For years, nonprofits have been grappling with the concept of donor retention and why it matters. But in reality, it’s Donor Annual Revenue Retention (DARR) that is the King of KPI’s (Key Performance Indicators)
Sad Donor Retention Rates
A friend of mine was not having a good day.
“Our donor retention is down again,” she exhaled. “I don’t see how we are going to break even let alone grow this year.”
But- wait for it- she did grow, despite having a donor retention rate under 50%- which is actually better than the current average of 45.1% at the end of 2019 as reported by the Fundraising Effectiveness Project.
Indeed, how can any organization survive, nonprofit or for profit, when more than half of their ‘customers’ never return after one year?
Because it’s all about increasing the revenue from your existing donors too. And measuring the Donor’s Annual Revenue Retention rate (and growing it!) matters most.
The Basics of Donor Retention
Annual Donor Retention is actually easy to measure. According to the Association of Fundraising Glossary, Donor Retention is, “The number of donors who gave last year and gave this year, divided by the donors who gave last year.”. I know this is true because I helped write it in 2016, lol.
An easy way to think about is imagine it’s December 31st, 2020. Simply take all of the donors who gave in both 2019 and 2020, and then divide that number by those donors who gave in 2019.
If it’s not December 31st and your want to calculate your current annual retention rate, then use months instead of years:
- Donor Retention = All donors who gave 0-12 and 13-24 months ago, divided by those donors who gave 13-24 months ago.
Once you calculate your donor retention, you can then compare it to the benchmark, currently 45.1%.
In my experience, I’ve seen donor retention average anywhere from as low as 20% to as high as 80%.
And a low number doesn’t mean failure! For example, some nonprofits with very transient donors (like the American Red Cross) will see very, very low donor retention because the average donor/family only donates for a year or less, and this is exaggerated even more by the one time nature of natural disasters.
And a high number is possible too- nonprofits driven by members with life-long affiliations have much longer connections with donors, leading to higher retention rates.
DARR to be Different: Donor Annual Revenue Retention Rate
As the founder of DonorPerfect Online, one of the first Software as a Service (SaaS) companies for nonprofits, we would always measure customer retention but starting around 2010 we started measuring Revenue Retention as well. The reason is measuring revenue retention is a much better barometer of your overall success as a recurring business model because it measures the net gains (gains AND losses) you are achieving from the same customer base. Applied to nonprofits, this becomes the DARR – Donor Annual Revenue Retention.
How to Measure DARR
As in donor retention, it’s fairly easy to measure your own DAAR, and the way to think about is along the same lines:
- Donor Annual Retention Rate = The total contributions from months 0-12 for those donors who gave 0-12 and 13-24 months ago, divided by the total revenue of these same donors from their donations 13-24 months ago.
Again, imagine it’s December 31, 2020. To calculate your DARR, take the total sum of all donations in 2020 from donors who also gave in 2019, divided by the total of these same donor donations in 2019.
Adding up to More than 100%
And a DARR can actually add up to more than 100%! Here’s an example as if it’s December 31st, 2020:
- In 2019, 1000 donors gave $100 on average each, and gave $100,000.
- In 2020, of these 1000 donors, a smaller number (800) actually gave $140 each in 2020, for a total of (800*$140) = $112,000.
- As a result, the DARR is $112,000/$100,000 or 112%. Meanwhile, the donor retention was 80%
Why a Good DARR Matters- it’s About Retaining Dollars = GROWTH
As you can imagine, DARR matters because two similar nonprofits can have identical donor retention rates, but if one nonprofit’s DARR is higher, they will raise more money because they are doing a better job of not just retaining donors, but retaining (and growing!) dollars from these same donors as well.
This fact drives much higher increased overall revenue overtime:
Truth or DARR?
So what are you measuring? Are you beyond measuring donor retention rate and ready to take the leap to measure DARR?
In a future post, I’ll actually take a look at what the nation’s average Donor Annual Revenue Retention Rate by using data from the Fundraising Effectiveness Project. What will it be? Stay tuned!