Pareto Principle applied to Fundraising (and Systems)

I think we’ve all heard of the Pareto Principle. It’s also known as the 80-20 Rule. In the early 1900’s, an Italian economist, Vilfredo Pareto, observed that in Italy roughly 20% of the population owned 80% of the land. Similarly, about 20% of the land produced 80% of the crops. In the late 1940’s, Dr. Joseph Juran, a Quality Management scientists attributed the 80-20 Rule to Pareto and called it the Pareto Principle. (Juran also referred to this as the principle of “the vital few and the trivial many.”)

You know in your own office that 20% of your staff really get 80% of the work done, and likely 20% of your time produces 80% of your most productive work.

Now in fundraising, don’t you also find that 20% of your donors/prospect give you 80% of your money. And actually in fund-raising, many find that 10% of your donors give you 90% of your money. This is what I call the 90-10 Rule. See the schematic below:

Pareto

And importantly regarding this distribution, you want to collect more data about the folks who are giving you more money (don’t you?).  For those who are giving your an annual fund gift or a simple annual membership, but nothing else, you want to capture name, address and some other basic information. For those giving you tens or hundreds of thousands of dollars or a lot more,  you want your system to maintain that basic info, but also their employer (is it a matching gift company?), their friends, their involvement with your organization, what did they give to and what did they give (i.e., cash, property, securities, planned gifts, etc.) and more. Few systems have a specific field for capturing “do they have a Renoir in their Foyer?” but for the bigger donors you want that information somewhere.

So for bigger fish, you need a bigger pond (system).

And remember the concept of squaring the 80-20 Rule. Likely 4% of your donors can give you 64% of your gifts. I’ve seen some institutions where 1% of their donors give nearly 95% or more of their gifts. But that raises other challenges which we’ll talk about later.

I’d welcome comments. You can address them to me at CharliesBlog@riarlington.com  And please sign up for my periodic blog posts in the space in the column on the right!

 SDG, Charlie Hunsaker
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