International Journal of Nonprofit and Voluntary Sector Marketing Volume 5 Number 3
Deciding to recruit only donors with high
lifetime values
Tony Masters
Zalpha, 1 Riverside, London W6 9WA, UK;
Tel: ⫹44 (0)20 8735 8883; Fax: ⫹44 (0)20 7221 0520; e-mail: tony@zalpha.com
Received: 6th June, 2000
Tony Masters is Senior Strategic Partner at
Zalpha, the strategic consultancy of WWAV
Rapp Collins Group. He has spent 25 years in
direct marketing, starting on the client side in
1973, but has worked with WWAV Rapp Collins
for 15 years. He contributes to a wide range of
client areas, but has a special interest in
charities. He has written articles about a variety
of fundraising issues, and spoken at national and
international fundraising conferences.
ABSTRACT
This paper argues that it is important to choose
the right donors to recruit, in order to boost
average lifetime donation values. This choice
needs to be made by making decisions, before
donor recruitment, based on data that are
available in the market. A case history is
shown, based on a group of charities asking for
cash donations, to demonstrate how such deci-
sions may be reached. Finally, there is a
discussion about implications for direct mail,
other recruitment media, and for charities’
fundraising organisations.
INTRODUCTION
Many charities seem to have a ‘high
recruitment, low donor value’ strategy for
direct marketing fundraising. This strategy
has been driven by economic reality: it
generates sufficient long-term income to
meet fundraising cost-to-income and net
income targets. However, recent changes
in data manipulation techniques suggest
that a different strategy — based on lower
recruitment volumes but increased donor
lifetime value — can give a better result
for some charities.
It is common practice to increase donor
lifetime values by careful consideration of
communications. Welcome programmes,
donor-care programmes, and fundraising
programmes are all intended to increase
donor lifetime value. But looking at donor
segmentation suggests that lifetime value is
partly nature as well as nurture, and that
choosing the right prospective donors can
have a big, positive effect.
CURRENT SITUATION
Typically, direct marketing-sourced
donors give to a charity for only a few
years. Exactly how long they stay with
any particular charity will depend on a
number of factors, including the donor’s
affinity with the charity and their
donation method (monthly giving, direct
debit or standing order, or cash). However
a charity defines lapse, ultimately very
nearly all donors will lapse.
Cash donors have higher lapse rates International Journal of Nonprofit
and Voluntary Sector Marketing,
than monthly giving donors. After four Vol. 5 No. 3, 2000, pp. 241–247.
䉷Henry Stewart Publications,
years, about half of all new cash donors 1465–4520
Page 241
Deciding to recruit only donors with high lifetime values
have already failed to give in the previous
year. For donors recruited to a monthly
gift, it perhaps takes eight years (assuming
99.3 per cent renewal each month) before
half of new donors have ceased giving
regularly. To keep up with this rate of loss,
a charity recruiting mainly cash donors
needs to recruit new donors equal to
25–30 per cent of its active donor base
each year, just to stand still. For charities
using mainly regular giving as their pay-
ment method, the number is lower, but
still substantial: 13 per cent. And most
fundraising charities seek to grow their
donor bases, not just to stand still.
In real numbers a charity with 500,000
active monthly giving donors needs to
replace about 65,000 donors every year,
more if it wants to grow. If it had a donor
base of mainly cash givers, the numbers
would be higher: 125–150,000 every year.
These are very large numbers of donors to
replace each year. If a third of these targets
are to come from mailings to prospective
donors, then at typical response rates a
charity would need to mail 2.5 million
people to reach the cash target, or 3.6
million to reach the regular giving tar-
gets.
These days, recruiting new donors in
these volumes is very expensive. Long
gone are the days when it was possible to
recruit substantial numbers of new donors
at an immediate profit. Now, instead of
immediate profit, many charities using
direct marketing find that only 60–90 per
cent of recruitment cost is covered by
first-year income. The remaining 10–40
per cent is regarded as an investment
against the donor’s lifetime value with the
charity. Today, a charity’s investment in
recruiting new donors is very considerable
indeed.
Generally, this investment policy is a
good one. Lifetime values are, on average,
sufficiently high to generate income many
multiples of the original recruitment costs,
Page 242
but that is an average, and looking at
particular cases suggests a very wide spread
of results.
ECONOMIC MODELLING FOR
SEGMENTATION APPROACH
Regular giving
Take the situation of a charity promot-
ing a £2 per month ask. Many people
respond to this type of offer with more
than £2 per month, but there remains a
very substantial group that does respond at
exactly £2. Some of those donors will be
persuaded to trade up to a higher regular
monthly donation, or to give an oc-
casional cash gift, or to add value in some
other way. But maybe 25–35 per cent of
new donors recruited will never give
more than £2 per month.
The economics of this do not look
attractive. The following costs are in con-
venient round numbers, but are not too
far from reality:
— Marketing recruitment costs: promo-
tion at £0.50 per pack, with a 0.6 per
cent response rate gives a cost per new
donor of £83.
— Set-up costs: data capture, database
amortisation, welcome pack, standing
order or direct debit set-up costs. Say
a total of £10.
— Monthly administration costs: bank
transaction charges, database ad-
ministration charges, costs of three
communications per year. Say a total of
£0.25 per month.
The total costs of winning a new donor,
and the set-up costs — the first two items
above, totalling £93 — need to be paid
from a net £1.75 per month (£2 per
month less the monthly charges in the last
item above). This means that the £93
costs are finally recovered with the donor’s

