 Today's guest is Paul Orlando, who's going to talk a little bit about how we can measure the value of a new member. So we all have email forms on our websites. We all are desperately trying to bring in new donors. But sometimes the question is, should I be investing in that? What is the value of that new member? How much would it cost me to get them? And how would I calculate their member lifetime value so I actually know what I could invest in bringing in new people? So Paul Orlando builds internal incubator and accelerator programs around the world, getting organizations to solve problems that they couldn't in other ways. He unlocks new revenue and partnership opportunities for large organizations. And his programs build autonomy and skills that keep employee retention high in an era when nonprofits and everyone else really need to maintain their top talent, because everyone right now is looking for new opportunities. So with that, I'm going to pass the mic over to Paul. I have to say, before I begin, that I approach this talk with a little trepidation, because I'm not really a nonprofit career person. My experience is, at least as pertains to unit economics, it's really mostly on the more tech startup side. However, I think the math works out. Some of the numbers and inputs will be a little different. What you value might be a little different. But the math should work out. So today, I'm going to present some ways of thinking about unit economics. I would really love to hear from you and have that conversation be guided by some of your questions or what you're dealing with. But I'll do an introduction to this topic with some examples. And then I would love to hear what you are dealing with this question of what a member is worth or your own unit economics or customer acquisition or lifetime value, things like that. And we can have a more fluid discussion. So thank you for the nice introduction, Eli. The couple of things I'll maybe point out before we do jump in, and I'll get my screen set up here, is that I've spent the last 10 years or so in this entrepreneurial world in a number of ways. Started off, really, I founded a startup that was based around connecting patients that were going through serious health recoveries, connecting them with each other, and having that what was really a talk, like a vocal talk, be part of that recovery process. And we worked with doctors, with support group leaders, part of that recovery. A lot of what I ended up learning or teaching came from my experience learning things the hard way back then. And then, as Eli said, a little more recent experience is in running startup incubator or accelerator programs. I've done this a few times, different parts of the world. And right now, I am running two different programs. One is a community health incubator. So even though this is what you might think of as, say, social impact, these are for-profit businesses. But this is for a large nonprofit in the US called Volunteers America, looking at problem areas that are centered around affordable housing, addiction treatment, PTSD treatment, and going into communities around the world where this nonprofit has local presence. And then I also run the incubator at the University of Southern California in Los Angeles. Very broad array business types there. It is mostly technology. The other, say, 80%, the other 20% are a mix of what you might call more traditional, small businesses, CPG companies, things like that. And I suppose the way I ended up speaking more often about this economics topic is in the early part of the pandemic, when everything was going virtual, I realized that the way I usually would work with companies on these questions stopped working. I used to do everything in person on a piece of paper around a whiteboard, live interaction that went away more or less when you had to do things by Zoom. And so I ended up taking some time and writing out a lot of what I had learned and different models for figuring out you in economics based on type of business. And so I wrote this short, useful book, I think called Growth Units. But let's go into a first example. And I wanna do a little, if we can, I wanna ask some questions of all of you. So I'm gonna give you an example of a company, very Silicon Valley style company a number of years ago that was doing delivery of bento boxes. So lunch, we'll call it to simplify it. They did delivery of these bento boxes. And I always like sharing real data, real information. So here is a public slide of the founder of this business that had raised some money and they're doing delivery. And he's sharing their July, 2015 numbers over here. And then also how things had changed a little more than a year later. So take a look at this. And I'm curious as to whether you're good or bad. Any comments on how you think the business is doing, anything surprising? Oh, I see, I should be looking at the chat actually, asking these questions. Great, okay. So how do they completely annihilate waste? Yeah, maybe it's a little scary. Maybe you want a little waste in a food business, right? It's a little scary if there's zero waste. Okay, good point. And the margin increased significantly. Yeah, that's definitely a dramatic change. They went from, if you look over here, significantly negative to, oh, okay, maybe that's not bad. Maybe it's not bad. So you can look at actual results of a company like this and you might say, hey, they figured things out. This business went from losing money every time they signed up a new customer to making $2.57, every time they're shipping a box, it sounds