Donor Lifetime Value (DLV) is a fundraising metric that measures the expected monetary value a donor will contribute throughout their relationship with your nonprofit. Most nonprofits calculate DLV as an average for all donors or a segment of donors, so the exact DLV of specific donors will vary.
Despite being approximate, donor lifetime value is an important fundraising KPI that you should be measuring. This article will detail how you can calculate DLV and make informed decisions from your calculations.
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How to Calculate Donor Lifetime Value
You don’t need to be a wizard to calculate DLV. You just need some good definitions and an equation. So, here are both.
- Average Donor Lifespan: This refers to how long the average donor will keep contributing to your organization. You can use an estimate (10 years is a good start) or calculate the average length of time past donors have stayed with your organization before churning.
- Average Donation: This is calculated by dividing the total value of the gifts your nonprofit receives in a year by the number of donors who contributed. For example, if $10,000 is the total value of donations in a year and you divide that by 500, your total number of donors, then $20 is your average donation.
- Average Donor Frequency: This refers to how often the average donor gives in a year. You can calculate this by dividing the total number of gifts received in a year by the number of donors. For Example: If your total number of gifts is 1,200 and your total number of donors is 500, then your average donor frequency is 20.
You need to measure and identify these 3 values before you can accurately calculate your nonprofit’s donor lifetime value.
Average Donor Lifespan x Average Donation x Average Donor Frequency = Donor Lifetime Value
Here is an example of how you can calculate DLV:
10 (Average Donor Lifespan) x 20 (Average Donation) x 2.4 (Average Donor Frequency) = $480
This means that we can expect this nonprofit’s average donor to donate about $480.
Why is Donor Lifetime Value an Important Metric for Fundraisers?
Here are two reasons you need to calculate and monitor your nonprofit’s donor lifetime value when implementing your fundraising strategy:
1. Assess The Impact of Donor Retention
Donor retention is key to achieving sustained success as a fundraiser and nonprofit. The longer donors maintain their relationship with your organization, the higher the value of your average donor lifespan and the more contributions you stand to gain. It is important to retain more donors instead of focusing solely on donor acquisition.
Consider a DLV of a donor who has an average donor lifespan of 10 years. From our previous example, this donor’s lifetime value is $480. If you can increase their donor lifespan to 12 years, this will significantly increase their DLV to $576: 12 (Average Donor Lifespan) x 20 (Average Donation) x 2.4 Average Donor Frequency = $576
2. Make Better Fundraising Decisions
You put so much time into fostering donor relationships, but what impact does that really have on how much your nonprofit will fundraise? Your donor lifetime value is a useful metric for assessing the progress of your fundraising strategy.
DLV helps you to pinpoint exactly how much impact all of your strategic efforts (e.g. improving donor retention or increasing annual donations) will have on your fundraising ROI. With this information, you can make better decisions about your fundraising strategy.
If part of your fundraising strategy involves converting one-time donors to recurring donors, you can calculate the DLV of recurring donors versus one-time donors and deduce how much impact this strategy will have on your bottom line.
On the flip side, you may also want to know when it’s time to stop investing in a specific fundraising channel or donor segment. Donor lifetime value can serve as a benchmark for evaluating how much to spend on these channels or segments so you can maximize your nonprofit’s resources and team’s capacity.
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By calculating and understanding your nonprofit’s donor lifetime value, you can better assess the impact of donor retention and boost your fundraising ROI. It’s time to stop driving in the dark and start making better decisions that will lead to your organization’s sustainable success.