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For nonprofit organizations, donor acquisition is a critical component of maintaining financial sustainability and pursuing their purpose. However, attracting new donors can be a challenging and costly process. This is where the concept of donor acquisition cost comes in.
Donor acquisition cost is the total cost of all marketing and fundraising activities required to acquire a new donor. In this guide, we'll explain how to identify and calculate this metric, so you can make informed decisions about where to allocate your resources and improve your overall fundraising success.
This guide will go over how to calculate your donor acquisition cost, considerations for evaluating it, and how to create an individualized approach to donor acquisition. Let’s begin!
How to calculate your nonprofit’s donor acquisition cost
To calculate your donor acquisition cost, divide the total cost of outreach, cultivation, and stewardship by the number of donors you’ve acquired through these efforts. For example, let’s say your nonprofit spent $100 on an email newsletter series and recruited 20 donors through these emails. Divide $100 by 20 to equal five—this means that, using your email newsletter series, it cost you five dollars to acquire a single donor.
Evaluating your nonprofit’s donor acquisition cost
Ideally, nonprofits want to keep their donor acquisition cost low but their acquisition rate high. When you assess your nonprofit’s donor acquisition cost, keep your budget and acquisition strategy in mind. This will help you determine what improvements need to be made to lower your cost. For example, if you spent most of your budget on a direct mail campaign and received few donors in return, you might shift your focus to digital marketing.
Your donor acquisition rate and cost may also be impacted by external factors. For example, during a natural disaster or health crisis, food banks become a source of relief for many people and therefore receive more new donations than they might normally. This results in a higher acquisition rate and a lower donor acquisition cost. When evaluating your acquisition-related metrics, consider how these external factors may have affected them for a more holistic picture.
Donor acquisition and retention: Creating an individualized approach
A nonprofit’s ideal donor acquisition rate and cost will vary according to its unique goals, budget, and operations. Rather than benchmarking your nonprofit against a general donor acquisition metric, it is more beneficial to your fundraising efforts to understand what solicitation and stewardship strategies work best for your particular donors.
Work with your fundraising team to pinpoint which communication channels and fundraising strategies were employed, how many were successful, and how they related to your fundraising cost per dollar ratio. This ratio identifies how much money you spent to raise a single dollar for an overall fundraising campaign, which can be compared to your donor acquisition costs to help determine how effective your acquisition strategies were.
Remember that these metrics alone are not the end-all-be-all, but are parts of a whole that you must consider together to get a more accurate picture of your fundraising success. After you evaluate these metrics, your solicitation strategies, and your stewardship practices, set benchmarks and goals according to your results.
Final thoughts about identifying and calculating your donor acquisition costs
Calculating donor acquisition cost is a critical step for nonprofits looking to expand their donor base and improve upon their fundraising efforts. Remember to continually track your progress and adapt your strategies to stay on track toward achieving your goals. With a data-driven and effective approach to donor acquisition, you can rely on sustainable funding and create more of a positive impact in your community.