Lifetime values LTVs

Can pigs fly?

Nigel Magson

LTVs – how much have I thought about them in my lifetime?

How long will they remain a supporter (their 'lifetime')? — what will be the attrition point of their support? — how much are they likely to be worth over this 'lifetime'? —which are the most effective contact strategies to retain them? —which are the most effective recruitment strategies to acquire them? — how to maximise the contact effort to those supporters who will bring the most benefit to the organisation?

Commentary: Back in 1998 I wrote a paper which put down some of the thinking that we’d had on creating and building LTVs. John and I worked together on an LTV model for the National Trust. The following thoughts are a few reflections on LTVs and their value to organisations....

LTVs - reflections

• Definitions, definitions, and definitions

• The problem with predictions

• Applications

– Methods of support & NBAs

– Recruitment channels

Definitions

Definitions -What Type of LTV?

• Gross

• Net

• To-date

• Time banded

• Predicted

• Lifetime(?)

• Fund

Commentary: Definition stage is key to a LTV project. Understand what it is to be used for, and how to calculate. How to work with different elements e.g. Treatment of costs – recruitment and retention/ overhead costs

LTV Levels

• Individual

• Household

• Product

• Campaign

• Method

Commentary: Understand why are we building it? Green are entity levels in database Red are grouped potential cohort levels

Another Definition...

• LTV = the net contribution by each donor each year * the expected duration of the relationship in years * discount rate

Fundraising Management” Sargeant and Jay 2004

Commentary: OK = an accountant’s definition. Perhaps discount rate can be considered a “constant” and is perhaps only used to compare returns over time vs other investment streams.

There are no right/wrong definitions – it will depend on your organisation, planned usage and quality/availability of supporting data.

The problem with predictions

Predictive nature of LTVs

Commentary: At any point in time forward predictions are difficult. Most LTVs are operating off an historic view, but few that I have seen start to factor other macro-economic factors e.g. Levels of disposable income, death rates, competitor impact etc....

Who will be worth more?

Commentary: At any point in time, how do you value the forward income generation from your base of contacts. How much will each of these groups be worth to you and when? Value of non-financial relationships, Value of networks & social impacts, Value of potential legacies, collective events

Different Factors discriminate

Applications

LTVs – so how important are they?

“Lifetime value is the single most important part of an individual giving strategy. In fact, I might argue that it is the strategy. Lifetime value tells us who to target, what methods of support to promote, which recruitment channels to prioritise and how to develop our relationship with our donor to optimise loyalty and levels of giving. Which is pretty much everything we need to make those important strategic decisions.”

Commentary: • A large sweeping claim for the use of LTVs.....is it really a panacea.... I think

not. It would be too simple if it were!!

who to target, how to develop our relationship with our donor to optimise loyalty and levels of giving

Commentary: Targeting Sorry Ltvs are not a targeting or selection tool –EVER! EVER!!! Why? – they are not predictors of response to your next activity. Value is not really a predictor for many occasions, as supporter often give what is asked. LTVs are also not able to optimise loyalty & levels of giving. T his is supporter journey and next best action activity, which is determined differently than through ltvs – although a “value element” can be applied to monitor or track.

Typical Charity Initial to ongoing Cash value comparison

£0

£5

£10

£15

£20

£25

£30

£35

£40

£45

£50

£55

£60

£65

£70

£75

£80

£85

£90

1 2 3 4 5 6 7 8 9 10 11

Time in years after 1st Transaction

Average Cash Transaction Value Compared to First Cash Transaction value

>50.01 - <=100.01

>30.01 - <=50.01

>10.01 - <=30.01

>5.01 - <=10.01

>=0 - <=5.01

To illustrate this, the chart above typically illustrates this for cash, where there is little variation in giving over time from the original gift amount.

LTVs: what methods of support to promote

First we calculate retention rates for each supporter type. This is the percentage of supporters still donating after a certain number of years.

How long will a supporter continue to give?

Then the retention rates are used to estimate the number of years we would expect a “typical” supporter to keep giving. The table below summarises the results for newly recruited supporters.

The Supporter Journey can be

viewed as the path taken by a supporter, starting at the first way in which they support, and identifying if they then proceed on to a second and even a third way of supporting (second and third path).

What are your main Supporter Journeys?

Commentary: LTVs depend on influencing the supporter journey – but what if this changes?

Repeated post

– Asking for COG conversion is the ‘Best Next Ask’ for Cash Recruits. Some convert, but if they do not they respond well to subsequent cash asks.

– If the 1st ask is for Cash or Raffle this suppresses responses to subsequent COG conversion & cash asks

What is the Best Next Ask for Cash Donors?

Repeated post

If the first

communication is a

cash ask, then response

rates for subsequent

asks for COG

conversion are lower

(between 1 and 2%).

If the first

communication is a

raffle ask, then the

response rates for

subsequent cash asks

reduce to just 1-2%.

Repeated post

If the first

communication is a

COG conversion ask,

then response rates for

subsequent cash asks

are higher (11-16%).

Commentary: Actually LtVs play no part in optimising customer journeys, they are more “response” orientated and as we have seen “value” is a poor predictor of response

LTVs: what methods of support to promote

• Sort of helps.....

But LTVs are showing cohort behaviour not an individual’s likely behaviour

Need separate targeting to optimise value

LTVs: which recruitment channels to prioritise?

– Channel Balance

– Spend & budget allocation Typical!!

Retail Online

@

Email

SMS Phone

Post

Supporter Interaction Points

Social

Commentary: Just because I choose a particular donation/interaction point doesn’t mean that’s the only channel to communicate with. Increasingly channels work in combination but PCAs still operate under a last attribution model. More complex PCAs can help

Retention by channel over time

Commentary: Channels can be self-fulfilling – are they been treated the same. If so not optimising value over time.

Recruitment Channels & LTVs

• Yes they give a general direction, particularly if trended

• However media market changes in terms of costs, combinations of impacts with above the line and traditional channels...

• Digital & Social interactions are now increasingly having larger influence

• So isolated views of value by single channel are really too simplistic.

LTVs or the creation of them in fact may be a good thing:

It gets people into a wider exploration

of their data: to track and monitor attrition, to move away from point only analysis and into a different mindset about how they think about their relationships with supporters.... .....perhaps that's their real value.

LTVs – Are you telling porkies?

http://gobarbra.com/hit/new-6f93488226e33e19d517fbd886cf4b0e

• Thanks for listening (please try the song link)

• Any questions, please contact:

Nigel Magson

nigel@marketingdataconsulting.com