Who Has Money?

What does a 90-years-dead Italian economist know about modern nonprofit fundraising? Plenty, according to Josh Whichard, Jeffery Hunt and Kevin Shulman, who spoke about a principle developed by Vilfredo Pareto in the early 20th century, popularly known as “the 80/20 Rule.”

They shared their analysis of Pareto’s principle and how it can be applied to fundraising during a panel discussion at the Direct Marketing Association Nonprofit Foundation’s 2012 Washington Nonprofit Conference.

Pareto realized that 80 percent of the peas in his garden came from 20 percent of the peapods. He turned that realization to economics, where he found that 80 percent of the land in Italy was owned by 20 percent of the people. Since then, his principle has been utilized in fields such as economics, business, software engineering and oc­cupational safety. Whichard, Hunt and Shulman showed panel attendees how to harness the power of “the vital few,” that 20 percent of the donor file who contribute 80 percent of the gifts, as opposed to “the useful many,” the other 80 percent of donors.

Whichard, senior director of client strategy at Merkle, Inc., in Columbia, Md., began the presentation by likening social media to the Statue of Liberty in New York Harbor. The statue, he said, was social media, and the pedestal— which is actually larger than the statue — is your foundational principles: who are your donors and what do you say to them?

Hunt jumped in to talk about his organization, the United States Olympic Committee (USOC) in Colorado Spring, Colo., for which he is the director of the annual fund. He described some of the challenges the USOC faces: the perception that the United States government funds the athletes (it doesn’t), confusion as to the USOC’s role, separating “premium purchasers” — those who donate solely to receive Team USA merchandise — from cause driven donors, and the fundraising lifecycle, where donations are good in Olympic years and poor on off-years, which is a similar problem to what disaster relief organizations face, where donations surge immediately after a disaster and then drop off.

It is that third metric, the premium-based versus mission-based donors, that is the most important to look at for the USOC. Rarely will premium purchasers be part of the vital few, said the panelists, because they are not as invested in the organization’s mission. Hunt outlined some of the USOC’s goals, one of which is to develop return-on-investment donor clusters, of which the “vital few” 20 percent is key.

Whichard contended that the vital few can be found all across the donor file, not just among those donors considered core. “There are high-value people all across your organization,” he said, coming from new donors and even lapsed donors. “Spend and do everything to engage the vital few.” Shulman, CEO of DonorVoice in Washington D.C., warned not to make the mistake of believing your behavior affects donor behavior; rather, it influences “how they feel and think about you.” Your actions create a personal and functional connection to the donors, which breed commitment to your organization, and that is what affects donor behavior. “Committed donors are your most profitable donors,” the vital few, he said. However, even in the vital few there are donors who are at risk of leaving the organization. “Attitudinally, they’re not there yet,” said Shulman.

So what drives commitment for the USOC? Hunt said it is donors feeling as if they’re members of Team USA and are having a positive impact (the personal connection), as well as helpful customer service and quality merchandise (the functional connection). His solution was implementing a mission-based membership program called the Sixth Ring, which targets higher-level donors. To take advantage of the Olympic fundraising cycle, donors who have given between $250 and $1,000 will have their memberships reset after each games year, encouraging them to continue donating. Donors giving more than $1,000 receive a lifetime membership. NPT