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IMPROVE YOUR BOTTOM LINE: Combine ROI and Lifetime Value
Strategies to Assure Longevity
National Arts Marketing Project Conference
November 13, 2010
The unique audience for live classical
has declined 13% since 2002.-
League of American Orchestras, Dec. 1, 2009
55% of new customers from the 2006-07 season
did not return the following season.-
Symphony Magazine, Jan./Feb. 2009
Movie attendance in 2009 was down 12%
from the decade peak reached in 2002,
though 2009 set a record for domestic ticket sales.-
The New York Times, Dec. 21, 2009
Audiences are shrinking.
Churn exists.
BUT
Dedicated customers are deepening their loyalty.
THE BIG QUESTIONS
Are we making the right investments to maximize the response from patron who are likely to
deepen their loyalty?
Do we understand the lifetime value (LTV) that
our patrons represent?
SESSION AGENDA
1.
Overview of Topic 2.
Introduction of Panel
3.
TimeLine Theatre Company –
ROI Case Study 4.
Artsmarketing’s
Approach to Understanding and
Using LTV 5.
Toronto Public Library -
LTV Case Study
6.
Questions
600 Tweets
700 Facebook
posts
34,000 Google searches
PER SECOND
There are more communication channels.
Patrons have more ways to participate.
Consumers are creating -
in real-time –
the reputation of your brand.
There are more decisions to be made.
Each decision has greater short and long term impact.
Understanding ROI is more important then ever.
START
LARA GOETSCH, TimeLine Theatre Company
WHO?• Timeline Theatre = small/midsize
• 90-seat flexible black-box theater
• 6 full-time employees
• Annual budget ~ $1 million
• Marketing budget ~ $75,000
WHY?• Marketing budgets down 16%
• Income goals up 40%
• Rapidly expanding universe of options
• Confusing array of choices
• Maximize every action
WHAT?• Return-on-investment (ROI)
• Apply to marketing/development initiatives
• Formula results in consistent measurementfor comparison
WHEN? WHERE?• What do you wonder about?
• Where are you spending the most?
• Test variations on campaigns
• Start somewhere
• Build gradually
HOW?• Implementation tools include:
— Customer database— Tracking codes— Google Analytics
• Can review big picture and/or dig down to compare tactics within campaigns
• Snapshot of activities/results
HOW?
HOW?
BUT?• These examples measure “Realized Value”
— Snapshot of an event— Historical view
• More power: Also incorporate “Potential Value”
— Future view— Take into account Lifetime Value
• 70% of this income from New subscribers
• Whole new story if use Lifetime Value of subscribers secured via this initiative:
BUT?
• Not as complicated as you may think
• Topline results are helpful— Dig deeper on specific questions
• Test. Measure. Adjust. Test again. Repeat.
• Rejoice in every opportunity to make adecision that is better informed!
CONCLUSION
The power of ROI is helping us understand
if we are investing our resources the right way.
It becomes more powerful when we look at it through the
lens of lifetime value (LTV).
WHAT IS LTV?
The amount of profit
an individual customer
can create for your business
for this year and the years ahead.
Understanding Lifetime Value:Understanding Lifetime Value:
Project the Long-Term Impact of Your Direct Marketing Programs & Improve Your Bottom Line
Presented by:Presented by:Irene E. GreenbergIrene E. Greenberg
Director of Development & CommunicationDirector of Development & Communication
Artsmarketing
Services Inc.www.artsmarketing.com
416‐941‐9000
Artsmarketing Services Inc.www.artsmarketing.com
LTV is the total revenue a patron is expected to give your organization this year and in the years ahead.
DonationsMembership feesSubscriptions & ticket salesSpecial eventsCapital campaignsPlanned gifts
What is Lifetime Value?
Artsmarketing Services Inc.www.artsmarketing.com
Why is LTV important?
