A Simple Formula For How Much to Spend On MarketingBy The A Group
How does your nonprofit or ministry determine how much to spend on marketing? Most marketing managers use ROI, or return on investment, to determine the success of a campaign and help budget for future campaigns. While this measurement tactic typically applies in the business world, it also applies to the world of nonprofits and ministries.
First off, what is marketing ROI? Marketing ROI is the return on investment for the dollar amount budgeted toward a particular campaign. Measuring the ROI on social media marketing for nonprofit organizations and churches is important because it helps you make informed decisions about future campaigns and how to allocate resources in the most effective way. As a nonprofit or ministry you want to be a good steward of the money you have budgeted toward marketing initiatives. You’ll also be able to further your mission once you can prove to your stakeholders that you are maximizing donor dollars.
The industry rule of thumb for a successful marketing ROI is typically a 4:1 ratio, which means for every dollar you spend, you should get four dollars back. But that doesn’t mean you should make it all back during the current campaign. The reason being is that measuring just the campaign doesn’t take in consideration the whole picture. So how should we measure our marketing efforts as it relates to those in nonprofits and ministry?
Here are two questions you should consider when determining how much to spend on marketing:
How should we measure our ROI?
The return for most nonprofits and churches is not measured just in dollars, so ROI is not always easily measured. In its essence, ROI is a mathematical formula: the money you earn, minus what you spent to earn that money, divided by how much you spent. In the U.S., it’s expressed in dollars, and the outcome is typically a percentage. Say you spent $5,000 on a marketing campaign and you raised $10,000; (10000 – 5000)/5000 = 1, or 100% ROI. For every dollar you put in, two dollars came out.
One additional important ROI to measure in the nonprofit and ministry world is fundraising ROI. This KPI (Key Performance Indicator) evaluates the number of dollars coming in per the amount of dollars budgeted toward fundraising. This KPI is important because it can help your team strategize your organization’s fundraising efforts and adjust as needed. To calculate your fundraising ROI you’ll need to divide your total costs by total funds raised. The lower the cost, the better!
What is the importance of the LVC, or lifetime value of a customer?
You cannot, however, rely on the measurement of the first interaction with a donor, visitor, or customer as the sole way to assess the success or failure of your campaign. You have to understand their entire journey with your organization. This is why we look at the lifetime value of a customer (LVC).
Understanding the lifetime value of a customer or donor will give you a guide on how much you should spend in acquiring them through marketing, donor development or any other type of outreach-focused expenditure. LVC is measured in the total average giving or spending by a single donor or customer over the average time that person is engaged with a brand or organization.
For example, during my first visit to a church I donate $20 and over the next year I donate more than $500 to the church. I become a regular attendee for the next 4 years, so my lifetime monetary value to the church is $20,000. Additionally, there are other factors like volunteering time and recruitment that would contribute to the sum total of “giving.” Because giving, especially when it comes to a nonprofit or ministry, can also encompass the gift of time!
According to Causevox, measuring LVC is important because it gives you a broader picture than simply analyzing the roI of individual campaigns. “Adding this to the metric mix can help stave off two paradoxical nonprofit problems. 1. We do things that don’t work for too long. 2. We quit doing things that might work way too soon.”
Statistics show that over 80% of donations come from individual donors. Donors want to know their money is furthering your church or nonprofit’s mission.
Understanding how to measure the ROI in your campaign will make a big difference in your planning. Knowing the lifetime value of a member, a donor or a volunteer will allow you to understand, plan, and, most importantly, justify the money you spend in growing your organization.