This week I was surprised to talk to one of my friends who had been raising funds in the not-for-profit industry for more than a decade. To my dismay he had never heard of a term that I assumed every person in the fundraising industry was very familiar with: CTAD.
How about you? Don’t cheat now by skimming below before you answer the question. Do you know what the abbreviation CTAD stands for?
CTAD is the Cost to Acquire a New Donor. This is the net cost you paid to acquire a new donor. In order to get to this number you first have to subtract your total acquisition cost from your total acquisition gross income. This is your net income. Next you must divide your net income by the number of new donors you have acquired. This is your CTAD.
The CTAD is used by good fund development managers to make budget projections, determine organization growth rates and, most importantly, project future income for their charitable cause.
Why don’t we look at an example to make sure we can calculate CTAD:
Let’s say our total gross income for our acquisition direct mail appeal is $91,000 and that our total acquisition costs are $141,500 including postage, list rental, creative, production and mailing. So now we subtract our gross income from our total costs to get the net cost to acquire all of your new donors, ($50,500).
Now, let’s take the gross number of acquisition respondents, in our example we acquired 7,250 new donors, and divide it by the net cost to acquire new donors ($50,500).
($50,000) divided by 7,250 = $6.80 CTAD
By the way, an $6.80 CTAD would be an excellent cost per donor! Many organizations will spend up to $30 or $40 to acquire a new donor.
The real question for determining how much a not-for-profit should be spending to acquire a new donor really depends on what the average long term donor value is for each donor. This LTDV will always vary from one organization to the next.
However, let’s say our average donor makes 2.75 gifts a year and the average gift is $20. Each donor therefore gives $55 a year. Every new donor you acquire for ($6.80) is going to give you somewhere in the neighborhood of $270 over the next five years.
Is this a good investment? You bet. All organizations will have their own level or aversion to risk. Some will just draw a line in the sand and say we MUST break even in the acquisition effort. In other words our cost to acquire a donor must be “zero”. Organizations with this high aversion to risk grow at very slow rates and always struggle to acquire enough donors to offset their attrition rate. (Attrition is usually defined as the number of donors who have lapsed to 24 months… That’s right, you have a certain number of donors who decide, for whatever reason, and they cannot give to you any more)
There are other organizations that are willing to spend up to their average gift to acquire a new donor to the organization. So this means after a donor has made their second gift, the organization begins netting money. Still others will arbitrarily pick a dollar amount they are willing to spend. It is usually a fraction or percent of the organizations Long Term Donor Value.
LTDV is determined by subtracting your total income per donor for a five year period from your total cultivation and Acquisition costs per donor for the same period.
Well, now that I have totally confused you discussing Long Term Donor Value…. Just remember this: CTAD = the net cost to acquire a new donor.