How To Calculate Donor Lifetime Value

Donor Lifetime Value Equation:

\[ DLV = \frac{\text{average donation} \times \text{frequency} \times \text{retention period}}{1 + \text{discount rate} - \text{retention rate}} \]

Average Donation:

Donation Frequency (per year):

times/year

Retention Period:

years

Discount Rate:

decimal

Retention Rate:

decimal

Donor Lifetime Value (DLV):

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1. What is Donor Lifetime Value?

Donor Lifetime Value (DLV) is a metric that estimates the total financial contribution a donor will make to your organization over their lifetime as a supporter. It helps nonprofits understand the long-term value of donor relationships and make informed decisions about fundraising investments.

2. How Does the Calculator Work?

The calculator uses the DLV equation:

\[ DLV = \frac{\text{average donation} \times \text{frequency} \times \text{retention period}}{1 + \text{discount rate} - \text{retention rate}} \]

Where:

Average Donation — The typical amount donated each time
Frequency — How many donations per year
Retention Period — Expected number of years donor remains active
Discount Rate — Time value of money (typically 0.05-0.15)
Retention Rate — Probability donor will continue giving (0-1)

Explanation: The equation accounts for both the donor's giving pattern and the time value of money to estimate total lifetime value.

3. Importance of DLV Calculation

Details: Understanding DLV helps organizations determine how much to invest in donor acquisition and retention, evaluate fundraising strategies, and forecast long-term revenue.

4. Using the Calculator

Tips: Enter average donation in dollars, frequency as donations per year, retention period in years, and both rates as decimals between 0 and 1.

5. Frequently Asked Questions (FAQ)

Q1: Why include discount rate in the calculation?
A: The discount rate accounts for the time value of money - future donations are worth less than current ones due to inflation and opportunity cost.

Q2: What's a good retention rate for donors?
A: Nonprofit averages vary, but 40-60% is typical for annual donors. Higher is better - top organizations achieve 70%+.

Q3: How can I improve my organization's DLV?
A: Focus on increasing donor retention through better engagement, increasing gift amounts through upgrades, and encouraging more frequent giving.

Q4: Should I use this for major donors?
A: Major donors may require individual calculations as their giving patterns are often irregular and relationship-based.

Q5: How accurate is this calculation?
A: It provides a reasonable estimate but actual results will vary based on changes in donor behavior and economic conditions.