A guide of indicators for individual donors acquisition
I was asked long ago in a workshop if there was anywhere to find a summary of the leading indicators for donor recruitment. I didn’t find any concrete answer, so I decided to put together some lines and definitions in an article I published on LinkedIn. I called it then, miniguide.
Today, I posted this website as a new version, where I added several improvements. I already feel safe removing the mini prefix. Updating and improving it is a neverending job, so I want to open it up to the fundraising community and offer you to develop it with your experiences, comments and contributions. This is the link to do it.
Let me begin with a series of obligatory clarifications. First, I want to focus on the definitions that pop up around the management indicators for the recruitment of committed individual donors. Anyway, you will find many valuable concepts applicable in other forms of fundraising.
Secondly, it is essential to tell that when we talk about committed, regular, recurring, pledge or monthly donors... we will consider them synonyms. They are people who voluntarily commit to a periodic donation that could be either monthly, bimonthly or annual. Those individuals who donate without recurrency are called one-time, sporadic, spontaneous, cash, one-off, and so on.
Third, we can frame these formulas in a classic academic classification: strategic, tactical, and operational indicators. If we make this classification more modern, with Simon Sinek’s golden circle, we can say that the metrics respond to what we are raising funds for, how we do it and what makes us collect that money.
Finally, before entering the hard part of the content, a reference to the signs used:
Now, let’s start.
In the most simple words, strategy is what transforms or changes the course of things. Therefore, the following KPIs are dimensioned in months or years and must be intentionally connected to the whys we are working for. A fundraiser seeks to transform the organization through funds and relationships with donors.
There are three key indicators to evaluate the success or failure of any fundraising campaign: gross revenue, investment, and the number of donors. These are the backbone, the economic sense of any investment project.
For this reason, they should be numbers, preferably in real-time, and public for everyone. They are the three numbers your boss and your team always have to see and keep in mind to steer the ship to port.
$ gross revenue | everything that is collected in money without any deduction |
$ investment | here we can establish several meanings depending on the context; my advice is that include only direct costs[1] for fundraising campaigns (but if you are considering evaluating the entire office, it will make sense to include indirect costs) |
# donors active | in general terms, it is the number of donors recruited from whom you received at least one effective donation and that have not cancelled their contribution |
“Active” is a donor status that deserves attention. They are people who have a relationship with your organization and, therefore, who fulfil their commitment to donate. How do we measure that link? My recommendation is to use the following definition:
# active donors | anyone who has not cancelled their contribution and who has made at least one donation in the last three months |
If strategic indicators make the most sense in the order of years or months, the dimension of tactical indicators is months or weeks. And more importantly, if the previous ones answer what to raise funds for, they detail how to achieve those results.
Tactical indicators are the control levers that help us decide on time which campaigns or paths we should continue executing and which ones to stop or invest more in. New donors are a fundamental piece in this battery of indicators. It is the beginning of the active life cycle. It is so relevant that it competes with the place occupied by the “active donor” indicator among strategic donors according to the target audience of our dashboard.
# new donors new | new is the one who made his or her first contribution; they sum up on the day, week or month that they have made their first effective donation |
# reactivated donors | are those who, having been active at some time, cancelled their recurring contribution and re-committed to a recurring donation (as with the new ones, it is again mandatory that their new contribution has reached the organization to consider them) |
$ average donation | $ gross revenue / # donations the most accurate way to build this indicator is by dividing the amount of money received by the number of effective contributions made $ the sum of individual contributions / # active donors the second formula is another way to calculate it if you need an indicator to measure the monthly evolution; divide the sum of the contributions made by donors in a month by the number of active donors for that month |
$ CPA | all the investment (direct) divided the number of new donors $ direct investment / # new donors |
donation frequency | donations are mostly made on a monthly or annual basis |
PBT | $ CPA / $ average donation this indicator represents the amount of time (measured on the donation’s frequency) that is needed to repay the investment of acquiring a donor |
% retention rate | (# active donors at the end of the period - # new donors during the same period) / # active donors at the beginning of the period |
% monthly cancellation rate or also called attrition or churn rate | (# active donors at the end of the month - # active donors at the beginning of the month) / # active donors at the beginning of the month you should exclude new donors; the goal is to know how many of those who started the month as active cancelled their donation |
% annual attrition rate | keeping the logic of the above formula, I would need more than this box to develop the definition as the correct calculation needs to the cohort analysis as it at the end of this article |
ROI | $ gross revenue / $ investment ROI is calculated based on the time that is usually set on 12, 24, 36 and up to 60 months to represent the return (or the revenue) obtained for each unit of money invested in the campaign; there are many formulas for this indicator, but the most common, easy and powerful one is to add the money that came in in a given period and divide it by the amount you invested |
% collection effectiveness | $ collected / $ sent to collect it is the most straightforward calculation, but it would help more to separate a group that can distort the actual effectiveness of the charging system $ collected / ($ sent to collect - $ new people without charging) |
A more geometric alternative calculation of the churn rate that includes new donors is here. It is practical and accurate.
