How to Calculate Donor Lifetime Value to Predict Future Donations

How to Calculate Donor Lifetime Value to Predict Future Donations

January 23, 2019
Raj Khera

Knowing donor lifetime value for each of your contacts can make your nonprofit fundraising efforts go much faster. You can use it to forecast the future giving of your constituents. Here’s how to calculate donor lifetime value, which can help you determine which donors to nurture more closely.

What is Donor Lifetime Value?

Donor Lifetime Value is an estimate of how much you can expect a particular donor to contribute to your organization over their lifetime.

There are many factors that go into calculating what this number should be. Not only should you take into account a donor’s wealth indicators but you should also look at their propensity to give to related causes.

One WealthEngine client found that by simply asking a specific 1% segment of their donors to contribute just $100 more in a year, they would generate over $200,000 in additional funds. In five years, this would generate more than $1 million in new funding from “underperforming” donors.

The beauty of creating such a model is that it can pinpoint exactly who to target and what your ask amount should be.

Creating a Donor Lifetime Value Model

The donor lifetime value wealth model takes into account the giving history to your organization, donation frequency, contributions to similar organizations, and other factors.

WealthEngine’s deep insights into donation habits start with financial data about a donor to determine their giving capacity. The model then uses philanthropic, demographic and lifestyle data as part of the data set to predict how much a donor is likely to give.

Aside from these factors, our data science team uses our proprietary database, which has profiles on over 250 million Americans, to calculate the donor lifetime value.

These insights can help you estimate the churn risk and future giving behavior of your existing donor base.  Armed with this information, you can maximize fundraising ROI across the donor’s lifetime instead of focusing only on your next campaign.

How WealthEngine Predicts Future Donations

WealthEngine’s methodology uses machine learning techniques to determine donor lifetime value.

  1. We start with randomized partitions of known giving history. Some segments of this data are used for calibrating the model and others are used to validate it. We also evaluate various types of predictors using the data sets our clients provide.
  2. Then, we apply machine learning algorithms that iterate and learn from each round of data analysis.
  3. Once the model is created, we cross-validate it to view the model performance. This gives an overall confidence level in the donor lifetime value model.

Using a Donor Lifetime Value Model

Using these machine learning techniques, WealthEngine helps nonprofits determine very useful insights like:

  • Churn likelihood: probability that the customer will not donate anymore after their last donation
  • Next gift amount: expected amount of the donor’s next donation
  • Future gift count: expected number of donations within a 20-year period
  • Future gift total: expected dollar value of donations within a 20-year period
  • Total Donor Lifetime Value: Past plus expected future donation amounts

Equally important, the donor lifetime value model can help you identify the high-value donors at risk, including those with:

  • Moderate-to-high churn likelihood
  • High expected next gift amount or future gift total

When you know these valuable insights, you can identify approaches to increase the number and amount of gifts from your donors. You will know the potential for donor fatigue that occurs due to frequent contribution requests. This can generate higher conversions while saving your marketing investments.

Calculating Donor Lifetime Value for Your Nonprofit

WealthEngine offers multiple donor lifetime value modeling options. In addition to custom models, our popular 4-pack of pre-built models can shine a light on specific major gifts, planned giving and other opportunities within your existing base of donors.

Learn more about how to calculate and apply donor lifetime value to accelerate fundraising for your nonprofit. Take a minute to fill the form on the right and a WealthEngine rep will contact you very soon.

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