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The acquisition of any donor has a cost. Tracking your donor payback period will help you evaluate the impact and effectiveness of your recurring giving campaigns.
If you pay $30 for a new donor, say through a Facebook ad, you want that donor to give more than $30 over their lifetime. The time it takes to recoup donor acquisition costs is what we call DAC (Donor Acquisition Cost) Payback Period. This is typically measured in months. Let's dive in
Payback Period
Your DAC payback Period shows how long you need to keep a donor around to offset what it cost to acquire them. It could very well be worth spending $20 to bring in a $10 per month donation because as time goes on the donor’s recurring donation will make up for the DAC.
You can calculate your DAC Payback Period by dividing your donor acquisition cost by your average recurring donation. Using the above numbers as an example, if you spend $20 to bring in a $10 a month recurring donation, your DAC Payback Period would be two months. Ideally, you want a short DAC Payback Period.
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The impact of DAC payback period
Knowing the DAC Payback Period lets you benchmark the amount of time you need a donor to keep supporting. During this time, effective stewardship is critical to make a return on your investment in that donor.
all together now:
"effective stewardship is critical to make a return on your investment "
Once a donor stays beyond the payback period, their donations are no longer offset by costs.
Let's look at another example.
Say the Lutz Animal Shelter has a DAC of $50. If the average recurring donor gives $25 per month, we divide the two to find the payback period.
So, in this example, it takes two months for Lutz Animal Shelter to offset the cost of their donor acquisition. The good news about recurring donations and subscription philanthropy is that, even after this time, the donor will likely continue to give.
It is important to focus on the fact that donors have a cost that is recovered over time, not instantly.
With strong donor stewardship during the payback period, and beyond, donors will become a revenue, not a cost, funding the good that you do for years to come.
Get started with Subscription Philanthropy
Harness Giving lives and breathes the subscription economy to make the entire donation process easier for donors and nonprofits alike. Whether you are a major player in your local philanthropy scene or just starting out, we can help make your organization a recurring donation powerhouse.
Ready to launch your Subscription program? If yes, speak with the Harness Giving team to see how we can help you get results.