‘Quick and Dirty’ Lifetime Value
Lifetime value is the single most important part of an individual giving strategy. In fact, I might argue that it is the strategy. Lifetime value tells us who to target, what methods of support to promote, which recruitment channels to prioritise and how to develop our relationship with our donor to optimise loyalty and levels of giving. Which is pretty much everything we need to make those important strategic decisions.
And yet in many ways, LTV has never really become a mainstream strategic tool. We talk about it a lot and many of us have set out to develop it, but all too often we have been held back or foiled entirely by frequently insurmountable challenges with getting the data that we need from our databases – accurate gross income data for every transaction ever made by the donors, accurate corresponding expenditure for each transaction and accurate attrition rates over long periods of time. Even if we have a database, and a data analyst who can get it out of the database, often we find that the historical data is incomplete – not captured in the first place or deleted or lost.
As if this enormously complex and time-consuming process were not enough of a challenge, we also need to be fast and up-to-date with our calculations to make the information usable. The market changes so fast that by the time we have carefully worked out our LTV it can be out of date. If we make our investment decisions based on a 3-year old LTV calculation we could potentially be seriously out of line with the marketplace, especially in times of economic fluctuation.
Personally, I find the ‘quick and dirty’ lifetime value calculation invaluable as a way to get started and to get some useful information fast. It is a tremendously helpful first step that defines the ‘ballpark’ of LTV. It can be done in a room with an experienced fundraising team using the contents of their heads, and their existing available fundraising data. We use these as ‘best estimates’ to calculate a ‘ballpark’ net lifetime value for each fundraising offering.
It is clearly not exact or precise, but with an experienced team of fundraisers who know their fundraising programmes it can produce a first draft of the all-important relative LTV ranking that we need for prioritising and organising our fundraising offerings to deliver the supporter journey.
Of course, we must never lose sight of the ‘quick and dirty’ nature of this LTV: always treat it as a ballpark; always recognise that there will be some areas where the information and assumptions we are using are too crude to make quite fine differentiations. And obviously, set up a process that validates the assumptions made with full rigour. Having used this ‘quick and dirty’ approach many times now, it is remarkable how consistently the ‘broader’ patterns that emerge from this are subsequently confirmed by the detailed LTV analysis.