Tess is the development manager for the Isabelle Stewart Gardner Museum in Boston. She was in the middle of a large campaign to raise $50 million for a building expansion project. Her development budget was tight and Tess knew that she needed to attract the right kind of donor to the campaign. She was trying to decide which type of donor to cultivate.
Her first choice was a younger, arts active woman living in Boston. This type of woman was likely to give in smaller increments, about $500 per year, but had a retention rate of about 60%. Her other choice was an older, charitably inclined, suburban woman. This type of woman gave big gifts, on average around $5,000 per year, but tended to contribute to other causes as well and thus had a typical retention rate of about 30%.
A younger woman was easier to acquire as a donor; Tess just had to invite her to a black tie event which cost the museum $100 per person and then she would become a donor. An older woman was much more expensive to acquire; Tess had to personally cultivate her, with dinners, special tours with curators, and special events, which cost the museum $4,500 per person. In addition, for every donation dollar received, Tess expends $0.15 in variable costs.
Given her tight development budget, Tess knew she could only target one group. Assuming a 5 year lifetime period and 12 percent discount rate, which group should she target and why?