Do you think Scrooge McDuck, the famously wealthy cartoon character, would be an easy target for fundraising? Maybe you’ve thought that fundraising is just about finding wealthy individuals who are sitting on piles of cash, ready to give. If only it were that simple!
In reality, successful fundraising is far more complex. It requires building relationships, understanding donor motivations, and most importantly, leveraging Donor Lifetime Value (LTV) to shape long-term strategies.
The Myth of Easy Money
Much like the fictional Scrooge McDuck, wealthy donors aren’t just waiting for you to ask for money. They usually have well-developed ideas about where they want their resources to go. This makes the work of a fundraiser challenging, particularly when trying to acquire new donors.
But here’s where the power of LTV comes into play. When you focus on the long-term value of a donor, you’re not just thinking about that initial gift but the lifetime of contributions and engagement that follow.
A Common Scenario: Maddie and PRoGI
Imagine this: You’re the Vice President for Development at a nonprofit organization called Paving the Road with Good Intentions (PRoGI). Your boss, Malcolm Triestodowell, just got off the phone with a concerned board member, Madeleine “Maddie” Gottrocks. Maddie and her husband, Sam, are generous donors, and she’s now raising concerns about the cost of fundraising.
“How can we be spending more on direct mail than we’re bringing in?” Maddie had asked. She thinks it’s a waste, and you need to explain why it’s not.
Here’s the key: New donor acquisition is rarely profitable right away, but when you calculate Donor Lifetime Value, you can see that what seems like a loss at first can turn into a massive gain over time.
The Importance of Donor Lifetime Value
When Malcolm mentions Maddie’s concern about fundraising expenses, your response is crucial. You need to explain that investing in new donors upfront often costs more than you initially get back. However, over time, those donors contribute far more than that initial gift.
For example, let’s say PRoGI spent $125,000 on a direct mail campaign and only raised $50,000 from new donors. That looks like a loss—until you factor in lifetime value. Those new donors will continue giving in future years, and their total contributions will eventually far exceed the original investment.
And it’s not just the individual giving. New donors often bring in others through their networks, helping the organization grow even more.
Moving Forward
When faced with a situation like Maddie’s concerns, here are some steps to take:
- Educate your leadership and board about the long-term benefits of donor acquisition. Use specific data to show how past donor investments have paid off over time.
- Calculate and track your Donor Lifetime Value. Knowing the long-term financial impact of your donors helps you make informed decisions and invest wisely in fundraising strategies.
- Leverage relationships. If Maddie is passionate about a specific fundraising strategy, consider her ideas, but also explain how your current efforts are part of a broader strategy for sustained growth.
By understanding and applying LTV, you can navigate tough conversations with donors and board members and position your organization for long-term success.
