Tess is the development manager for the Isabelle Stewart Gardner Museum in Boston (I’ve been listening to a cool podcast about a robbery there, called Empty Frames).
She was in the middle of a large campaign to raise $10 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 $100 per year, but, given her young age, could be expected to donate to the museum for the next 15 years.
Her other choice was an elderly, charitably inclined, suburban woman. This type of woman gave big gifts, on average around $5,000 per year, but only could be counted on to give to the museum for 3 years.
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 $150 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 $2,000 per person. For every donation dollar received, Tess expends $0.25 in variable costs.
Given her tight development budget, Tess knew she could only target one group.
Answer the following questions.
1. What is the customer lifetime value of a younger woman? Show your work
2. What is the customer lifetime value of an older woman? Show your work
3. Who should she target and why?
4. How much should Tess be willing to spend to acquire a younger woman donor?
5. How much should Tess be willing to spend to acquire an older female donor?
6. If Tess has unlimited resources, should she target both types of women? Why or why not?
7. BONUS Assuming a discount rate of 10%, what is the CLV of both donors?