The following is a guest post by Creative Science, a digital agency that aligns behavioral science with design and technology to help companies rethink the way they engage with people. Learn more at www.creativescience.co.
The average nonprofit only retains 21% of their donor base year over year.
The term LTV (lifetime value) of a customer is often talked about in the for-profit space but can often be overlooked in the social good space. This is a critical KPI (key performance indicator) to track in order to build a successful nonprofit and speaks to the underlying sustainable health of your donor base. The LTV of a donor is simply the amount of money given over the lifetime of the donor.
In contrast, CAC (customer acquisition cost) is the cost to acquire a donor. The LTV needs to be higher than the CAC or you are losing money on every donor you acquire. There are two ways to increase donor margins; either decrease your CAC or increase your LTV.
Today we’re going to look at increasing the LTV of your donor base. Specifically, focusing on converting one-time donors to recurring donors (rather than finding new donors every year).
Recurring donors give on average 42% more over a year than one-time donors. Typically recurring donor programs enjoy retention rates of over 80% in year one and 95% after 5 years. This has a strong compounding effect and a great way to build sustainability into your social good organization.
So, how do you successfully convert one-time donors to recurring donors?
It starts with understanding five key theories from behavioral science, the study of how humans make decisions.
1. Certainty Bias
Assuring potential supporters that their support will have a certain effect will make your nonprofit more appealing than other nonprofits in which the impact of the donor’s contribution is probable, but not certain.
Donation landing page showcasing exactly what each donation provides.
Studies show donors are more likely to give when they understand the impact of their donation. Provide your donors with visibility into how their money will be spent and the impact it is making. Even if you cannot directly relate, it is critical you do provide some visibility into these metrics.
Anchoring refers to the cognitive bias to use another number (even if unrelated) as reference for a decision. Provide donors with a reference point of how much they should donate.
You can do this by referencing that specific donor’s previous donation amount or by referencing the donation amount of a random previous donor.
3. Default Bias
Make it easy. Humans have a cognitive bias to default to the path of least resistance.
If you’re sending a recurring donor to a donation form, don’t provide the option to donate once. Have ‘monthly’ donation select as the default with a default donation amount selected. Ensure your donation forms are mobile optimized. There is a high chance that a donor will experience your donation processing on a mobile device and if it’s too much work they won’t complete the process.
4. Hyperbolic Discounting
Humans tend to discount the future, we prefer smaller rewards now rather than larger rewards at a later date. Would you prefer $20 today or $30 in six months?
You can use this to your advantage by asking donors to pledge to a larger donation amount in the future. Ask donors to commit to just a $1 a month today with a pledge to increase their monthly donation to $5 six months in the future.
5. Reciprocity Effect
If you subscribed to the Economist and stopped receiving your monthly magazine, what would you do? You would cancel.
The same holds true with a recurring giving program. It is critical to provide updates at least monthly to donors so they are reminded of the impact their giving is making. This can be a simple email update or even an SMS text notification.
95% of all our thoughts, emotions and learning occur before we are even aware of it. Integrating these behavioral science theories into your monthly giving program will allow you to work with the human mind rather than against it.