54th monthly payment — four and a half
years after recruitment.
Cash donation
Taking only the donors who pay just £2
per month, their discounted lifetime value
over the average eight-year life of a
monthly giving donor is only £113. This
figure assumes a discount rate of 8 per
cent per annum. It seems a very poor
return on marketing and set-up costs of
£93.
Looking instead at cash donors, the
situation is somewhat worse, because
there is a group of donors who only ever
give once, and no amount of subsequent
mailing can encourage them to give again.
For some charities, this group represents
upwards of 40 per cent of their new cash
donors.
Cash donors have a different, and
simpler, cost structure than monthly
donors, but costs are still substantial:
— Marketing recruitment costs: promo-
tion at £0.45 per pack, with a 1.5 per
cent response rate gives a cost per new
donor of £30.
— Set-up costs: data capture, database
amortisation, and welcome pack. Say a
total of £5.
— Donor mailings: say eight mailings
over two years — after which the
donor’s lapse is recognised — at an
average cost of £0.62 per pack. So a
total of £5.
These add up to a total cost of £40 to
recruit and service a donor who gives,
perhaps, just £15. The charity loses £25
for each donor that does this.
Of course, the programme of new
donor recruitment remains viable, because
those donors who do give again, and go
on to give one or two donations a year for
a large number of years, will be very
valuable indeed. The net income that the
Masters
charity raises from them more than offsets
the money lost on those people who only
give once.
NEED TO REDIRECT MARKETING
SPEND
For regular monthly giving there is a
group of donors — probably 25–35 per
cent of donors — who never give more
than they were originally asked for, and
who contribute only a tiny amount of
value to the charity. Similarly, there is a
group of cash donors — probably 35–40
per cent of donors — who never give a
second gift, and who cost the charity
dearly.
Charities may consider that they want
to divert their fundraising efforts away
from these people, so that more may be
spent on those donors who will provide a
good lifetime value to the charity. Un-
fortunately, these poor-value donors are
brought in from the same recruitment
activity that produces the large numbers of
good, high-value donors: mainly door-
drops, DRTV and direct mail. This ac-
tivity remains viable as long as on average
donors go on to give more.
If progress is to be made in redirecting
marketing spend towards the best donors
and away from the poor-value ones, deci-
sions have to be made at the level of the
individual first-time donor, not at the
level of the postal sector, the TV spot or
the list. The direct mail process is prob-
ably the one that lends itself most easily to
consideration of individuals, but findings
from direct mail will have implications for
the other major recruitment media.
Working with a number of charities, it
has been possible to rank donors from
high lifetime value to low lifetime value.
This ranking can be forecast with con-
siderable accuracy at six months after the
recruitment. The forecasts depend in part
on the initial media of recruitment, but
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Deciding to recruit only donors with high lifetime values
Table 1: Household structure donors
Household structure Best donors (%)
Single male 11.2
Single female 23.7
Unmarried couples 4.0
Married couples 36.5
Older families and similar 14.2
Other combinations 10.4
Total 100.0
mainly on donation amounts and patterns.
These forecasts enable charities to get a
focus on the best donors at an early stage,
but the major costs — those associated
with recruitment — are already incurred.
So forecasts have limited impact on the
charities’ ratios of donation income to
fundraising costs.
If ratios of income to cost are to be
changed, then charities need to make
decisions about individuals, in terms
of their likely long-term value, before
recruiting them. This means that the data
available to use is restricted to what can be
ascertained in advance of promotion:
data from lists, from lifestyle and elec-
toral roll overlays, and from standard
geodemographics. If charities also want
this decision process to be applicable to a
wide range of donors, then they also need
the data to be available as universally as
possible, and also cheaply. Thus the data
on which decisions can be based have to
be standard geodemographics — for
preference, since they are cheapest — or
the electoral roll.
CASE HISTORY: A CHARITY ASKING
FOR CASH DONATIONS
The data below come from work that has
been carried out with a small group of
charities asking for low-level cash dona-
tions, some with an incentive for the first
Page 244
Poor-value donors (%) Index
7.7 1.44
19.9 1.19
4.5 0.90
41.5 0.88
17.5 0.81
9.0 1.16
100.0 1.00
gift. These charities have general market
appeal and are not restricted to small
market niches. In every case, less than 60
per cent of first time donors go on to give
a second gift.
Looking at the profiles of best- and
poor-value donors, against standard
geodemographic and lifestyle profiles,
little difference is found. However, some
progress has recently been made using
data from the electoral roll. This work
indicates that a worthwhile segmentation
of prospective donors can be made before
mailing them as part of the recruitment
process.
Table 1 takes a sample of the charities’
best donors: those who give repeatedly;
and a sample of poor-value donors: those
who have given only once, despite a first
gift many months ago. These were both
profiled by looking at their household
structure, as derived from the electoral
roll. Percentages are given against each
household structure classification, for each
of the two donor groups. Finally, there is
an index, derived by dividing the percent-
age for best donors by the percentage
for poorest donors. If this index exceeds
1.00, then that household structure is
better represented among good donors
than among the poorest donors. If it is less
than 1.00, the household structure is less
well represented among best donors than
among the poorest donors.
 Masters