Factors in activity over multiple yearsIdentifies:
Best toolsBest listsBest asksBest offers
Quantifies maximum acquisition costs
Artsmarketing Services Inc.www.artsmarketing.com
The equation:
Cumulative Annual Revenue
Attrition Rate
= Estimated Lifetime Value
Artsmarketing Services Inc.www.artsmarketing.com
Clarifying the terms:
Cumulative Annual RevenueThe total value of all transactions during the past 12 months
Attrition RateOpposite of the renewal rate – or 100% minus renewal rate
Lifetime ValueTotal revenue expected from supporter(s) throughout relationship
=Estimated
Lifetime Value
Cumulative Annual Revenue
Attrition Rate
Artsmarketing Services Inc.www.artsmarketing.com
The formula in action:Cumulative
Annual RevenueAttrition Rate
=Estimated Lifetime
Value
Example:1 museum membership renewal @ $250
1 annual fund contribution @ $50__________________________________________________________________________________
Cumulative Annual Revenue = $300Divided By
Expected Attrition Rate = 40%Equals
$750 Current Lifetime Value
Artsmarketing Services Inc.www.artsmarketing.com
Variable #1: Cumulative Annual RevenueGroup A Group B Variance
Patrons 100 100
Initial Transaction Value $25 $250 $225Initial Revenue $2,500 $25,000 $22,500
2nd Transaction Response 10% 10%
2nd Transaction Value $25 $25
2nd Transaction Revenue $250 $250
Cumulative Annual Revenue $2,750 $25,250 $22,500
Attrition Rate 50% 50%
LTV on 100 Patrons $5,500 $50,500 $45,000
Cume. Revenue per Patron $27.50 $252.50 $225.00Projected LTV per Patron $55.00 $505.00 $450.00
Higher initial transaction results in 818% increase in Projected Lifetime Value
Artsmarketing Services Inc.www.artsmarketing.com
Variable #2: Attrition RateGroup A Group B Variance
Patrons 100 100
Initial Transaction Value $250 $250
Initial Revenue $25,000 $25,000
2nd Transaction Response 10% 10%
2nd Transaction Value $25 $25
2nd Transaction Revenue $250 $250
Cumulative Annual Revenue $25,250 $25,250
Attrition Rate 80% 20% 60%LTV on 100 Patrons $31,562 $126,250 $94,688
Cume. Revenue per Patron $252.50 $252.50Projected LTV per Patron $315.62 $1,262.50 $946.88
Lower attrition rate results in 300% increase in Projected Lifetime Value
Artsmarketing Services Inc.www.artsmarketing.com
Multiple Variables at WorkGroup A Group B Variance
Patrons 100 100
Initial Transaction Value $25 $250 $225Initial Revenue $2,500 $25,000
2nd Transaction Response 10% 30% 20%Responses 10 30 20
2nd Transaction Value $25 $50 $25
2nd Transaction Revenue $250 $1,500 $1,250
Cumulative Annual Revenue $2,750 $26,500 $23,750
Attrition Rate 80% 20% 60%LTV on 100 Patrons $3,437.50 $132,500 $129,063
Cume. Revenue per Patron$27.50 $265.00 $237.50Projected LTV per Patron $34.38 $1,325.00 $1,290.62
Multiple variables result in 3755% increase in Projected Lifetime Value
Artsmarketing Services Inc.www.artsmarketing.com
Cost ConsiderationsGroup A Group B Variance
Patrons 100 100
Cumulative Annual Revenue $2,750 $26,500 $23,750
Return on Investment (ROI) 65% 0% 35%
1st Year net revenue $1,787.50 $0 $1,787.50
LTV on 100 Patrons $3,437.50 $132,500 $129,063
Expense budget $962.50 $26,500 $25,537.50
Multi-Year Net Revenue $2,475.00 $106,000 $103,525.00
The value of a campaign may not be apparent in its first year, as this
dramatization illustrates.
Artsmarketing Services Inc.www.artsmarketing.com
Tipping the scales in our favorStructure giving levels and benefits to incentivize higher level donors and subscribers
Beef up benefits for higher level donors and subscribers who choose longer packages and/or best seating sections
Make larger donations and higher renewal rates easy by offering an ongoing monthly payment option
Proactively cultivate all supporters to maximize renewal rates, even if it requires an investment of additional resources
Artsmarketing Services Inc.www.artsmarketing.com
How Cumulative Annual Revenue influences LTV:
The higher the value of the transaction, the greater the impact on LTV
Value of renewals Value of donationsStrength of commitment Satisfaction, renewabilityCreate appeals designed to generate higher value transactions
Artsmarketing Services Inc.www.artsmarketing.com
How Attrition influences LTVWorking actively to reduce attrition is a smart long term strategy
When we lose someone it’s not just this year’s incomeCultivate pro-actively to build loyalty Pay special renewal attention to newcomers
Artsmarketing Services Inc.www.artsmarketing.com
LTV – the key to working smarter, not harder
Focus resources where they will do the most goodToday’s decisions result in more revenue in future yearsHigher renewal rates and lower renewal costs reduce overall expensesLess churn = Larger base of supportEliminate unproductive practices
HOW DO WE TAKE ACTION?
Understand which efforts produce results.
Analyze LTV in our databases.
Think about campaigns that are multi-year in terms of
budgeting, goals, messaging and analyzing.
