Measuring Donor Growth Rate

Perhaps the most important metric in analyzing your nonprofit's long-term sustainability is your Donor Growth Rate.

Donor Growth Rate measures the net change in the number of donors to your nonprofit.

Use the following equation to determine your Donor Growth Rate:

(Number of New Donors – Number of Lapsed Donors)/Active Donors

New Donors: Donors who make their first gift to your nonprofit

Lapsed Donors: Donors who gave last year, but do not the next year

Active Donors: Total number of donors who gave last year

Donor Growth Rate is measured in percentages: a Donor Growth Rate of 25% means you have 25% more donors this year, relative to last year; a Donor Growth Rate of -10% means that you lost 10% of your donors over the previous year.

Let's look at the impact on your gross revenue of various Donor Growth Rate scenarios.

For simplicity's sake, we've controlled the average gift and assumed other constants over a five-year period. We've also excluded inflation or the time value of money from our analysis (this analysis would result in lower revenue values after year one).

Negative Donor Growth Rate

Assumptions

Active Donors = Number of donors who gave in the prior fiscal year

Donor Growth Rate = Annual Total of -5% (any combination of lapsed donors and new donors that totals -5% of Active Donors)

Average Gift = This value remains unchanged at $75

NEGATIVE DONOR GROWTH RATE
	Y0	Y1	Y2	Y3	Y4	Y5
Active Donors		5,000	4,750	4,513	4,287	4,073
Donor Growth Rate		-5%	-5%	-5%	-5%	-5%
Annual Net Donors	5,000	4,750	4,513	4,287	4,073	3,869
Average Gift	$ 75	$ 75	$ 75	$ 75	$ 75	$ 75
Gross Revenue	$ 375,000	$ 356,250	$ 338,438	$ 321,516	$ 305,440	$ 290,168

The impact of negative growth rate is significant over five years:

• Number of donors declined by 23%
  
• Absolute revenues dropped 23%
  

Zero Donor Growth Rate

In this scenario, your nonprofit adds exactly as many new donors as it loses. Assuming your average gift does not change, your gross revenue remains the same over the five-year period.

Positive Donor Growth Rate

Assumptions

Active Donors = Number of donors who gave in the prior fiscal year

Donor Growth Rate = Totals 5% (any combination of lapsed donors or new donors that total 5% of Active Donors)

Average Gift = This value remains unchanged at $75

POSITIVE DONOR GROWTH RATE
	Y0	Y1	Y2	Y3	Y4	Y5
Active Donors		5,000	5,250	5,513	5,788	6,078
Donor Growth Rate		5%	5%	5%	5%	5%
Annual Net Donors	5,000	5,250	5,513	5,788	6,078	6,381
Average Gift	$ 75	$ 75	$ 75	$ 75	$ 75	$ 75
Gross Revenue	$ 375,000	$ 393,750	$ 413,438	$ 434,109	$ 455,815	$ 478,606

The impact of a positive growth rate is equally significant:

• Number of donors soared by 28%
  
• Absolute revenues grew by 28%
  
• Not only are these metrics impressive, but you've also positioned your overall fundraising program for further growth:
  
  • You'll likely need to re-segment your Major Donors from your Annual Fund Donors and maybe expand the number of donor segments.
    
  • You may need to begin offering new giving vehicles to match the new and emerging needs of your new donors. New vehicles might include estate planning giving options, stock contributions, or automatic giving via credit card.
    

Below is a chart that diagrams the difference between a positive Donor Growth Rate and a negative Donor Growth Rate.

Donor Growth Rate Effect on Dollars Raised Over Five Years

Don't bother squinting to see the individual values; this chart demonstrates how quickly a relatively small variance between positive (the orange line) and negative (blue line) Donor Growth Rates quickly escalates to a significant gap in just five years.

In addition to determining whether your Donor Growth Rate is positive or negative, you should consider the impact of your Donor Growth Rate on your revenue. For instance, you might find yourself with a negative Donor Growth Rate, while your total revenue increased. This is likely caused because you added new donors who gave gifts large enough to compensate for your volume losses. At best, this is a stop-gap strategy for the short term, but it won't sustain your organization into the future.

Your Donor Growth Rate gives you valuable information about the effectiveness of your appeal and your communication of your value to all donors. If you have a positive Donor Growth Rate, you're messaging well and the community generally believes your organization is a valuable asset.

However, if you have a negative Donor Growth Rate (sustained over a couple years), you need to re-examine your communication with donors. Explore investing in e-communications strategies and testing new messages about your mission and work that are relevant to your donors.

Most organization's fundraising goals are set based on last year: let's look at what we did last year and improve slightly. However, if you are off - even just a little - year-over-year, your nonprofit can quickly find itself in a significantly weakened financial situation.

Knowing your organization's Donor Growth Rate, on a multi-year basis, should be one of the first metrics you consider when forecasting your current year-end outcomes and when creating next year's budget.