like this is the things are going great. And the reality is, so this is October, 2016, we're seeing here, the reality is, wow, December 9th. Two months later, they shut down. They ran out of time. Maybe they had figured things out but they had already blown through all the money they raised, all of the budget. And I'm sure there are other things that are not shared publicly but my concern when I deal with businesses and in economics is not only that you get the math but that you also don't run out of time. And I treat every business as there's a bit of a race and we're every nonprofit and it's a bit of a race. You have the goals that you're trying to achieve. How do you make sure that you don't run out of time? You're gonna have to learn along the way but if you're struggling against we need to make payroll, we are improving margin every month but it's not enough, the payroll has, we can't actually meet it. That's what I struggle against often when I deal with businesses that are going through this learning period. Let's literally talk about the definition of two terms that you'll hear in economics, lifetime value and customer acquisition cost. So, LTV, this is a measure of the gross profit an organization earns over its relationship with a customer. When I use the term customer here, I know we might have different definitions of this in a nonprofit sense, how do you think of who your customers are? What's the way you think of that? Or if you were gonna, you might not call them customers but exactly donors or it could be members. You have people who might pay a membership fee and they wanna be a part of something or they get special access to something and they might pay a fee. You might have donors who they could be corporate entities that could become or they could be individuals who are wealthier, they wanna support your work or other terms, supporters, there's different tiers of that. So that's often what I see. I wanna ask, Ben, you said clients of the nonprofit. What do you mean by that? People that may use the service, Paul. Sorry, I'm just sitting off camera because I had lunch to eat and my daughter's home sick from school. Yeah, just definitely, I'm trying to find ways to think of as many people as you could. And clients of the nonprofit, I can't name a nonprofit specifically, but just say they're in Vancouver and they serve the downtown East side. So with people who need services from that particular nonprofit on the downtown East side, I see them as a client. Got it. Sorry to call on you when you- You're definitely good, that's totally fine. I'm just actually sitting off here trying to also look for some information I can tweet to our TechSoupConnect Vancouver Twitter account. So I look at your slide here. No worries, no worries. So for my purposes, I am thinking, when I say customer, I am thinking of people who are paying you or in some way they're paying you, whether that is through a donation or a membership fee that they pay or a ticket that they buy. For us to talk about those individuals related to a unit economics lifetime value metric, some exchange of money is going to happen. Otherwise, it's hard maybe to measure value or that's where it's, I should say, it might be an easier way to measure value monetarily. Other types of value is certainly exchange. It's not in monetary, but this is where I'm gonna focus this conversation at least today. Customer acquisition cost. I call this the cost of getting a paying customer in the door and the reason I say in the door is because sometimes it is literally in the door of a physical location. It might also be in a digital door. You're trying to get somebody to your website to check out like an online event. I'm curious for those of you who do customer acquisition, the way I'm talking about it, what are some of the activities that you do that helps you acquire customers? Yeah, people wanna throw some of the approaches they do into the chat. I'm happy to read that off. So I'm hearing some are like direct mail is definitely one thing. Others are doing Facebook lead gen. Others are doing some paid advertising. Others have a more event focused strategy around fundraising events. Others are using like email campaigns. Others actually like Mohammed are actually leading, sorry, like the Fraser River team are actually using their programs as part of the lead acquisition strategy. Which actually I think is interesting. And I'd love to actually hear more about that if you wanna come off, because that's a new idea to me. I also got Stephen here talking about online contests, social ads. Yeah, so there's a lot of different things coming on here as people are using it. I can give one example from my own work. We often will create basically PDFs. It might be maybe like a guide to like how a nonprofit can choose a CRM or maybe it will be back when I was at the David Suzuki Foundation, a guide to low pesticide fruits and vegetables. And we would of course ask people to share their email first before they could get the download. And that was one of the acquisition strategies we had. It's fantastic. It's fantastic. And what you can see from this very long list is there's lots of ways to get people in the door. And there's an awareness part there. There is something that convinces them that they want to be a part of what you're doing. They convert to becoming a customer. At some point, we can talk a bit about marketing funnels. You're related to this. But suffice to say, there's lots of ways that you can go about this process. What is though the, what is like the formula that you could use