cost to acquire

The Alphabet Soup of Acquisition


“What’s a realistic response rate to expect from acquisition?” I was recently asked.

Realistically, I don’t know how to answer that question.

Instead, I suggest, as a KPI, you should track CTA and LTV.

KPI: Key Performance Indicator

Don't get me wrong: I’m a huge advocate of measuring and monitoring performance. And response rates are an important metric.

For example, response rate can be a good metric to use to compare package performance … or list performance. But it's really only part of the picture.

Further, I would contend that while it’s important, it’s not strategic, i.e., it doesn’t provide a milestone you can use to assess progress toward your organization’s central business objective(s).

As Stephen Covey would say, First Things First.

A more strategic perspective would be to base your acquisition (or reactivation) efforts on what you can afford to spend. This is determined by calculating your CTA and LTV.

CTA: Cost to Acquire (Also referred to as CPD: Cost per Donor)

How much do you spend to acquire a new donor?

For a single mailing, you can look at the total cost of the mailing divided by the number of new donors.

Thus, if you spend $1,000 to mail 500 pieces and generate 10 new donors, you’ve spent $100 per donor.

Many organizations hold down acquisition costs by creating a special version of a donor package to help underwrite the cost of the mailing. If you’re mailing a package that costs 40¢ per piece, send it to 500 prospective donors and generate 10 responses, you have a much more palatable $20 cost per donor.

While you can track this by individual mailing, it’s more helpful to annualize it (consider a full year’s expense) to use as a budgeting tool.

Can you afford to spend $100 to acquire a new donor? Or even $20. You won’t know unless you compare that cost to LTV.

LTV: Lifetime Value (or Long Term Value)

On average, how much does a new donor generate over an extended period of time?

Calculating LTV is a bit more complicated. Essentially, it’s a means of averaging total revenue from a group of like donors over a three to five year period. As a simplified example:

If you acquire 100 new donors this year and that group gives a total of $2,500, the one-year return is $25 per new donor.

If, in year two, 40 of those donors give again for an additional total of $1,200, the two-year cumulative return is $37. ($2,500 + $1,200) ÷ 100 = $37.

If, in year three, 35 of those donors give again and give a total of $1,050, the three-year cumulative return is $37. ($2,500 + $1,200 + $1,050) ÷ 100 = $47.50.

And so forth. Which gives you a usable benchmark against which you can compare your cost to acquire.

LTV is one of the most strategic numbers to monitor, because it also forces you to track some other important metrics: conversion (how many new donors make a second gift), retention (how many of last year’s donors make a gift this year) and average gift.

Fodder, perhaps, for a future post!