Understanding metrics is the key to survival and growth. From a multinational corporation in New York to a grassroots non-profit in Bhutan, understanding the facts and numbers help every organisation – no matter its type or its makeup. Measuring success, analysing failures and predicting trends – metrics are the compass that guides organisations towards their goals.
For charity organisations, these numbers hold even more weight. In a world where public perception and broad-based support can make or break a non-profit, understanding and interpreting metrics becomes the bedrock of their success. Of all of the different metrics that matter, knowing how and where you stand when it comes to donations is perhaps the most critical one for a non-profit. Here are a few donation metrics that will help you understand where your charity stands and what you can do to improve.
Donor Acquisition: The Foundation of a Charity
Donor acquisition refers to the new donors your charity gains in a given year. A 2018 Fundraising Effectiveness Project report revealed that for every 100 donors gained, 99 were lost due to attrition, highlighting how important this metric is for any charity.
A key element to use here is something we can call regular donations versus the one-time donations that most people opt for. Small regular donations not only help an organisation increase the donor lifetime value (DLV) but also reduces overall acquisition and retention costs. To give an example, a donor making a one-time $500 donation sounds good but far better is a $25 donation for 3-4 years or more. The small numbers do not hurt the donor and reduce the charity’s need to constantly raise funds. We cover DLV in a separate section below.
Donor acquisition is the first stepping stone towards calculating your Donor Acquisition Cost (DAC) and other key metrics such as donor growth rate, donor retention rate, and donor churn. We look at these different metrics in subsequent paras.
Donation Growth: The Heartbeat of a Non-Profit
Donation growth, as the name suggests, is the increase in your donations over time. To put it into perspective, if your donations in 2021 were £50,000 and they grew to £60,000 in 2022, your donation growth rate would be 20%. It is a crucial metric as it shows the financial health of your charity. Tracking this number over the years gives you a compounded annual growth rate (CAGR) and comparing this percentage over the year-on-year growth is a good indicator of how you are performing.
According to the Philanthropy Outlook 2021-2022, charitable giving is expected to rise by 4.1% in 2021 and 5.7% in 2022. So, if your growth rate is stagnating or declining, it’s time to revisit your strategy and see what is working and what needs to change.
Lapsed Donors: The Unfortunate Reality
Lapsed donors refer to those who once donated to your charity but have stopped. All charities face this issue. The Association of Fundraising Professionals reports that the average donor retention rate is just 45%, indicating that over half of all donors will lapse. However, this seemingly grim number can be a treasure trove of information, helping you understand where things went wrong and how to fix them. All you need to do is dive in, connect with the donors and take it from there.
As we mentioned in the first section, having a number of donors agree to a small monthly contribution right on your charity website or newsletter email is much better than asking them for larger sums. Money is precious to the owner and fundraising drives of charities work much better if they do not hurt the donor, financially or even psychologically. You don’t want donors who complain that you asked for too much and they could not refuse. It is better to ask for too little and get a more supportive donor pool.
Donor Retention: The Litmus Test
Donor retention is a measure of loyalty. It indicates the number of donors who have continued to support your charity. A high donor retention rate is a testament to your relationship-building efforts with your donors. This metric can provide valuable insights into donor behaviour, helping you fine-tune your strategies.
A key element most charities ignore and they should not is that they do not connect the donation to a cause. Saying something like ‘Your $20 donation will feed a family of four in Mogadishu for a week’ is much better than raising funds to ‘feed the poor’. Your donors see that they are making a difference and are more likely to continue to donate. Undertaking a bit of SEO and online marketing will also help you find an audience that identifies with your cause.
Donor Churn: The Balancing Act
Donor churn is the rate at which donors leave or join your charity. It is a balancing scale of sorts – on one side, you have your new donors, and on the other, your lapsed donors. A positive churn rate indicates growth, while a negative one signals a decline. Keeping an eye on this metric can help you maintain a healthy balance between acquiring new donors and retaining existing ones.
Having this number on the higher side means that your charity is doing a good job of finding more donors and you can improve the strategies and plans that are working.
Donation Reactivation: The Comeback
Donation reactivation is a heartening metric. It represents the lapsed donors who have decided to support your charity again. It is a testament to your efforts to re-engage with past donors and an indicator of the effectiveness of your strategies. If you spend some time with your lapsed donors, understanding why they stopped supporting your cause and what you can do to help them help you, then you will likely have strong donor reactivation numbers.
Something that can help you with this is a newsletter that helps you keep past donors connected with what you are doing. Having simple call-to-action (CTA) buttons including donation buttons also help you master the donor reactivation metric. You do not know what story may resonate with someone or when someone may be in the mood to donate. Adding simple CTAs help you increase your donor reactivation numbers.
Donation Retention: The Goal
Donation retention, akin to donor retention, is the number of donors who have consistently donated over a certain period. It is essentially a measurement of the steady support your charity enjoys. For instance, if you had 100 donors in 2021 and 60 of them donated again in 2022, your donation retention rate would be 60%.
Charity organisations strive to maximise this rate. A higher rate implies a strong and loyal donor base, reducing the pressure of constantly finding new donors. According to the Fundraising Effectiveness Project, the average donor retention rate is approximately 45%, which means there’s a lot of room for improvement for many charities.
Understanding the importance of donation retention is crucial. It is directly linked to your organisation’s financial stability. Loyal donors provide a predictable stream of income, allowing for better financial planning and resource allocation.
Donor Lifetime Value: The Long Game
While it’s not as commonly discussed as the other metrics, donor lifetime value (DLV) is a vital number to understand. It represents the total donations a donor makes over their entire relationship with your charity. For instance, if a donor gives $10 every month every year for 10 years, their DLV would be $1200. Most charities don’t realise that small donation amounts do not hurt the donor financially and even psychologically and reduce the charity’s need to constantly raise funds.
The reason this is important is that smaller amounts allow a charity to tap into a larger pool of donors across a larger geography. Also, if you do a reality check (and this has been proven in research) most people who donate to charities are conscientious people. The more your charity takes care of these kind people, the better are your chances of getting regular donations from them. And making the world a better place (a conscientious person is a precious gift to all of humankind and taking care of these people is one of the best things we can do for the world).
DLV is important because it puts the cost of acquiring and retaining donors in perspective. It’s typically more cost-effective to retain a donor than to acquire a new one. So, by focusing on increasing DLV, charities can improve their financial sustainability in the long run.
To Sum Up
Each of these metrics provides a piece of the puzzle that is your charity’s performance. Together, they offer a comprehensive picture of where you stand and where you could be heading. They are a mirror reflecting your strengths and weaknesses, helping you understand your charity and its impact better.
By sticking to these metrics and understanding what they signify, you’ll find yourself well-equipped to steer your charity towards success.
References:
- Marts & Lundy. (2021). The Philanthropy Outlook 2021 & 2022. [online] Available at: https://philanthropyoutlook.com/.
- The Fundraising Effectiveness Project. (2018). 2018 Fundraising Effectiveness Project Report. [online] Available at: https://afpglobal.org/FEPReports.
- Association of Fundraising Professionals. (2021). Fundraising Effectiveness Project Report. [online] Available at: https://afpglobal.org/FEPHome.
