IS LIFETIME DONOR VALUE STILL RELEVANT?

Nonprofits that pursue fundraising through mass media depend on analysis tools to measure the effectiveness of their efforts. Straightforward ROI computations (e.g. cost per dollar raised, cost per new donor, Revenue/Cost, etc.) might be compared to a Corolla – not flashy, but reliable. Measures like Lifetime Donor Value (LTDV) analysis are like a Prius hybrid – it can take you farther but the initial investment is higher.

Quite simply, LTDV compares lifetime income with long-term costs, before you know what the lifetime income will actually be. It goes beyond immediate ROI analyses to provide a more complete picture of the donor's potential lifetime value, and accounts for impacts such as the cost to acquire a donor, the cost to maintain the relationship, and even inflation. LTDV analysis uses statistical modeling to help forecast two-year, five-year and even 10-year lifetime values. ROI can only provide an immediate assessment of whether the acquisition mailing or renewal effort made money or not, without considering long term implications.

With the intense struggle for donor dollars and attention, the need to identify the best acquisition sources is even more vital to success. But we've seen or heard little about LTDV in recent years. Is LTDV still relevant? Do nonprofits still use LTDVs, or have they been replaced? If so, what methods now fill that role?

Many nonprofit and fundraising agency executives still support LTDV analysis, though several of those interviewed for this article admit they have not done one in quite a while. As one fundraising agency executive stated honestly, “In theory, it should be important, but operationally, it's not.” He shared that an LTDV analysis performed on acquisition lists yielded results very similar to a more traditional cost-per-dollar-raised analysis, so they opt to use the traditional approach these days. Campbell Rinker has seen similar results that suggest LTDVs greatest strength is in discriminating between acquisition sources, rather than acquisition lists.

Other organizations, such as World Vision and Childreach, say that they now use provisional values or models similar to LTDV, but shy away from projections longer than five years. Still other organizations use calculations from past LTDV efforts to help approximate current results, saving time and analysis costs. However, charities must be cautious when adapting past LTDV curves to current acquisition efforts, since not all sources perform the same way over time and most algorithms do not factor in the present value of a dollar. Also LTDV curves should be frequently revisited and adjusted with recent data to help increase accuracy.

Perhaps the most telling sign of the LTDV's current impact is that few of the executives we talked to could name any firms that offer LTDV analysis. Most of them said they were sure that the major direct marketing firms offered it, but few could provide specific names of firms of which they were certain offered the service.

Given that few nonprofits use LTDV analysis or even know where to go to get the analysis done, is the LTDV still relevant? The answer is a resounding, “YES, but...”

Donor loyalty experts Adrian Sargeant and Elaine Jay write in Building Donor Loyalty (published by Jossey-Bass) that lifetime value can play a pivotal role in relationship fundraising. It helps nonprofits know which media deliver higher value donors, identify donors for relationship, calculate how much the organization may profitably spend on the relationship, and determine the level of care your charity extends to donors in different value classes.

But of course, there is a hitch: your organization must be willing to act on the results of the study. A senior vice president at a national chapter-based organization observed that the issue is not whether LTDV is still relevant; instead, he notes “the issue is the organization's ability to meaningfully use [LTDV] information to make decisions and adjust their approach to marketing and donor communications to benefit from it.” If LTDV analysis reveals a long-favored acquisition source is unprofitable, will the organization be gutsy enough to minimize or terminate the source altogether? Or will the results simply be shelved in favor of the status quo?

If your nonprofit is looking for a way to determine the lifetime value of your donors, take heart. Firms like StrategicOne, Campbell Rinker and Merkle/Domain still offer this service. On the other hand, if your staff includes people who are skilled and knowledgeable in statistics and modeling, you may be able to conduct the analysis in-house using Blackbaud, SPSS or SAS, all of which have some level of forecasting ability.

In summary, our investigation into the relevance and best practices for lifetime donor value shows that this tool is well-known, but not commonly used. For many different reasons, LTDV analysis can provide a crucial boost to your organization's success in donor acquisition and retention. Still, the insights provided by lifetime donor value are only as compelling as your willingness to act on them.

FULFILLING AND SATISFYING

For the most part, charities are keenly aware of how they serve their clients: The family that sleeps in the homeless shelter; the student who benefits from a scholarship fund; the patient visited by the healthcare charity.

In our field we also meet nonprofits that provide a service or product to their donors and others as a means of supporting the organization.

Such organizations might sell books, DVDs or CDs containing unique content that underscores their mission. A well-known case in point is the National Geographic Society, with their magazine, website and photographic archives (there's even a National Geographic Channel – in HD, no less). Other nonprofits teach workshops, seminars and conferences related to their mission. Some have ventured into the realm of providing free e-cards. A search for “NPR podcast” returns 128,000 hits on Google. Many touch their constituents – donors and otherwise – with daily e-mail messages.

It is a fact: the barrier between donor service and customer service is coming down. Organizations that bridge this divide find that they are judged by new standards – consumer standards. In this new dynamic, success is measured by product performance, service delivery and communications.

Product performance is essentially how well the “products” meet the needs of customers, e.g. does the widget fit? Service delivery encompasses point-in-time items such as fulfillment speed, technical support, range of offerings, ease of ordering and the like. Communication covers how well you describe the product and its benefits, your customer service staff, and all other interactions with the customer.

To succeed with consumers, nonprofits must ask fundamental questions. What did the customer think of their order experience? Were they satisfied or dissatisfied? Why? How loyal are they? Will they recommend you to friends or tell others about their experience with you? How likely are they to purchase or attend again?

Perhaps more importantly, what cumulative effect do these products stimulate? Do they pull constituents into a donor relationship with you? Do they move donors up the giving ladder? Are your constituents more or less satisfied with your organization because of these product marketing efforts?

What systems must you improve – and by how much must you improve them – in order to keep their business?

The only way to get these answers is through a continuing, random survey of your customers. Sure, only a fraction of them respond, but if the purpose is to assess movement over time, the response rate is less important than the consistency of the audience you survey. There are many customer feedback systems available – including those from Campbell Rinker . The bullets below outline ten features that we believe a good customer feedback system should deliver. We advise clients to look for a system that is…

• Accessible – provides your product managers with results without an intermediary

• Actionable – enables managers to immediately discover, follow up and fix customer satisfaction issues to build retention and loyalty

• Comparable – to satisfaction benchmarks and other nonprofits

• Inexpensive – costs no more than $2 to $3 per-respondent

• Flexible – allows you to use it in a way that fits your organization's needs

• Quantitative – gives you scores for customer satisfaction, delight (exceeding expectations), loyalty, likelihood to repurchase, recommend and tell others. Furthermore, the solution should provide demographic results and the ability to chart gains in satisfaction, favorability and likelihood to repurchase over a span of time

• Reliable – ensures your vendor has a reputation for ethics, integrity and quality

• Robust – uses state-of-the-art customer satisfaction techniques, with the capacity to deliver detailed customer needs analysis and raw data for internal assessment

• Seamless – fits your existing order fulfillment process

• Tactical – delivers insights into how your customers rate competitors

Customer satisfaction surveying that delivers these features can help your nonprofit successfully bridge the waters between donor service and customer service. It will deliver the vital information you need to make more informed decisions on the crucial issue of how well your product-based efforts serve the fundamental purpose of your organization in the long run.