% monthly attrition rate (alternative) | # days of the month * # attrited donors / (# active donors at the beginning of the month * # days of the month + 0.5 * # net donors * # days of the month) net donors are the difference between # active donors at the end of the month minus those at the beginning of the month |
Finally, operational indicators are numbers focused on measuring the effectiveness of the main steps in the fundraising process. These give us daily and weekly clues as to where to adjust our conversion funnels.
The most important is the “% conversion” in all its possible forms. According to the channel, the funnel, or the information available, there are many. The calculation always divides the total number of "converts" by the universe from which that conversion was made. For instance,
Among the many calculations you can imagine, one deserves to be remarked for monthly donors. Some organizations call it “% fulfilment” which is the number of donors who made their first donation over the amount that completed the donation form.
By monitoring the conversions daily, especially the indicator of new donors (the last and most crucial step of our conversion funnel), you will have a better chance of reaching the goals and making decisions that drive or correct the course of your fundraising operation.
Either because they are obsolete, because of their complexity or the lack of practicality they show, these indicators are some that continue to appear in fundraiser conversations:
ADL | ADL = 1 / monthly attrition rate can be measured in months or with other frequencies, such as the annual |
LTV | LTV =% gross margin for the average donor lifetime * ADL * $ average donation there are other ways to calculate it, but this formula is useful and straightforward % gross margin = ($ gross income for the period - $ investment in the period) / $ gross income for the period |
LTV is a curious and misunderstood indicator due to its difficulty in calculating, interpreting and applying it. It is about calculating for a particular time (or projected to infinity with more complex tools) the sum of the values of all types of donations that someone makes in their life as a donor, usually deducting the costs of acquisition, loyalty and maintenance.
Suppose all the recurring and spontaneous contributions and upgrades are added, and all the expenses and investments made to obtain those resources are subtracted. In that case, we have a net figure of your LTV. Some calculations also include the attrition rate to consider the financial impact of losing someone from the donor base.
But most known formulas or models are very imprecise and therefore give little information or peace of mind to make decisions with them. As the calculations cannot include variable timeframes for each donor, this uncertainty diminishes the power of its definition, so then: What is the use of having a good or well-calculated LTV?
LTV is a window to the future and, at a donor level, a powerful way to measure the quality of your acquisitions. So, instead of waiting three years of return to know your ROI, you could meanwhile
For those with databases over three years old of contributions, LTV can be calculated with artificial intelligence to reach the benefits listed above. Every one of your donors can have their own LTV value calculated based on the patterns and histories in your databases.
This indicator, when well-calibrated, can become a strategic KPI for the organization due to its ability to awaken new insights and perspectives on our fundraising goals. This is because, at a general level, we can have a better approximation of the funds and timeframes generated by our acquisitions and a numeric sense of the quality of those relationships at a particular level.
Understanding in this way, at a one-person level, our relationships with donors, we will have opportunities to create proposals of true-value and longer-term relationships. If you want to develop your LTV index, contact me to tell you more about how and what we have been doing lately.
I want to add to the article a concept used in the subscription business models (mainly in SAAS[2]) worth exploring further. What is below is somewhat crude material technically and, of course, somehow optional.
This indicator is about measuring the churn rate based on money rather than the number of donors. Hence, if the standard attrition rate measures the pace of monthly donor withdrawals, this indicator makes the same analysis but financially and incorporates the one-time contributions and the revenue or expenditure of upgrades and downgrades that may have occurred.
% attrition revenue rate | ($ gross revenue from active donors at the beginning of the month - $ gross revenue from active donors at the end of the month) / $ potential gross revenue from active donors at the beginning of the month you must exclude new donors for that month; the goal is to know what proportion of money cancelled their contribution |
This indicator measures at what pace an organization loses their revenue (if it results to be positive) due to cancelled donors or downgrades or if they recover income from sporadic donations or upgrades in recurring contributions. Do you think that measuring the attrition in money could help improve your donors' loyalty?
Enough formulas.
Geronimo Tutusaus.
organizations.ai