Calculating Donor Lifetime Value

This project is described to the extent to which is possible as some of its details are confidential.

“Are we spending too much on user acquisition?”

The problem: The senior leadership team has set an ambitious goal of new accounts for the next year. Marketing requests an increase in the budget destined for user acquisition. The leadership team wants to know what would be a reasonable budget increase for the Marketing team. Although this is not the usual kind of issue that a Research team would tackle, the problem proved to be more complicated than expected and required intervention from the Research and Data teams.

1. Lifetime Value

Customer or Consumer Lifetime Value (also referred to as CLTV) is a fairly simple calculation that aims to obtain the revenue that a single user can bring to a business. This calculation is particularly useful for businesses that use a subscription model of monetization, for instance. However, it can be a little more difficult when the definition of acquisition for the business is not straightforward or when whatever the business defines as acquisition (let’s say, account creation) does not necessarily imply revenue. This problem becomes even more interesting when the business is a donation platform.

The Research team got involved to adapt the basic premise of CLTV into DLTV (Donor Life Time Value). To do this, we revisited the user/donor journeys to identify key moments that could be used as points of reference to determine if the DLTV changed depending on the stage of their journey on the platform.

2. A tier system

The exercise of studying the ideal user journey and the several already identified stages (e.g., first contact, account creation, first payment into the account, etc.) along with the data collected in the platform system allowed the research team to identify several typical behavioural patterns which we called “tiers”. This allowed us to identify, for instance, how many users progressed from first contact to the first payment into their account but were not expected to move further in the journey. By doing this, we increased the granularity of the DLTV calculations, providing several other data points that would make the process of decision-making of the senior leadership way better informed.

In the end, we were not only able to propose a route for assessing the viability of the Marketing budget, we also identified a more cost-effective strategy for the business.

💡What did I learn?

I was initially reluctant for my team to take the task of determining DLTV assuming that it was in reality a task for Business Intelligence. The truth is that researchers within organizations tend to have time that other units and divisions don’t. This is not a privilege, for researchers time is both a tool and an asset, one that can always be put in the benefit of the company, within reason. Taking on this project delayed some of our initial priorities but it also brought benefits that, in the long run, outweighed the drawbacks.