[ASK AN EXPERT] Calculating Donor and Donation Retention

Our Ask An Expert series features real questions answered by Claire Axelrad, J.D., CFRE, our very own Fundraising Coach, also known as Charity Clairity.

Today’s question comes from a fundraiser who wants to know how to calculate their donor and gift retention rate, and how they impact one another.

Dear Charity Clairity,

How do I calculate our donation/gift retention rate from year to year? It’s great if our donor retention goes up but if their average donation goes down each year, that is not good. Thanks.

— Confused

Dear Confused,

Calculating donor retention is different than calculating gift retention.

Also, calculating gift retention is different than calculating whether that retained gift is more than, less than, or equal to the previous gift.

You can calculate all these things, but they are separate math problems. Or, if you have a donor database, they are separate queries you need to run in order to generate a report.

Donor Retention Rate

This refers to the number (or percentage) of donors that return to give another gift in a specific time period (usually a year). Divide the number of last year’s donors (you can use a calendar or fiscal year) by the number of previous year’s donors and multiply by 100.

If you had 250 donors two years ago, and of these 100 renewed their giving last year, your donor retention rate would be 100 divided by 250 X 100 = 40%

Gift Retention Rate

This refers to the total amount of retained gifts you receive in one year compared with the total amount received from those same donors in the previous year. You divide the amount received this year by the amount received last year to arrive at your gift retention rate.

If you retained 40% of 250 donors, you want to run a report to see how much these 100 retained donors gave you last year.  Then you want to run a report to see how much these same 100 donors gave you this year. If they all decreased from $100 to $50, you’ll then divide $5,000 (100 donors X $50) by $10,000 (100 donors X $100) to arrive at a gift retention rate of 50%. And, yes, this is not good. But… if you check out the results from the Fundraising Effectiveness Project you’ll find average gift retention has been below 50% for the past decade.  In the last year for which full annual data is available, gift retention was just 48%, while donor retention was just 45.5%.

This doesn’t mean some organizations don’t do a lot better (some do worse), or that your organization can’t improve your results!

Gift Downgrade, Upgrade and Flat Calculation

The reason I like to calculate these numbers is because it gives me a good idea who I need to pay attention to.

1. First I’ll look at upgrades and consider who is likely to upgrade again (maybe I’ll put them on a major donor track).
2. Next I’ll look at those whose giving has remained at the same level for a number of years, and who may benefit from some special attention this year (maybe they’ll get a donor survey so I can learn what most interests them, how they prefer to be communicated with and other preferences).
3. Finally I’ll look at those who gave less than previous years, and consider what I might do if I want to keep them (maybe I’ll make a phone call or send a survey to ascertain the reasons for their waning interest). 

Again, you’ll need to run separate database queries and reports to arrive at your numbers. You’ll begin with the subset of everyone who gave to you this year who also gave last year. Essentially you specify a date range to restrict the report to gift transactions within that range. You can also restrict the report based on transaction type (e.g., a specific campaign) or a minimum and maximum gift amount (i.e., you may want to calculate upgrade/downgrade rates for different levels of givers – e.g., small, mid-level and major). Some databases have canned reports to calculate upgrades and downgrades.

The benefit of digging into your database in this way – up, down or flat – is you can unearth strengths and weaknesses in your donor stewardship program. Perhaps you’re seeing downgrades in your mid-level donors because you’re not paying them sufficient attention. At the same time, you major donors may be increasing their gift size because you’ve got a strong plan in place to cultivate them. Keep up the good work in the latter case; add a little donor love in the former. Here are 10 ways to upgrade donor gifts.

Other things worth calculating to track your progress year-over-year include:

• First-time donor retention – note that new donors who renew within the first three months have lifetime values nearly twice as high as those who give a year later, so this is a strategy definitely worth focusing on. 
• Ongoing donor retention – once a donor gives to you more than once, you know they really dig you and your cause. These folks have potential for high lifetime value, so it’s worth strategizing to boost this number.
• Annual average gift – generally if this number goes up, it’s a good thing. If it goes up while total numbers of donors go down, it may mean you’re attracting more major donors. In fact, it’s a trend across all nonprofits to see fewer donors making larger gifts. Of course, you don’t want to lose too many donors. Keep an eye on total contributed revenues to know whether you’ve got a red hot issue or are simply in line with trends.

Hope you’re a little less confused,

— Charity Clairity

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