Net Present Value - Are donors costing you money?

Courtesy of the Donor Power Blog, today I share with you the calculation that can chart your future. NPV, or Net Present Value, is a simple calculation that can help you prioritize your fundraising efforts, and possibly leave some out entirely.

Basically, the calculation takes into account the potential for the donor to support your nonprofit over the life of the relationship (not just the first ask) as well as the cost of cultivating and maintaining the relationship.

When it comes to going after certain lapsed donors, according to the Donor Power Blog,

"When you calculate NPV on groups of donors (based on the size of their acquisition gift) you'll discover some amazing things. ... Some donors just aren't worth reactivating, while others are worth going the extra mile to do so."

To calculate NPV for your next campaign, use this formula:
+ Total projected lifetime giving from donor (or group of donors)
- The cost of donor acquisition
- Ongoing costs of maintaining the relationship

Obviously, these figures are going to be approximations to some point. But, the more you study and analyze your costs, and the better you research and understand your donors, the more accurate these predictions will be.

For instance, you should be able to calculate how loyal your donors are at different levels. Do you retain 80% of your donors from campaign to campaign? Or only 30%? That can help you figure out the total lifetime value of the donor to your nonprofit.

You should also know to the cent how much the current acquisition campaign is going to cost per potential donor. And you should have a fair idea of what you spend on maintenance (from newsletters to all donors to lunches with major donors).

What do you think? Are you using NPV, or some other similar calculation already? Do you think this will help you? I'd like to know.

Tags: nonprofit, fundraising, net present value, NPV, donors