Archive for March, 2015

What Non-Profits Can Learn from Starbucks

DATE: March 12th, 2015

Starbuck’s makes a tremendous investment in getting you in the habit of stopping into their store.

Here’s why…

Lifetime Customer Value

NFP’s call the same concept “Lifetime Donor Value.” The equation is pretty simple: (Average Value of a Donation) x (Number of donations) x (Average Retention in months or Years). So let’s just do a quick example for a monthly gift donor who gives $40 every month and continues to give for 10 years. 40 x 14 (assuming they give a couple extra gifts) x 10 = $5,600.

The rule of thumb for for-profit is that you are willing to spend about 30% of the lifetime value of the customer to engage them with your product. So in the case of Starbucks, they have calculated that the lifetime value of a customer is $15,000 — so you can well imagine what they are spending to engage a customer that valuable.

Using equations like life-time value within the fundraising context is very important.

First of all, it challenges the organization to keep track of their donor activity. It requires a data base — but more than that — a consultant, partner or staff member that is able to understand the data collected. Secondly, it gives organization the impetus to build long-term, positive relationships with donors. This may be the most important reason to calculate long-term donor value. It’s very important to take note of companies like Starbucks and analyze their customer engagement strategies. I think one of the most amazing strategies is just how easy Starbucks makes it for you to buy their products. Their app is so simple… it’s in my phone, so there’s no fumbling for cards. I can scoop up gift card monies with no hassle. And, this is a big one, I never have to have money on me.

There’s a couple of lessons here.

First of all — it’s easy. I challenge all non-profits to run through their on-line donation process and compare it to Amazon, iTunes and Starbucks. It needs to be THAT easy. Secondly, it gives me something I want. That’s a bit trickier for the non-profit because we do not have peopling lining up at our doors to donate — with some notable exceptions like the ALS Ice Bucket Challenge and large international agencies at times of massive emergencies. But we need to think like a customer facing company — what do our donors want? Is the language I use suitable for them? Do I make it tough for them to be a part of me?

A thousand years ago, when I worked at a large Canadian bank, I worked with a colleague that consistently and laboriously explained complex and in-house banking procedures to customers who were frustrated when their little green passbook didn’t match their bank report. I remember one day when a lovely — if a little flaky — customer came in because she could not reconcile what she thought she had in her account with what there was in the account. She showed my colleague her little passbook, in which she faithfully noted her spend — but rounded up or down — thinking it would work out in the wash. Understandably, her bank statement was not aligned. My colleague spent several hours trying to illustrate in logical ways just how the rounding up system would never align — even dragging 23 pound books that held the daily activities of the bank’s transactions. (I never could figure out why she hauled that out)… My point? My colleague tried to explain the difference in BANKER’s terms — she forgot to listen to the customer, adjusting her language to the customer.

It’s funny — I know — but I see it every day.

We get hung up with our internal language and forget what our donor’s are interested in.

Companies that provide consumer products test the products, position them in the market and adjust to customer response. Because their overall goal is long-term customer value. I believe non-profits have exactly the same goal.