Whether they’re providing front-line services to clients, conducting research, spreading awareness, shaping public policy, or conducting any other essential activity, nonprofits have always understood that it takes much more than commitment, dedication and hard work to carry out their vital mandate: it also takes money.
To that end, nonprofits continuously strive to get more out of their existing donors by soliciting through events, campaigns and various outreach methods. While these efforts are necessary, there’s a potentially more effective way to grow the coffers: maximizing customer lifetime value.
Seeing Donors as Customers
At first glance, the term “maximizing customer lifetime value” may seem out of place. After all, nonprofits have typically been focused on metrics such as cost-of-raising $1 and average donation size. But as the competition for donors continues to heat up, so too is the call for nonprofits to focus on maximizing donor lifetime value. A recent article in Forbes advised the following: “Donors are customers, plain and simple. They need to be found, courted, convinced and retained, just like in a normal business operation.”
The Value of Maximizing Donor Value
Here are 3 reasons why maximizing donor value is a shrewd, or in some cases, a necessary strategy for long-term survival:
- The cost of finding new donors is very high
- Competition for potential donation dollars is fiercer than ever
- Through attrition, many donors lapse each year
So, how can nonprofits maximize donor value? Let's look at two different approaches:
(1) Handed-Down Formulas
As DonorPerfect.com points out, many nonprofits determine their ask amounts through a handed-down formula that can look like this: “[(70% x (Maximum Gift Amount)] + [(30% x (Last Contribution Amount)] x 120% = New Ask Amount.”
This approach may be expedient, but all guestimates are. Don’t let your budget fall victim to a guess (no matter how “perfect” the author claims to be).
Your organization is worth more than a guess. Your donors are worth more than a guess. The people who depend on your organization are worth more than a guess.
A deeper look at the formula and it becomes clear how harmful it could be to your organization. For example, using the formula suggested above, if the maximum gift amount in the current campaign is $500, the donor who sent $200 last year will be asked to donate $510 – which is a 155% increase. Now take a donor who sent $350 last year. He or she will be asked to donate $672 – which is a 92% increase. In other words: the donor who sent less will be asked to make a proportionally much bigger contribution. While that may happen, history tells us that it is unlikely, and certainly that it doesn’t happen very often. If you followed that formula, how many donors could you have lost by using a rigid formula to determine how much to ask?
(2) Maximizing Donor Value With Predictive Analytics
Rather than rely on a rigid formula that treats all donors the same, nonprofits can use predictive analytics to know how much to ask from each donor.
Knowing the right "ask amount" is key to maximizing donor value. We can all think of certain donors who would have given more had we just asked for it. There's also the donors who might have given if we didn’t ask so much. Any way you look at it, we’ve been leaving too much value on the table by asking every donor for the same amount.
Predictive analytics helps solve this problem. Predictive analytics platforms, like Persanalytix, are able to use the information stored in your CRM, email marketing platform, social media interactions, and elsewhere to understand what your donors value, their preferences, and how interested they appear to be in your cause. Now, you can ask donors for different amounts based on how interested they are in your mission. It's the kind of donor intel that just makes sense.
Predictive analytics can also help nonprofits:
- Alleviate themselves from the pressure and burden of wondering if they’re asking for the right donation amounts – or mistakenly setting the bar too low or too high
- Target individual donors and segments in ways that are likely to maximize donations both in terms of commitments and amounts
- Spend more time reaching out to high-value donors, and less time on those that are unlikely to increase or repeat their contribution
- Create campaigns that encourage donors to choose the amount that aligns with their intention (e.g. email campaigns can have calls-to-action that say “DONATE $350 HERE!” instead of “Make A Contribution”)
Get More Money Out of Existing Donors
There are important differences between nonprofits and private sector businesses; and these distinctions are essential. Indeed, there are things that only nonprofits can and will do – and our communities are far better as a result.
However, there are best practices that nonprofits and private sector businesses can learn from each other; and for nonprofits, the science of donation maximization™ is one of them.