Table 2: Length of residence of donors

Length of residence summary Best donors (%) Poor-value donors (%) Index

0–2 years 10.0 9.2 1.08

3–5 years 9.8 11.2 0.87
6–10 years 18.7 21.4 0.87
11⫹ years 61.6 58.2 1.06
Total 100.0 100.0 1.00

Table 3: Combined household composition and length of residence

Household structure Response/Mail index Best/poor-value index

Single male 0.94 1.44

Single female 1.24 1.19
Same sex sharers 1.42 1.16
Unmarried couples 1.03 0.90
Married couples only 0.92 0.88
Older families and similar 0.96 0.81
Other combinations 0.95 1.16

Length of residence summary

0–2 years 1.19 1.08
3–5 years 0.96 0.87
6–10 years 0.99 0.87
11 ⫹ years 0.96 1.06

Table 1 shows, as was expected, that single
people make up a higher proportion of
the best donors than they do of the
poor-value donors. But the degree of
over-representation of single men was a
surprise, as was the under-representation
of older families (recent empty nesters, or
people with an adult child still at home).
A similar pattern, although less extreme,
is generated when looking at how long
someone has lived at the same address (see
Table 2). It was no surprise that around 60
per cent of donors had lived in the same
house for more than ten years. This is an
indicator of age, and it correlates with a
high proportion of donors being single.
However, the slight over-representation
of recent movers (0–2 years residency) in
the best donor group was unexpected.
While these segmentations are interest-
ing, they are not sufficient to begin
to make decisions about recruitment
strategy; in recruitment, response as well
as long-term value will be important.
There was a risk of finding that those
potential donors with the best long-term
value also had low response rates. Ob-
viously, what a charity really needs is for
high response to be positively correlated
with donor quality.
In order to understand the response–
quality correlation, the study also looked
at the propensity to respond among the
household composition and length of

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Deciding to recruit only donors with high lifetime values

Figure 1 Initial Response

Low Medium High

Single men
Single women and
(all residences)
Best same sex sharers
‘Other’ households
donors (<2 or >10yrs resident)
(<2 or >10yrs resident)