to calculate these two metrics. When I do this, I will often calculate these metrics in what I call the static way and in the dynamic way. So the static way for LTV is you have a customer lifespan metric. So when we are speaking about memberships, this might mean there's an annual membership fee that an individual pays and they continue to pay it for a number of years. And then at some point, they leave, maybe they left the area, maybe they are not engaged as they used to be previously, maybe they found something else to participate in instead, but then some metric of customer lifespan there or retention. And then you also have the average spend. So we'll call that the price, whether that's a membership price or how much the donor is giving. And then you have the associated unit costs of serving this member. So if you are giving them something back in return for their membership or their donation, you're gonna take that out and you're gonna get to a gross profit metric that is then multiplied by that customer lifespan. This then gives you a number and you could say our lifetime value of a member is X dollars. And that will then inform how much you might be able to then spend on acquiring potential customers like that static way, cause it's a single number and it doesn't tell you all that much beyond that. Likewise, on the customer acquisition side, you have a cost per visit. So if for example, and a number of you were doing social ads, you were doing paid, I see, when I scroll up in the chat, you'll paid advertising, fundraising events, you have some cost of getting the word out. And then you also have some conversion rate when people learn about the event or they see the ad, some percent of them follow through, they click through, they participate. And then at some point they become a member, they make a donation, they actually transact. And that calculation also will give you a static metric. So for example, if it costs 10 dollars to get somebody to click on an ad, maybe it's a little high and their conversion rate is 10%, it's 10 divided by 10% or 100 dollars to get an annual member, for example. Let's do a little quiz here now. So here are two scenarios. You have a situation where lifetime value is $10 and one where it's $50. Which one, I say business, but you could say these are products, these are events, these are maybe different parts of your nonprofit or something that you're offering. Which one would you wanna focus on growing? So seeing somebody say two, the higher one, anybody else? Depends on the volume, okay. Anybody else? I'm gonna take the lack of the options of any other info too. I'm gonna take the lack of lots of answers to this that seems to be pretty straightforward with this question. I'm gonna take the lack of lots of answers is that you're already thinking that something else might be going on here. Before we go on with this one, let me do the same on the customer acquisition side. Let me add that. So what if now I give you a little more information and I have, say, a business or a product where in general, LTV is $10, but CAC is only $1. Okay, so now it seems maybe- This was a trick question. We were- You knew it had to be, it was too easy. It was too easy. You knew it had to be something like that. So there's a balance between the two sides here. You could have something that seems like, wow, this is an amazing lifetime value. Oh, but it also costs a lot of money to receive that LTV. And then you might also ask, what if there's an opportunity to improve margins? Maybe that second one, it starts off looking pretty bad, but I'm gonna be able to improve that. Or what if there's just a lot of potential customers for the second business and very few for the first one? Or what if it takes years to recoup that LTV and pay back the CAC? All of these questions that you could ask, and this is why when we talk about how much a customer is worth, okay, I'm gonna get the Stevens question in a second. When we talk about what a customer is worth, all of a sudden, something that seemed to be really simple and straightforward becomes a little more complicated. Now I'm gonna get the Stevens question. Why aren't the CAC costs, customer acquisition costs, why aren't they included in the unit costs for LTV? My recommendation for you, and great point from Beth, my recommendation for you is keep these two metrics separate, LTV and CAC. You keep them separate because if you start combining them, you're losing information. If you keep them separate and you say, yes, our LTV is $50 for typical members and CAC, you have to get them on is $45. If you keep them separate, then you have more of a clue on which part you might be able to improve on. If instead you just combine them into one and you subtract out the CAC and you say, it's $5, I'm just making $5, you're not sure where that's coming from. Is it coming from a really high LTV and also a very high CAC? Is it coming from a low LTV and a low CAC? You lose some information. The other reason that you might keep them separate is there are some rules of thumb when it comes to a balance between LTV and CAC. I'll introduce one to you now. The general rule of thumb that you will see is that a ratio of something like one to three or one to four is good. Now, this is a rule of thumb. It's not a law. So in other words, break this rule of thumb whenever you need. That ratio is there. In other words, we're typically not doing one to one because we're not accounting for a lot of other costs in a lifetime value metric. In other words, when you're selling that, say, membership, the gross profit