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Why Average Lifetime Value is a key metric for non profits

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Written by: Doug Taylor

For non-profit organisations, success isn't solely measured by the immediate impact of a donation. Instead, it extends to the long-term sustainability and growth of the organisation's mission. To ensure this sustainability, non-profits need to see past the surface level and dig deeper into the intricacies of donor relationships. One key  metric that helps them achieve this is the Average Lifetime Value (ALTV) of their donors. But ALTV can be a tricky beast to master. There are numerous approaches to calculating it, and even more questions about how good your data needs to be.. So where do you start?

Understanding ALTV

Average Lifetime Value (ALTV) is a metric that quantifies the long-term worth of a donor to a non-profit organisation. Unlike measuring success solely through the immediate impact of a single donation, ALTV considers the cumulative value of a donor's contributions over their entire lifetime of engagement. Calculating ALTV provides a comprehensive view of how each donor contributes to the organisation's long term success and growth.

Calculating ALTV: Different Approaches

  • Average of Lifetime Donations: One of the simplest methods to calculate ALTV is by finding the average of all donations made by a donor throughout their engagement with the organisation. This approach is straightforward and serves as a fundamental starting point.
  • Cohort Analysis: Cohort analysis involves grouping donors based on common characteristics like when they first donated or their donation frequency. By analysing each cohort's donation patterns over time, non-profits can gain valuable insights into the varying ALTV across donor segments.
  • Recency Frequency Monetary Analysis (RFM): RFM analysis segments donors based on how recently they have donated, how frequently they’ve donated, and how much they have donated. This method helps identify the most valuable donors who have contributed recently, frequently, and generously, highlighting their potential for high ALTV.
  • Predictive Modelling: Non-profit organisations can leverage predictive modelling techniques to forecast a donor's future contributions based on their historical data and behaviour. This forward-looking approach can help in identifying donors with the highest potential ALTV.
  • Customer Lifetime Value Framework: Borrowing from the business world, the Customer Lifetime Value (CLTV) framework can be adapted for non-profits. By applying this framework, organisations can estimate the expected lifetime value of each donor, factoring in contributions, engagement, and retention rates.

The Importance of Calculating ALTV for Non-Profits

  • Resource Allocation: Understanding the ALTV of donors helps non-profits allocate resources more efficiently. Organisations can focus their efforts on retaining and nurturing donors with higher ALTV, ensuring that their limited resources deliver maximum impact.
  • Fundraising Strategy: ALTV insights inform fundraising strategies. For example, if a cohort analysis reveals that donors acquired through a specific campaign have a higher ALTV, more resources can be allocated to similar campaigns in the future.
  • Improved Engagement: Understanding ALTV allows non-profits to tailor their communication and engagement strategies to different donor segments. Donors with high ALTV may receive more personalised outreach, fostering a deeper connection with the organisation.
  • Long-Term Sustainability: ALTV focuses on the long-term, highlighting the importance of donor retention and loyalty. By cultivating and retaining donors with high ALTV, non-profits can ensure sustained funding for their mission.
  • Data-Driven Decision-Making: Calculating ALTV encourages data-driven decision-making. Non-profits can make informed choices regarding donor acquisition, engagement, and retention strategies based on quantifiable metrics.

Why You Should Calculate ALTV

In a landscape where non-profits are constantly vying for attention and funding, the ability to harness the power of ALTV can be a game-changer. By understanding the lifetime value of your donors, you can chart a more sustainable and strategic path forward. ALTV empowers you to:

  • Identify high-value donors and prioritise your efforts accordingly.
  • Optimize fundraising campaigns to attract donors with the potential for a higher ALTV.
  • Foster lasting relationships with donors, increasing the likelihood of continued support.
  • Make data-driven decisions that maximise the impact of your organisation's resources.

For non-profits, success is measured not just in terms of immediate impact but also in sustainability. Calculating the Average Lifetime Value (ALTV) of donors is a crucial step in achieving this. ALTV helps organisations make informed decisions about resource allocation, fundraising strategies, donor engagement, and long-term sustainability.

To delve deeper into the world of ALTV and unlock its potential for your non-profit organisation, we‘ve put together a comprehensive guide to calculating the Average Lifetime Value of your donors. Download your guide today and start making a difference that lasts a lifetime.