What are Donor Acquisition Costs?
Donor acquisition costs (DAR) are pretty self-explanatory; it is a term used to refer to the cost of acquiring new donors for your organization. This will include the money put towards any social events where you intend to convert them, any resources you send through the mail, and any money you put towards your marketing budget – to name a few.
It’s a fairly simple metric, but an important one to know about. This is the first step for organizations to begin calculating their return on investments (ROI) when they look at the efficiency of their fundraising and donor acquisition efforts.
How to Calculate Donor Acquisition Costs
Donor acquisition can be calculated through the following formula;
Donor Acquisition Cost = Total Costs/Total no. of Donors Acquired
It seems straightforward at first, but there’s a catch when it comes to calculating the ‘total costs’ portion of the formula. There are two diverging opinions on what that term entails;
- The first believes that total cost includes all fundraising expenses involved in acquisition including fixed costs and employee paychecks.
- The second viewpoint only considers fundraising expenses without the addition of fixed costs and salaries as part and parcel of ‘total cost’.
How you choose to calculate your total costs depends on a number of factors such as the size of your organization, the money invested in fundraising overall, and the number of donors you attempted to acquire.
According to some research, the general rule of thumb to safely abide by is to look at the size of your organization. If you are a larger organization, you should calculate your costs using both methods. Whereas if you’re a smaller nonprofit, you probably don’t have the time to waste on elaborate calculations and its best to calculate your DAC without including employee salaries and fixed overhead costs.
Why is Measuring Donor Acquisition Cost Important?
DAC is an important metric for a number of reasons. Firstly, it will give you a snapshot of how much you are spending on acquisition itself. At a glance, this figure will give you a rough idea of whether you are spending more than you can afford if you’re spending less than what you should, or if you are on the right track.
Secondly, it will be a useful metric to pair with others to better understand your organization’s efficiency. Since DAC is calculated for individual events, it will give you an idea of which form of fundraising you are spending the most on and also which one is giving you the most ROI in terms of getting potential donors to give gifts.
Like all metrics used by nonprofits, DCA is a valuable addition to the fold and can help with successful strategic planning and cost management.