of that membership, the way it's typically calculated, we're not accounting for things like a lot of the fixed costs if you have rent, if you have, well, salaries of people not associated with selling the memberships. There's a lot of things that don't go into that LTV calculation. So you need a bit of a buffer there. And there's also something that is important. I alluded to it a little earlier. It's timing. So timing is what can destroy you. You might say, we understand our customers really well, our members, our donors. We know that we can retain them with a very high percent chance. They're gonna come back every year and donate again or subscribe again to the membership. They're gonna come back 90% of the time, they do. But if it takes you years to generate enough money to pay back the CAC, you might have already had to slow down or shut down what you're doing. And you could also have situations where you actually have in effect, what is a negative LTV. Things start out looking very promising, but you were too optimistic on the length of time that you will keep people engaged and coming back. And they turn away, they leave. And you're left with this upfront cost of getting somebody signed up, whatever you paid for that, you're expecting to recoup it in some amount of time, and then it doesn't happen. And you're left with a loss for every customer that you signed up. This in general, this timing situation is why I recommend that you keep these two metrics separate. It will help you understand more how the model of your nonprofit works. Questions on this before I go ahead to a couple of other things, okay. Sorry, Paul. So I just wanna interject one quick thing. Sure. Just looking at our Twitter account, are you okay if we share a slide or? Oh yeah, that's fine. Any information? No worries, yep. Okay, thanks. No worries. When I do this exercise with companies, you typically, when you start out, certain parts of this before others. So the part that you more easily know in advance is something like CVC because you're dealing with that right up front. And it takes a while to get an understanding of LTV. When you do get this understanding, so you've been operating for a while, you've been measuring things for a while, what I'd like to do at that point is model out the way the organization works. I'm gonna show you an example of doing this. This is like a sample, a business, but I might take, so here is, I have two different types of customers or members. Maybe there's a free version of what I do and a premium version, or maybe there's different tiers of membership or different tiers of sponsorship. I might have different CACs for each tier. And then I also might have different expected revenue coming in on the first tier, on the second tier. And I also associated, I have different types of costs going in. And then I get to a different gross margin in each period. I could be measuring this in months, in years, whatever makes sense for your organization. Might have different retention rates. And what I'm trying to do in modeling, modeling it out like this, I'm trying to get to some level of predictability. This is often tough for a new organization, but ones that are around for a while, if you can get to a point like this, then it becomes a bit like a machine that you could try to optimize. And then you can spend more time on the, what I think the real value ads are, like delivering your services, doing the work in your communities. But I'll typically do this in a spreadsheet. I'll look at past months and I'll try to take what we are changing as time goes by, because as the months go by, you were probably making changes to your offers, you were maybe trying a new event for the first time, you were maybe changing pricing. And if you do that, then you could start to do a couple of other things. So a way that you might think about, are we getting better over time? This question is to look at what's called cohort metrics. So cohort metrics, I'll show an example of that. If we're looking, for example, at retention, you could look at a number of things, it could be retention, it could be donations made, signups, cohort metrics is a way to keep you honest in this whole process. And what we do for cohort metrics is, we will rather than look just month over month or year over year, what is happening or who's signing up or what the growth is, we look at a cohort of people, customers who came in at a certain time. Here I've done it by months. So you can see I have January, February, March, et cetera, all the people who became my customer in January, I put them together. All the ones who signed up became a customer in February, I put them together and on. And then I go across on the top here and I then look at how many months they've been with me as a customer. So in the first month, by default, everybody is 100% retained. They just signed up, so they couldn't have left yet. They paid that first month, they could not have left already. But then as time goes by, others drop off. And in the January cohort, I went from 100% to 20 and then there's basically nobody left by the eighth month. If I'm looking at the next cohort, so for February, I have one less month of information because those members signed up a month later, but I do the same exercise. How many are left? How do things change? So the January cohort, the first month is January, then it's February, then it's March. For the February cohort, the first month for them is February, then it's March, then it's April. I do this exercise. And what I'm trying to see is I'm tracking all of these new