Vetting for Value
Armed with solid NPV information, fundraising executives can begin to make fact-based decisions driven by precision of purpose.
Applying NPV to strategic decisions
With limited resources, where would you spend $100,000 for new-donor acquisition? Take a look at the table (Figure 1), which shows the NPV of donors based on their acquisition source. Clearly, all things being equal, the smart fundraiser will invest in acquisition source D because it will deliver the highest NPV to the organization. But without this vital information, many fundraisers would choose source B because it has the lowest cost of acquisition, or source A because it has the second lowest cost. Others might base their decision on percent response or average gift. While important, these latter statistics must always be placed in context with NPV.
Using NPV as your key management statistic will help you focus your limited resources on those strategies and tactics that will provide the best long-term return on investment. And that’s because NPV takes all the various metrics across all fundraising programs and boils them down to the one most valuable metric.
Organizations that take the time to determine NPV are the organizations that will achieve the greatest success. Consider the case of the organization (Figure 2) that achieved huge improvements in its acquisition and lapsed-donor reactivation efforts when it began to make decisions based on NPV. Its long-term value and NPV numbers soared.
To successfully measure the efficiency and effectiveness of your fundraising program, get a handle on the NPV you’re producing from your acquisition and donor-cultivation efforts. Then focus your campaign strategies in those areas where you can create the greatest improvement. You’ll raise more money by wisely and effectively investing where you will receive the greatest return.
Timothy Burgess is co-founder and senior strategist at direct-response fundraising firm Merkle Domain. Contact: email@example.com.