38
Lifetime Value in Action: A Case Study
NAMP November 13, 2010
Heather Rumball President
39
1 About Toronto Public Library
The World’s Busiest Urban Public Library System
Established in 1884
99 branches; municipally funded
3 tiered service model: - Research & Reference
- District - Neighbourhood
Used by 73% of population; 1.2M (49%) have library cards
Collections in over 40 languages
40
2 About Toronto Public Library FoundationProvide enhancedfunding for:- Collections- Programs & Services- Community Spaces
A History of Success: Over $47 million raisedsince 1997
41
4 Fundraising Program
Comprehensive scope
Community Giving– In-branch– Direct Mail– Telemarketing
42
Broadening Our Donor Base
Why Telemarketing?Acquisition focusTelling our story
Target AudienceNon-library users
43
Fall Direct Mail Results2008 2009
Segmentation Number of
Donors
Gross Revenues
Number of
Donors
Gross Revenues
Current Donors 469 $30,864.00 532 $43,728.65Lapsed Donors 73 $2,955.00 114 $ 6,920.00New Donors 117 $ 4,912.00 108 $ 5,285.50
Total 659 $38,731.00 754 $55,934.15Total Expenses $13,758.72 $12,794.38Net Revenues $24,972.28 $43,139.77Total Cost/$ Raised
$0.36 $0.23
44
Fall Telemarketing Results2008 2009
Segmentation # of Donors
Gross Revenues
# of Donors
Gross Revenues
Current Donors 144 $15,580.50 247 $25,398.69Monthly Donors 41 $ 3,091.00 43 $ 4,514.00Lapsed Donors 80 $ 7,035.00 122 $ 8,876.00New Donors
In-house listDemographic list Referrals
77290
7
$ 5,733.00$25,781.28$ 781.00
3458
4
$ 225.00$35,771.18$ 185.00
Additional Gift 106 $ 9,327.00 89 $ 6,875.01Total 745 $67,328.78 966 $81,844.88
Total Expenses $68,117.44 $85,818.37Net Revenues -$ 788.66 -$ 3,973.49Total Cost/$ Raised
$1.01 $1.05
45
2009 Telemarketing Results
Fundraising
Strong response rates6.5% for demographic lists
Average gifts were > Direct MailRenewals/lapsed = $91.15 vs. $78.40Acquisition (demos) = $77.81 vs. $48.94
Budget was almost break-evenAiming to still achieve breakeven
46
2009 Telemarketing Results
Raising AwarenessReached 7,148 new individualsand realized 4 referralsReinforced relationships with 2,356current donors
Donor AcquisitionAchieved 465 new donors• increasing donor database by 18.82%
Cost/$ raised = $1.76 • Direct Mail standard: $1.25 - $1.50
47
Combined Fall Direct Mail & Telemarketing Results
2008 (DM + TM)
2009 (DM + TM)
Segmentation Number of Donors
Gross Revenues
Number of Donors
Gross Revenues
Current Donors 760 $58,862.50 911 $80,516.35Lapsed Donors 153 9,990.00 236 $15,796.00New Donors 491 $37,207.28 573 $41,466.68
Total 1,404 $106,059.78 1,720 $137,779.03Total Expenses $81,876.16 $98,612.75Net Revenues $24,183.62 $39,166.28Total Cost/$ Raised
$0.77 $0.72
48
Lifetime Value
New Donors
Cumulative Annual
Revenue
Attrition Rate
Lifetime Value
Lifetime Value Per
DonorNew Donors from PRIZM Lists
374 $32,628.60 60.16% $54,236.37 $145.02
New Donors from In-branch Lists
117 $4,912.00 52.14% $9,420.79 $80.52
Cumulative Annual Revenue= Projected Lifetime Value
Attrition Rate
49
Strategies for 2010
1. Implement another acquisition-focused telemarketing campaign
• focus on highest-yielded segments specifically in average gift
2. Do more analysis• attrition, renewal rates, LTV
3. Test • donor mail/phone strategy (lapsed)• calling targeted segments of the internal
acquisition list • Mailing to targeted segments of
demographic lists
QUESTIONS?
SPEAKER INFO
Eric Nelson
DCM
Director, New Business and Marketing
718.488.5577 x5017
enelson@dcmtm.com
Lara GoetschTimeLine Theatre Company
Director, Marketing and Communications
773.281.8463 x25
lara@timelinetheatre.com
Irene GreenbergArtsmarketing
Services Inc.Director -
Development & Communications603.778.1428
igreenberg@artsmarketing.com
Heather Rumball
President
Toronto Public Library Foundation
416.393.7134hrumball@torontopubliclibrary.ca
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