releases that we have or events or we're trying different types of ads. And I'm really looking to see if I look from top to bottom, are things getting better? In other words, am I retaining more and more people if I go top to bottom? Is the change that I'm making working? So this is a sign of a business nonprofit that is doing something right. They are retaining more people. So by the time I get down to the July cohort on the second month for these first ones in January, I used to only have 20% of the people left. Now in July, I have 57% left. I have improved this organization somehow. And let's see, I'm looking at a chat. I could use this cohort analysis for my different lead sources. Yes, donors that came in by events was direct mail. Yeah. And one of the points I'm gonna stress here today is do not average your entire organization out and just come out with a single number, whether it's you have one LTV, you have one CAC, the power of doing this. And I know we're going into a little bit of like your specific situations here, but the power of doing this is when you stop thinking in terms of averages. And instead you start to think in terms of our members who are this type of segment seem to behave in this way. Our donors who are this type of donor tend to behave like this. And we have maybe segmented them out into a few different types. It could be for CAC, it could be how you acquired them. We acquired this group through events, we acquired this other group through ads on social media, et cetera. Same for lifetime value, rather than just putting everybody together in the same bucket. If you do this over time, if you model this out and if things are improving, you see something like this lets you take a situation that previously might have been really difficult. We're struggling to break even. It takes us an entire year to recover the customer acquisition cost. This lets you start to see, okay, if we can keep improving, what might we expect? We had this improvement in this one segment. Can we transfer that improvement to a second segment? Questions on this before we go ahead. When you do this, you also get a handle on where you might be able to push on certain levers. So here's an example of an organization that seems like it's very simple. CAC is just $30, that's it, but they have a few different channels where they acquire customers. And those channels are different percentages of the overall acquisitions and it costs them different amounts. You got a free channel that's just word of mouth or maybe it's an email newsletter that you've built up organically. And then if you add in a new channel, maybe you have a very high touch sales channel costs a lot, right? It's gonna impact your average. It might completely be worth it because everybody who comes in from that sales channel becomes a high value donor and you should actually want to average up in CAC. So another one of the recommendations I have for you is go into more of the specifics when it becomes reasonable for the size of your organization. Break out CAC by different channels, break out LTV for different customer segments. If you can try to do this learning when it doesn't cost you as much or anything. I'll be with you in a second, Jeff. So I was just thinking, do any of you use Google AdWords has a grants program for nonprofits? Have any of you benefited from this? My list is yes. You should take a look at this. You can get, I believe it's up to $10,000 a month in free ad credits. So you need to be able to use that effectively, of course, like they will turn off the access if you're not really using it or if the performance of the ads is very poor. Yes, exactly, thanks for sharing the link. I've had only a handful of startups that I've worked with in the past that were nonprofits and they've benefited from this incredibly. Even if it just lets, oh, look at that, okay. So fantastic, you already know about this. But if that gives you the opportunity to try out some experiments and learn and you could learn in the beginning when you were trying these experiments, I often find that performance-wise it's great. Performance-wise, you see a change that in general is like this. Over time, in the beginning, you're figuring out your messaging. How are you gonna target appropriately? And the price is relatively high. You then figure that out. You can drive the price down. And then at some point, you also start running out of people. Your relevancy score starts to decrease. You run out of those ideal members or donors. And then at some point, you're back up here. It's not worth it anymore. It's a low-ill TV. And then you have to find the next segment of people to market to or you need to change something about what you're doing. But if you can do that learning on free credits, I highly recommend doing that. I have another question for all of you. How many of you have spoken to somebody even if they are in a for-profit role who does this type of customer acquisition work on a regular basis? If you haven't, I recommend it. There are people who have a role where all they do is run ad campaigns and various social networks, for example. If you're not talking to somebody who does this full-time, you're leaving some hidden information out there, I don't like putting in best practices in a presentation because it just changes too fast. The things that were working a few months ago, they stopped working or something that was cheap, a way to acquire customers that used to be cheap, becomes expensive, and I almost recommend that you find somebody, whether they are in the for-profit world or