Time to Update the 5-Year Value Metric

14 Feb Time to Update the 5-Year Value Metric

14 February 2023

By David Allen, Development for Conservation

Happy Valentine’s Day! (Love your donors. They will love you back.) This post will have nothing to do with Valentine’s Day. But I hope you have a lovely day, regardless!

For the last several years, about this time, I have posted about a metric I’ve wanted to collect data on – the 5-year-value of new members. I’ve been asking everyone to look back at the donors who made first gifts (ever) to your organization five years ago and the amount of money that group of donors has collectively given since then.

The division of those two numbers provides an average: the average amount of money a donor recruited five years ago has given over the five years since (and including) their first gift. That’s the 5-year-value of a new member.

Of course, many of those new donors never gave again. Some gave two or three years in a row and then dropped out. And still others gave, dropped, and came back. But the 5-year-value still works as an average.

As a general measure of an organization’s overall fundraising health, the 5-year value is a pretty good one. It incorporates other more singular metrics like renewal rate, lapsed member recovery, upgrading success, and average gift. These are all metrics that are easily affected by fundraising activity.

Perhaps more importantly, the 5-year value of new members serves as a critical economic argument for spending money on marketing. If it costs you $150-200 (each) to recruit new members, and those new members only give $35-50, few Board members are eager to be more aggressive. But if, 5 years later, you have $300, $800, or up to $4,000 (each) to show for it, investments in growth are easier to justify.

Let’s do it again!

Regardless of the results of your calculation, I am interested in your results because it helps show the range of experience and provides another way for us to learn from each other.

The five years I’m requesting now would be 2018-2022. The first-gift data (from 2018) will still pre-date the pandemic, but it is interesting to see if the 5-year value increased through the COVID years. Many land trusts reported record numbers of new members 2020 and 2021. It will be interesting to see how they give over their first five years – data we can report on in 2024 and 2025.

Here’s what I will need from you, if you’re willing to participate:

• Isolate the members and donors you have who made first gifts to your organization at some point – any point – during the calendar year
• Now add up everything those donors have given to your organization – as a group – since then (1/1/2018 through 12/31/2022).
• Send those two numbers to me – the number of donors and the total amount they have given. The email address is David (at) DevelopmentForConservation (dot) com.

Note that I do not reveal the names of the organizations when I report on the data.

ALSO …

If you gave me data last year, I won’t need it again, but if you didn’t … The larger the data set the more interesting the results will be.

If you also did this exercise in past years, compare the current number with your past results. Are they similar? If they differ dramatically, can you explain why? What can you tell from the trend line, if anything?

Can you isolate what it cost you to recruit those members and donors in 2018? Did you use different recruitment strategies? For example, direct mail versus recruitment at events versus friends of Board members?

If so, did you use source codes? Can you now determine whether the 5-year values were different with the different strategies?

If so, I’d love to hear about your experience! This is an open invitation to be more thoughtful and intentional, and to share your results. What are you learning?

While we’re right there – now is a good time to isolate what you spent on recruitment in 2022, too, before it gets too lost to recreate later. It will help you with your 5-year metric calculations in 2026! Hint: if you are not capturing source codes already, it’s not too late to start. And you’ll be glad you did five years from now.

Here are some of the points I make in workshop presentations:

• A 5-year value between $500 and $1,200 is a pretty normal. (The median experience is $800.) If your numbers are lower than $500, you can probably do better. I’ll bring those ideas back in a future post.
• It can cost as much as $150-200 to recruit a new donor, depending on your method of recruitment. Many recruitment efforts cost less than this, but they can be difficult and expensive to scale.
• The 1-year Return on Investment (ROI) is often negative; it often costs more money to recruit a new donor than that person actually contributes in their first year.
• BUT – the 5-year ROI is pretty good.
• And (hopefully!) none of this includes planned giving.

It’s like a black box with $150 inputs on one side, $800 outputs on the other, and five years of donor communications, engagement opportunities, and renewal notices in between. The more times you plug in $150, the more times you pull $800 out the other side – five years later.

And finally, what are you doing to help improve your 5-year values? What have you tried that is working? What have you tried that isn’t (yet) working?

May I share your experience with others?

Cheers, and have a great week!

-da

PS: If you’ve sent me information about your new donors from 2018 and you’re still hungry for more, try running the same analysis for all 2018 donors. How many donors made donations of any size in 2018 and how much money did those donors gave in the five years since (2018-2022). The division there will tell you the average 5-year value of all your 2018 donors.

PPS: Your comments on these posts are welcomed and warmly requested. If you have not posted a comment before, or if you are using a new email address, please know that there may be a delay in seeing your posted comment. That’s my SPAM defense at work. I approve all comments as soon as I am able during the day.

Photo by Stefan Schweihofer, courtesy pixabay.com