Just as most of us are aware of our vital signs, such as blood pressure, cholesterol, and heart rate, every fundraiser and nonprofit executive should know his or her organization’s donor retention rate.

It’s easy to calculate.

Step 1: Count the total number of donors who gave in your last calendar or fiscal year (2014)

Step 2: Divide the number of those 2014 donors who made a donation this year (2015) by the total by the total number of 2014 in Step 1.

Step 3: Multiply the result from Step 2 by 100 to obtain your overall retention rate as a percentage.

For example, if 100 donors gave last year and only 50 of the same donors made a gift this year, your overall retention rate would be 50%.

If you want to break out first year retention rate from multiple-year rates just follow the example in this chart from Bloomerang.

You can also use the same process for calculating Revenue Retention Rate. This metric tracks the amount of money you’re holding on to year over year from donors who have been with you two years or more.

Lifetime Value.

Over the long haul, lifetime value is the most significant measure for benchmarking and steering your fundraising efforts. As Charlie Hulme, head of our sister company DonorVoice’s U.K. operation puts it, “Unless you believe you’ll find the cure/right the wrong/feed every child with your next appeal it’s unethical not to focus on lifetime value.”

Yet LTV remains one of the most overlooked and least understood metrics in our trade — even though it’s one of the easiest to calculate.

Once you know a donor’s lifetime value (or that of all your donors) you’ll better understand how to allocate your resources, both in terms of donor acquisition and donor retention. (The metrics that matter post explains why LTV is so important in truly understanding the real cost of donor acquisition .)

Do you know the 3, 5, 10 or even 20-year lifetime value of your donors or members?

Fortunately, it’s easy to calculate when you put the actual or estimated numbers into the following equations:

• Average $ amount of a donor’s gift to your organization;
• Multiplied by the number of repeat gifts per year by that donor;
• Multiplied by the number of years that donor(s) remains on your active file.

The result equals Gross Lifetime Value. (You can arrive at the Net Lifetime Value by deducting the costs of soliciting and servicing the donor over the period of time you’re measuring.)

Set the Stage for 2016

Why not take a little time right now — or as soon as you have final numbers for 2015 — to benchmark 2015 in terms of key metrics that matter — starting with retention rates and lifetime value. That way, you’ll know at the end of 2016 whether you took your organization in the right direction or whether you fell short of even your 2015 retention and lifetime value benchmarks.

If you don’t have time to do it yourself I recommend you get in touch with the folks at DonorTrends, our sister company. In less than a week, and for probably less cost than you can do it yourself, DonorTrends will prepare a Masterfile Analysis and Action Plan for you. They call it a MAAP Report. And here’s what you’ll learn:

• The 5 year Lifetime Value of your donors
• How well you’re retaining donors
• How much you should spend to upgrade donors in 2016 and the return on that investment
• How productive your new acquisition and reactivation campaigns are
• Who you can upgrade to increase revenue
• What’s the ‘leaky bucket’ of donor attrition means to your bottom line?

So, after answering the ‘vanity metrics’  question, “Did we make our numbers?”, I urge you to turn your attention the ‘value metrics’ of retention and lifetime value.

Roger

P.S.   I know almost everyone reading this is asked by someone in his or her organization, “How many new donors/members did we get this year?” How many readers are asked, “How many donors/members did we lose this year?” or “Is the lifetime value of our donor base higher this year than last and by how much?”