Balancing sound business practices against the drive to focus on mission is one of the most significant challenges faced by the modern nonprofit. It’s a cultural challenge as much as an operational one, and something that all organizations must grapple with in order to grow and become more sustainable.
Here at Classy, we are constantly looking to refine our business operations, drawing on advice from different thought leaders like Eric Ries and David Skok in an effort to improve ourselves and our platform. As we do so, we often find parallels between what we find helps our business run more efficiently, and what we see working for the many nonprofits we serve.
Thankfully, becoming a more data-driven organization, and tracking your own internal metrics isn’t rocket science. It’s based on simple math. Best of all, it’s something that, with a little effort, any nonprofit professional can understand and implement to improve operations and help their organization grow.
One caveat: We tend to think in terms of recurring, predictable, revenue and long-term engagement as being important to sustainability for ourselves and for our customers, so these concepts are presented with that in mind.
Now, without further ado, the top 5 metrics every development director should know…
1. Month over Month, Year over Year
This is an easy one. How much money did we bring in this month? How many donors did we acquire? How much compared to last month? How much year-over-year?
It’s always important to show growth, and observe performance against comparable nonprofits, and those you admire. Every nonprofit is different though, and each faces a unique set of challenges. It’s most important to focus on internal benchmarks that you and your team determine, and continuously raise the bar for yourselves.
Given the cyclical nature of nonprofit fundraising, pure month-over-month comparisons don’t always tell the whole story. You’ll want to show steady growth, but once you establish a baseline, compare your growth against the same time period year-over-year, and use that information to measure performance, and set new goals for yourself.
2. Donor Acquisition Cost (DAC)
Say what you will about the battle to keep overhead low, I think we can all agree that it’s important to know how much it costs to acquire new donors so that we can understand where to place our resources, and where we might need to adapt.
DAC = $ Spent on New Donor Acquisition / # of new donors acquired
You don’t need to nitpick here. Just look at your marketing/acquisition expenses as a whole and divide by the # of new donors acquired. Take things to the next level by calculating DAC by marketing channel, campaign/event, or period of time. See what has the highest return on your investment (ROI) and what could use some improvement. Identify ways to bring down DAC overall. Even better, if you can demonstrate that every dollar spent on a particular channel nets a higher number of new donors (and whatever contribution they bring) you should be able to make the case to invest more resources into that channel.
3. Donor Churn
Now that we’ve gone through the trouble of acquiring all those donors, let’s do our best to hang onto them as long as we can. Depending on the study you’re looking at, between 60 and 90 percent of all first-time donors cease to contribute to the same organization the following year – something which a strong recurring donations strategy can help mitigate. Recurring donors have a much higher retention rate, with around 70 percent continuing their gifts into the 2nd year.
Donor Churn = # of lost donors / # of total donors*
Once you know your churn rate, you can work towards making that rate as small as possible. Thankfully, there are many strategies that will help, including:
- The missing piece of your online fundraising strategy →
- Marketing your organization’s impact →
- Launching a recurring donations campaign →
- Balancing data and human interaction →
*Note: Keep in mind that you will want to calculate separate churn rates for monthly donors and your annual givers. As you calculate the next two metrics, you can use the different churn rates to get insight into these two different categories of donors.
4. Donor Lifetime
This is more of a helper stat to get to the metric that comes next, but it’s still important by itself. As a development professional, you want to know how long your donors stick around before leaving your organization for another. The longer you can keep them around, the greater their overall contribution is likely to be, and the greater the chance they’ll help out in other ways, such as volunteering, fundraising, joining an event, or signing an important petition.
Donor Lifetime = 1/Donor Churn
If you find your donor lifetime is shorter than you want it to be (ideally they’re donors for life), look for ways to engage with them, and make them a bigger part of your community.
5. Donor Lifetime Value
This is one of our favorites, and one of the most important when looking at long-term development. We look at fundraising ROI as transcending the dollar amount raised by a given campaign. One-time gifts are important, but the number of new contacts acquired can provide even more significant value.
Each contact represents an opportunity for future gifts and community involvement. Past value can be determined by summing all prior gifts, but predicting overall LTV of a new donor is more of a challenge. If they give with regularly, be it monthly, or on an annual basis, here’s the formula for you:
Donor LTV = Average Donation Amount per Donor / Donor Churn Rate
If you can figure out how much value each new donor brings to the organization, you can look for ways to maximize that value, and make better decisions about how to spend resources on donor acquisition and prolonged engagement. If your Donor Lifetime Value is greater than your Donor Acquisition Cost (or better yet 3-5x more) you should be seeing some pretty good growth across the board, and your organization should be healthy and thriving for years to come!
If you already have a data-driven culture, hopefully some of these metrics look familiar to you. Perhaps they have already helped you frame things in a new way. If these metrics were new or foreign to you , that’s okay too. It’s important to start someplace. Measure what you can, and build towards more advanced reporting and improved accuracy as you grow. For most organizations, this is an ongoing challenge, and requires constant attention. As with many other things, just getting started is half the battle.
Once you establish some baseline metrics you’re confident in, identify ways to look deeper into the data. You might analyze each metric by cohorts, or groups based on key identifiers such as age, gender, location, acquisition month, event participation, etc. By comparing donor success, churn, and lifetime value by cohort, you can identify the things you’re doing well, areas for improvement, and groups you can focus on that may feel underserved. Doing so will help put you on a path to continuous growth and improvement as an organization.
By paying attention to the metrics that matter, and making a commitment to developing your data-driven culture, you can create an environment primed for sustainability – one that will give you the best chances of significantly advancing your mission, which is what this is all really about in the end anyway.