Fundraising & Development

Calculating nonprofit donor retention, plus how to boost it

April 6, 2021 Nonprofits Decoded Team
Donor meeting and fundraising for nonprofit

Donors are vital to the success of a nonprofit organization, so how do you keep them engaged in your fundraising activities?

A proper fundraising system involves donor outreach, tracking and proper analytics – often using a donor database – while also making sure the right key performance indicators (KPIs) are tracked.

Far too many charities view donations as a “one-and-done” transaction when in reality donor retention can allow for growth and support of your mission.

What is donor retention?

Donor retention is a measure of the loyalty of an organization’s existing donors. In order to raise funds for their projects, organizations are highly concerned about ensuring the donors’ commitment to the org’s causes.

Nonprofits solicit from donors as their main source of revenue. In order to properly plan for projects, they need their financial source to be as constant and reliable as possible. Securing donors is a lengthy process. Needing to secure new sets of sponsors for every next project is simply not sustainable. Therefore, the goal is to preserve a continuous and lasting relationship with the existing donors and ensure that they never lose their connection to the organization.

A high donor retention rate is when the majority of its existing donors remain financially committed to the organization’s future projects. In other words, it is the number of donors from the previous year who are still willing to donate this year.

A low donor retention rate implies the need to compensate by doubling efforts on acquiring new donors.

The other side of donor retention is donor attrition, which is the number of donors from last year who did not renew their financial loyalty this year. These metrics are important indicators on how a nonprofit is doing in terms of their fundraising effectiveness.

How is donor retention calculated?

Donor retention is calculated by dividing the number of returning donors by the total number of donors from year one.

Number of Returning Donors / Number of Previous Year Donors = Retention Rate (%)

If 20 donors out of 80 decided to give their support again, the organization’s retention rate is 25% while their attrition rate (lost donors) is 75%.

Higher retention rates are a benchmark of how well your organization has handled its relationship with its supporters, such that they remain committed year after year. A low retention rate is a sign that your donors did not feel valued enough or did not see much meaning to your cause to deem your organization worthy of their continued support.

Recent trends in data from the Fundraising Effectiveness Project show the donor retention rates in the nonprofit sector have continued to decline.

In 2020, the average retention rate was set at 43.6%, down 4.1% from 2019. Interestingly, however, giving did increase in 2020 vs 2019 by 10.6%.

Why is donor retention important for a nonprofit?

Opportunity Cost

Donors are the lifeblood of nonprofits. As such, they spend a considerable amount of time, resources, and effort on acquiring connections and translating that into financial sources. This process can be long, grueling, and expensive. Winning over first-time donors does not necessarily mean the organization has profited from the investment of acquiring them in the first place.

Recurring Revenue

A one-off contribution may tide the organization’s expenses for a period of time, however, if they can’t convince them to stay and donate again, they would have to spend another round of resources into acquiring new sponsors for the next projects. In sum, retention is more economical and certainly more important than acquisition.

Growth and Loyalty

Retention is also critical for the survival and growth of a nonprofit. A higher retention rate is a guarantee that the organization would have enough financial capital to sustain its future projects. This is important when it comes to budget planning and strategizing on fundraising initiatives as organizations would have a bird’s eye view on how much they have to go around with and how much more they might need to launch future initiatives.

Similarly, a high retention rate means that the donors are satisfied with the organization’s management of their donations, and continue to believe in their cause. Long-time donors also tend to donate larger sums to the organization as they have built a relationship of trust and camaraderie. Securing existing donors’ loyalty would, in turn, attract potential donors as it means the organization is worthy of such continued support.

What is a good donor retention rate for a nonprofit?

While the average donor retention rate across the nonprofit sector sits at an estimated 40-45%, a good retention rate would depend on the development plan of specific organizations.

Ideally, the higher the retention rate, the better. The key is to boost the retention rate while keeping the attrition rate at a minimum.

How can you boost your donor retention rate?

The key to boosting your donor retention rate really is to find a way to acquire loyalty from your donors. Build a relationship that extends beyond financial matters and actually make giving a meaningful act for them. Make them feel valued and get them involved with how the projects are run. Ask them for feedback. Let them contribute to your cause besides money.

In line with this, try to get your donors to join you in some of your activities. Let them learn what and for whom they are paying for, where their money goes to. Let them be intimate with the history of your organization and why your missions matter, that their money would make a difference. This would establish an intimate relationship with your donors to your cause, and not just to the people running your organization.

For fundraising effectiveness, try to personalize your fundraising strategy or appeal. How do they prefer to be communicated with? Phone calls or emails? How often? Conduct research on your target donors’ personal information. They will be more inclined to come back if they understand how the organization has spent effort into getting to know them.

Importantly, your communication with your sponsors should not always be related to asking for donations. You’d want to establish a friendly relationship, not of a beggar always hounding for money. And, like any other kind of relationship, the key to maintaining a good relationship with your sponsors is to be consistently present.

Keep tabs on your metrics. Ask for feedback. Are there faulty leaks in development plans? Where can you improve? What else can you put on the table? For those donors who are not yet familiar with the organization, they would look at how well it is managed. A streamlined strategy would encourage them to trust that the organization knows what it is doing and they would have more confidence that their money would be put to good use.

How do you calculate the lifetime value of a donor?

Donor Lifetime Value (LTV) is a projected estimate of how long a donor can financially commit to your organization.

To calculate your LTV, use this formula:

Lifetime of a donor = 1/attrition rate.
Lifetime value = lifetime x average annual giving per donor.

We remember that donor attrition is the inverse proportion of donor retention – it measures the percentage of donor loss. In the first equation, we see the value of a low attrition rate.

For example:

If the attrition rate is at 50%, and the average annual giving per donor is $1000.

Lifetime of a donor = 1/.5 = 2 or 2 years
Lifetime value = 2 x 1000 = $2000

Using the same amount of average annual giving per donor, let’s lower the attrition rate to 25%,

Lifetime of a donor = 1/.25 = 4 years
Lifetime value = 4 x 1000 = $4000

This is a numerical representation of how donor retention is arguably the most effective way to minimize losses on a nonprofit’s financial capital.