non-profit world that does acquisition to bounce ideas off of them, hear what they're dealing with, how do they run experiments? There's a lot of online tools where you can test different ad copy, ad images, and look at the different performance of them. Great, Helen does this acquisition, great. So you can learn from that. And then also on the LTV side, you might talk to somebody who focuses on customer retention. Or something I love to do is talk to people who focus just on pricing. There are pricing experts out there who will try to really get at what is the value that you are providing? And therefore, what are people willing to pay? And so how should you charge? I've seen very interesting work come from that and situations where actually charging more leads to even more customers. So if you're not doing something like that, I recommend it. And if you start modeling out the way your business works, you can have a discussion about that. Let me stop sharing for a second. Questions that you might have, because I'd rather spend the last bit of our time together taking questions from all of you. Go ahead, go ahead. I'm sorry, this is Myla. So if we have a Google Ads Grant vendor, we then focus on, because we can have a lot of audience segments. So would a good strategy be focusing on just the top three and consistently testing for that particular segment using one platform like you mentioned? It's a trade-off between the volume that you have. So that could be volume measured by ad spend or even just measured by how much can you handle? Well, obviously every additional platform that you add, it brings in another thing to track. So I would probably start small. If you're gonna do it in-house, you can learn a lot just spending $5 a day. You learn how these platforms work. You could see how they optimize for different ads that you might be running. You also might come out of the experience and say, maybe ads and social networks don't work for us. It's a better use of our time to do events or some other type of outreach. Or Eli mentioned the PDFs that they produce, the research as a product. So you might consider it like that. Sure. And then I see a question from Eli, Excel templates or online calculators? Yes, so everybody does this in a little different way. I've discovered, I have the ways that I like doing the calculations. I almost, and everything I wrote about it, I have not yet put it online, but if that growth unit's book is helpful, take a look, I have all the calculations in there. You could certainly find online versions of a CIC template or a world TV template. But the thing I'd probably start with is try to model out the way your organization works. So if you have paid members, different tiers, if you have donors of different tiers, how do they, how do those payments that they are giving you, how does that work through the system? How long does it take to sign them up? Are they paying annually? Is there a monthly fee? Are they paying for events in addition to their membership? So I would, I'd be thinking of that. Typically when I do this exercise with startups, that's where we begin, just understanding what is your conversion funnel like? How do you acquire customers? How should you be thinking about optimizing that? Awesome, that totally gets into the next question, which is, yeah, where do you think we should begin if we're new to this kind of work? And it sounds like for you, it's like to really understand the stages of conversion. Correct, correct. I'll share a, this is a typical conversion funnel if this helps talk through this. And by, so when we talk about a conversion funnel, it's typically presented linearly as in you have to go through each of these stages one by one. The reality is you could certainly skip somebody who hears about you at first, they could go right down to paying you in one step. Of course, it would be evaded, of course. It does happen, it does happen. When I do a conversion funnel, I literally will draw it out. I don't know, I like doing things visually and I will look at where along the pathway do you have the biggest drop off? In other words, if I could, so here, the way I have done this one, I have the biggest drop off 75% loss from the previous stage. If I could improve that one, if I could keep a higher percentage and rather than be left with 5%, if I would only lose 50%, instead of 75%, I'd be left with 10% at the end. I've just doubled the revenue that I'm taking in. That's one way that you might think of optimizing a conversion funnel. We're in like performing the worst. Let me try to improve that. That's not something- The fundraiser is here. Yeah, the multi-step donation process can sort of, you can see where you're losing people at each stage, which is interesting and terrifying. It's a presentation in itself, Paul, just this one, there are probably stages of this funnel. We could probably make four or five presentations out of this one graphic. It is a big topic. But yeah, the refrain that I keep going back to is, oh sure, Kevin, the refrain that I keep going back to is every organization is a little different. So understand how yours works. Ideally, you're collecting this information and then once you can model out, say how your conversion funnel works or how your flow of payments was coming in, model that out. It will give you some insight as to where you might improve your current situation. Last question. Yeah, we're running up. Anyone else have one last question before we close for the day? Will we wait for that to come in? I just want to wrap and say, Paul, thank you for this deep dive.