There’s a fundraising adage that says: “It costs more money to acquire a new donor than to retain an existing one.” And it’s true: the estimated cost of acquiring a first-time donor is five times that of retaining one.
In other words, fundraising without donor retention is like trying to fill a water bucket with holes in it. Even when you have lots of new donors coming in, that success is undermined by the supporters you lose.
This is a well-known principle of nonprofit development, but to this point, a standard calculation for retention has proved elusive. How can you assess the health of your donor base if you’re applying less-than-intuitive math to determine retention?
Here at The Hub, we’ve devised a formula that we think is just right:
Members active a year ago and still active today / members active a year ago
This is called “annual, rolling retention”, with retention equal to donors active year-over-year.
Let’s see this formula in action using some stats from a hypothetical organization:
Total active members 365 days ago: 1,000
Members that lapsed during the past 365 days: 400
(1,000 – 400) / 1,000 = 0.6 (or a 60% retention rate)
Why base the calculation on annual retention instead of monthly? Because a monthly retention calculation would only keep track of members retained through the month, and relatively few members lapse in a given month. This could give an organization a false sense of security, whereas rolling, annual retention, presents a more accurate picture. And since retention is generally considered an annual metric for strategic purposes, this simple calculation is the most intuitive one to track.
Here at The Hub, we help clients watch for—and react to—retention fluctuations throughout the year. We also produce custom reports that track performance. This helps organizations set goals based on their own growth rates.
Going forward, we’re excited to aggregate the retention data across all Hub organizations, allowing us to identify benchmarks the entire industry. Stay tuned for further insights!
Got questions? Reach out to our Director of Client Relations Rebecca Quarls.