Unmarried couples
Single women and
(>10yrs resident)
same sex sharers
Average-value Married couples
(2–10yrs resident)
donors (<2yrs resident)
Unmarried couples
‘Other’ households
(<2yrs resident)
(2–10yrs resident)

Unmarried couples
(2–10yrs resident)
Poor-value Married couples Married couples
Married couples
donors (2–10yrs resident) (<2yrs resident)
(>10yrs resident)
Older families

residence segments. Combining both ele-
ments into the same segmentation gives
the chart shown in Table 3. The table
indicates two indices. The first, the
‘Response/Mail index’ is greater than
1.00 if response is higher than average in
this household structure or length of
residence segment, or less than 1.00 if
response is lower than average. The
‘Best/Poor-value index’ is the one seen
previously, and is greater than 1.00 when
the segment has a higher representation
among the best donors than among the
poor-value donors, and vice versa for
values less than 1.00.
Combining these two indices allows us
to plot, for this particular charity group-
ing, those segments that give high,
medium and low response, overlaid with
the likely quality of the donors that are
gained. (See Figure 1.) Low response
combined with poor-value donors —
those least likely to give again — does not
look attractive. If the lifetime values and
recruitment costs for each of the nine cells
in this matrix are considered, then
these charities only make an acceptable
economic return in the four cells labelled
‘Best donors’, ‘Average-value donors’, or
‘High response’. It follows that one of
these charities would do better not
mailing married couples more than 2 years
resident, unmarried couples 2–10 years
resident, and older families no matter how
long they have been resident. These
groups are about 50 per cent of the
charities’ usual mailing file. But mailing
only the other half generates real long-
term value from the remaining half of the
mailing.
Implications for other charities and
other recruitment media
This analysis works for charities asking for
cash donations, because a donor who
gives only once actually loses money

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for the charity. With charities asking for
regular monthly gifts, someone who gives
only £2 every month does eventually
recover their costs of promotion: they do
not make a loss for the charity. This might
suggest that this type of analysis does not
work as well for regular-giving charities.
But it can also be argued that it is better
to replace the monthly donor who only
pays their acquisition costs with a donor
from another list who will have a good
lifetime value. Charity recruitment results
will be improved by replacing poor-value
donors by high-value donors regardless of
whether poor-value donors are paying for
their initial recruitment.
The implications for a charity’s recruit-
ment mailings are clear, but can the same
analysis be used to aid the targeting of the
other major recruitment media: door-
drops and DRTV? DRTV in particular
generates a different audience and would
need to be analysed separately, but it
seems likely that consideration of in-
dividual lifetime values from these media
will aid targeting either in the choice of
TV spots or in the choice of door-drop
areas.
The argument has been made that con-
sideration of lifetime values at time of
recruitment will change the way a charity
uses lists, and could affect the way other
recruitment media are targeted. Such a
change will have implications for mailing
programmes, specifically:
— a need to carry out fundamental donor
analysis prior to a change of recruit-
ment policy
— a need to add an additional stage (and
time) into mailing schedules, to allow
Masters
electoral roll data to be overlaid on
mailing files to allow individual deci-
sions to mail (or not) to be made
— a change in the list-buying process, to
ensure that names can still be bought at
reasonable cost.
There is a bigger change that will be
required, and that is a change to charities’
fundraising targets. Many charities set a
‘cost-per-donor’ recruitment target, based
on the actual recruitment income plus an
allowance for additional future giving; and
a volume target. If a charity is to
change to choosing which individuals to
mail, judging them by forecast lifetime
value, then it is essentially changing to
a ‘higher-value, lower-volume’ strategy.
Fundraising targets, in both cost-per-
donor and volume forecasts, need to
reflect this changed strategy.
SUMMARY
Many charities that fundraise by di-
rect marketing use a strategy of ‘high
recruitment, low donor value’. Economic
modelling, however, suggests that many of
these donors lose money for the charity or
have only a tiny net value. Charities may
wish to change from this strategy to one of
lower recruitment volumes, but with high
donor lifetime value. Changing to this
strategy requires having a decision process
that allows a charity to forecast a donor’s
likely lifetime value in advance of recruit-
ment. The data and technology exist to
allow a charity to create such a decision
process, but there are implications for the
charity’s fundraising organisation, as well as
for the donor recruitment process.
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