July 20, 2015 | Accelerator

Crowdfunding versus the Big Fish: Using LTV to Design a Donor Strategy

On Wednesday, Scott Roen, Managing Director of Global Digital at BlackRock, advised the Fast Forward cohort on effective use of analytics. Scott suggested using analytics in three ways:

  1. Product design : you should validate that you’re creating something people actually want
  2. Growth optimization : take advantage of existing tools provided by other organizations in order to push sustainable growth
  3. Customer lifetime value (LTV) : identify where to invest your time and money, an even more critical issue for nonprofits with limited resources

Scott’s talk was incredibly valuable and got us thinking further about how to use LTV in a tech nonprofit context.

In the nonprofit world, the customer is often a donor (though it could also be the person you are serving, such as in an earned revenue model, or another institution you are selling to, such as an NGO or government agency). A donor’s LTV should be thought of as a combination of their current donation plus the potential for future donations. $50,000 today with an 80% chance of getting $50,000 for each of the next 5 years is probably better than just getting $100,000 today from a donor who then disappears, as long as it doesn’t take a ton of work for each additional $50,000.

This means that nonprofits should focus their fundraising efforts on donors with high LTVs because of high future potential rather than a large single grant without future potential. Also consider the amount of effort each LTV dollar raised will require: easy small LTV wins (e.g. crowdfunding and going after individuals) might be better than pursuing big LTV customers that take a lot of resources (e.g. foundation grants). Tech nonprofits have additional options when trying to identify the low hanging fruit: should they focus on traditional foundations who may be less familiar with the tech startup model, individual tech employees who may be new to philanthropy, or someone else?

In the end, be quantitative in your decision making. Be explicit in your estimates of the LTV of each donor, your estimates of how much effort cultivating a relationship will take, and your chance of success. Tech nonprofits operate in an even more complicated context, so using LTV to help figure out how to focus your strategy is even more important.