At the Third Sector, Fundraising Week Conference our MD, Jon Kelly, held a session to demonstrate why measuring Lifetime Value (LTV) is so important and how getting it right is easier than it seems. Here we cover some of the questions you need to ask yourself and provide some examples of LTV in action, where it has proven to be extremely useful for both the non-profit and commercial sectors.
Lifetime Value, Customer Lifetime Value (CLV/CLTV) or Lifetime Customer Value (LCV), whatever term you use, has been around for a long time. Despite this, some charities still don’t take a forward-looking view on supporters and the value they could bring. Analysis, calculated from initial payback on recruitment campaigns in the short term, can lead to decisions being made that may not benefit longer-term strategies of the organisation.
The most successful companies use a LTV model to the its best advantage, to achieve remarkable results. For example, Amazon gained insight that Kindle owners spend approximately $1,233 per annum buying from Amazon, compared to other customers whose average yearly spend is $790. A decision to further invest in the promotion of Kindle was made – as they could predict the impact on overall profitability. Resulting in not only increased Kindle sales, but overall Amazon expenditure.
Bonobos used insights into channels that attract their highest-value shoppers to increase the LTV of new customers by 20%.
Savvy charities are using this information too. LTV analysis can show the difference between recruiting though different channels. For one charity, we helped show that Direct Response Television (DRTV) recruits were more loyal supporters, than those recruited though direct dialogue channels, and that their value to the charity was over 50% higher. What originally seemed to be a higher Cost Per Acquisition (CPA) was recovered far sooner. It was also found that, even within the same channel, different categories of supporters may provide very different value.
With another client we uncovered that their more mature supporters are nearly three times as valuable, over a five-year period, than their younger counterparts. Information like this can help you target effort where it would be most effective.
In a sector where initial payback often does not cover the CPA the understanding of LTV is crucial. Recruiting supporters with high LTV potential is key to creating a sustainable income stream. Why start from zero every year, when you can have a predicted income in the pipeline?
For another charity we recently uncovered that 70% of their annual income was driven by supporters recruited over ten years ago. Recurring revenue, whether it’s from regular donations or a subscription model, is the order of the day. Gartner estimate that three in four organisations selling directly to consumers will offer subscription services by 2023.
For many, calculating LTV can seem daunting, often requiring complex data systems beyond their reach. You don’t need a digital transformation to obtain this analysis. In reality it can be very simple to calculate. The benefits of understanding LTV across your database can be invaluable in making accurate strategic fundraising decisions.
LTV QUESTIONS TO ASK YOURSELF
Wood for Trees has developed an online reporting platform to help answer the questions you need to ask yourself about LTV:
How much do supporters give over their lifetime?
Which channels should I invest in for recruiting supporters?
Which products drive the most value?
Am I recruiting the right kind of supporters?
When do they breakeven?
What else do they do?
We can help you to understand why LTV is so important and avoid some of the pitfalls if you don’t get it right. We can show you how it can be a simple concept to calculate, and present, as well as look to expand LTV beyond monetary terms by including volunteering (time) and campaigning (voice). And once you understand the historic breakdown of LTV you can start to predict the future value of your current supporter base.
To book a demonstration of our LTV portal, and discuss how we can help you, please call 01225 636280 or email email@example.com
You can also find out more by reading our overview paper here.