Lifetime Value - a personal odyssey

John WhiteheadWaterAidSeptember 2011

http://www.nationaltrust.org.uk/main/

Cash Gifts v. Committed Giving

• It is much harder to model lifetime value for cash donors than for regular donors.

• Cash donors lapse after each gift, and you may only receive one or two gifts a year per donor.

• Regular donors continue until cancellation and for monthlies you receive 12 gifts a year.

How simplistic can you get?

• One year value = annual value of the Direct Debit

• Four year value = 4x annual value of the Direct Debit

But we all know about attrition and how many donors you can lose in the first year.

Direct Debit Retention by Recruitment Channel

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 6 12 18 24 30 36

Months

Inserts DRTV Face-to-Face

52.2%

37.1%

84.6%

95.0%

88.7%

72.7%

Version 1Baseline Lifetime Value

• Simple Excel Model

• Initial DD value, factoring monthly attrition

Version 2

• Baseline model plus the following factors, with associated costs.

• Channel• Recruitment costs• Annual stewardship costs• Gift Aid rates• DP opt-out rates• Upgrade propensity• Cash appeal responsiveness

Over what period?

• I year?

• 5 years?

• 10 years?

The relative performance of different channels does

depend on the time horizon• Face-to-face may well break even first by

virtue of the high average gift value.• Even after two years inserts probably have a

lower ROI than either DRTV or F2F.• At WaterAid inserts start to pull ahead after

three years.• We look at net LTV after 5 years, by which

time inserts lead DRTV with F2F in a poor third place.

• But in detail, some DRTV segments and some insert segments deliver similar 5year LTV.

However…

• …At the end of 5 years you could well have lost less than 30% of your insert donors...

• …nearly 50% of your DRTV donors…

• …and 75% of your F2F donors.

• So the story continues beyond 5 years

Does “donor half life” help?

• We lose 50% of our face 2 face donors in 12-14 months

• We lose 50% of our DRTV donors in 60-64 months

• But to lose 50% of our inserts donors takes over 120 months

• Sadly, unlike radiation, the decay rate is not steady, so this judges channels like F2F too harshly...

5 Year Survival Rate

• A channel with a high annual value and a high attrition rate may have a similar, or better 5yr LTV than a channel with a low annual value but a low attrition rate.

• But you may have many more of the lower value donors left at the end of 5 years

• Reporting the 5 year survival rate alongside LTV helps tell the full story.

Our 5 year survival rates are something like this

Inserts 75%DRTV 55%Face to Face

20%

It’s all about survival folks!