For decades, it’s been abundantly clear that a very small number of people have been and continue to be responsible for most of the money charities collect each year.
In 2014, just 50 people in the United States were responsible for almost 3% ($10.2 billion) of all charitable giving according to figures compiled by Giving USA and the Huffington Post. Additionally, the 2011 Bank of America Study of High Net Worth Philanthropy found that just 3% of U.S. households are responsible for 67% (2/3) of all household charity. And, according to the IRS’ 2011 Statistics Income Bulletin, 1/3 of all non-cash donations came from a very small part of the population earning $10 million or more each year (around 2,000 Americans).
This pattern isn’t only found in philanthropy.
In 1906, Vilfredo Pareto (an Italian engineer, sociologist, economist, political scientist, and philosopher), found that 80% of the land in Italy was owned by 20% of the people. Later, many businesses determined that his discovery applied to their operations too. For instance, 80% of sales usually come from 20% of customers. Over time this basic, widely accepted rule of thumb became known as the Pareto principle.
For fundraisers, their organizations’ major and planned gift supporters represent Pareto’s “20%”.
According to the Fundraising Effectiveness Project’s 2014 Survey Report (an analysis of year-to-year fundraising results for 2012-2013 gift transactions from over 3,500 organizations), major donors are simply more loyal. In fact, the study found that 53% of new major donors (those who made a first gift of $5,000 and up) were retained the next year while only 17% of low-level donors (those making a gift of under $100) gave again.
And, let’s not forget about bequests. According to Dr. Russell James, ultimately only 10%-12% of donors die with any charitable estate provision. But remember, these gifts are huge (average around $57,000). So, consider this – Dr. James’ research also found that while 5.3% of older Americans have actually made a charitable bequest commitment, 33% are willing to consider such a gift. At MarketSmart, we have found that this number is true. ( Try out our bequest calculator to calculate your bequest potential )
So why do so many nonprofits ignore the 80/20 rule?
So many nonprofits keep spending exorbitant amounts of money only trying to find, acquire and upgrade low-level donors year in and year out. Why not increase investment in generating referrals from major donors instead? And why not increase investment in retaining and upgrading them as well? After all, in the private sector “it costs 6 to 7 times more to acquire a new customer than to retain an existing one” (according to Bain & Company – one of the “Big Three” management consulting firms in the U.S.). I bet that rule also applies in the nonprofit sector too.
It’s time for a change.
Veteran fundraiserand former board member of the NSFRE (now the Association of Fundraising Professionals) James M. Greenfield, once wrote in one of his books that it costs only pennies on the dollar to generate major and planned gifts. Therefore, putting emphasis on strategies tactics and technologies that accentuate the Pareto principle is clearly what sensible, charitable people expect their beloved nonprofits to do with their donations.
Is your organization failing to focus its efforts on raising major and planned gifts?
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