How to Calculate Donor Retention Rate

Do you work extremely hard to acquire a new donor and then watch them walk away after one donation? Do you know that this happens anecdotally at your organization but don’t have the numbers to understand how often? 

Calculating your nonprofit’s donor retention rate can help you know how often donors stop donating to your nonprofit. This data helps your team retain more donors, assess your fundraising efforts, forecast revenue more accurately, and improve your organization’s bottom line. 

This article will define donor retention rate, explain why you should be calculating it, detail how you can calculate it, and show how KIT can help you do this.

What is Donor Retention Rate?

Donor retention rate is a measure of how many donors who have donated to your organization have come back to donate again. If a donor donates and returns to donate the following period again, they have been “retained.” 

A donor lapse occurs when a donor stops giving to your organization. There are many reasons that a donor may lapse, from a change in giving priorities to a lack of engagement. But, as a fundraiser, you have to do everything in your control to retain your donors and encourage them not to lapse. Your donation retention rate helps you gauge the success of your retention efforts.

Why Nonprofits Calculate Donor Retention Rate

1. Forecast Revenue Accurately

You probably track several fundraising KPIs already; it may seem like a lot of work to add another one to the list. But if donor retention rate isn’t on your list, you’re missing out on some essential donor data. 

In 2020, average donations in the United States rose 10.4% from 2019 in the United States, despite a global pandemic. At first glance, this sounds like great news for fundraisers and nonprofits. Upon further investigation, Fundraising Effectiveness Report found that most of these donations came from new, one-time donors who were inspired to give during a difficult time. 

What followed was a major drop in donor retention rates across the country, mainly among these new donors. This meant that the increase in donation revenue wasn’t sustainable. The decline could cause severe issues for organizations over time since they don’t have a reliable source of donation revenue. If this trend were to continue, those new donors from 2020 would no longer be donating after five years. 

If fundraisers take donor retention rate into account, they can identify potential drops and lulls in their donations, predict their donation revenue for different periods and make the necessary adjustments to prevent a catastrophe. Calculating donor retention rates can help you take the temperature of your nonprofit, foresee any fundraising issues that may arise down the line, and plan for the future.

2. Save Time and Money Spent on Donor Acquisition

It is more affordable for nonprofits to keep donors than acquire new ones. Some organizations just break even on acquiring new donors. Retention, however, is much cheaper. Donors already trust your organization and are convinced to support your cause, so you just need to continue engaging them and inviting them to donate again. 

It takes an average of two years to recoup the costs of raising a donation, so retention is key to maximizing your return-on-investment on each donor.

The average donor retention rate for first-time donors is 20%, and it is 60% for repeat donors. This means that if you can get a new donor to make just one more donation, the chance that they will continue donating rises by 40%. The more recurring donations your nonprofit gets, the more you’re able to spend on fulfilling your mission, improving your operations, and balancing your books.

How to Calculate Donor Retention Rate

Donor retention rate is the percentage of donors retained by a nonprofit from one period (usually a year) to the next. 

You can calculate donor retention using this formula: 

[Returning Donors in Year 2 / All Donors in year 1] x 100 = retention rate 

Here is an example: If 2,427 supporters donated to your organization in 2020 and 1,096 of them donated again in 2021, your equation would look like this:

[1096/2427] x 100 = 45.16%

How to Calculate Donor Retention Rate Using KIT

To gauge your donor engagement and retention efforts correctly, you need to track and monitor your donor retention rate regularly. This is especially important if you have a recurring giving program. 

By regularly tracking your donor retention rate, you can notice trends and patterns and identify problems as they arise. If you see a downward trend, it is easier to investigate and solve this issue after a few weeks than after a few months! 

KIT is a nonprofit tool that allows fundraisers to measure essential KPIs, gather donor insights, and make predictions about donor behaviors. With KIT, you can track your donor retention rate, amongst a host of other metrics, on an easy-to-understand dashboard, so it is always top of mind. 

Most importantly, you don’t even need to calculate donor retention rate yourself (am I the only one who breathed a sigh of relief?) because KIT will do it for you.

As a predictive analytics tool, KIT can also make predictions about your donors’ behavior and recommend steps you can take to prevent donors from lapsing. This feature is crucial because it can save your time and money and ensure you’re focusing on the strategies that will increase your fundraising ROI.

Donor retention is one of the most talked-about KPIs in fundraising for a reason; it can make a big difference to your bottom line. So, be sure to prioritize it when tracking and reporting on your nonprofit’s metrics.