Retention is not only cheaper but also more valuable!
Many of us are trying to create a donor-centric fundraising culture. This desire has been fueled by the negativity we encounter everywhere in the market. But let's also look at it from the positive side!
When I gave a presentation the other, there was a slide that said something like:
Acquisition is becoming increasingly difficult and expensive.
Higher costs due to lower response rates.
Dependence on one acquisition channel.
More cancellations than new donors. The trend of cancellations is growing.
Retention is not only cheaper but also more valuable.
Data analysis shows that we need to change.
From short-term (transactional) to long-term (relational).
Acquisition is expensive, and retention is cheap. It is cheaper to retain a donor than to acquire a new one. That's true, but it emphasizes the wrong aspect. It's not about being cheaper; it's about getting more income!
Everyone talks about lifetime value. A sum of all income throughout the entire relationship duration with a donor. I prefer net LTV, deducting all costs incurred during the relationship from the income. This leaves us with "the profit" that we can allocate to the charitable cause we pursue.
LTV is calculated based on several variables: acquisition and retention costs, with acquisition forming the majority, and income over the entire relationship duration. It's a sum of an average gift multiplied by the number of gifts per year multiplied by the number of years in the relationship. The length of the relationship is a determining factor in any LTV calculation.
I wrote in an email recently:
“To me, these calculations contain a large element of education and insight. It was by building these long-term planning models that I became so convinced of the power of retention.”
So, my question to you is:
Have you ever calculated what an improvement in retention, extending the relationship duration of your donors, does for your long-term net income?
Do you enjoy a good long-term planning model? Ask for a demo of Forward!
