Who was Vilfredo Pareto? Like Quasimodo might say, the name rings a bell. A fundraiser should know who he was!
Pareto was the Italian economist who, in 1895, conceived the idea that 80 percent of the wealth and property in Italy was owned by 20 percent of the inhabitants. Theorizing that it may be natural law, he proposed we could find this ratio in many situations throughout the physical world.
Maciej Duszynski penned a whimsical article in ResumeLab, a digital online publication, in which he described various fields in which this principle appears to apply. He wrote on April 14, 2022:
“Although originally the Pareto principle referred to the distribution of wealth, it can be applied to a wide variety of contexts, for instance:
· Taxation—where 80% of tax money comes from about 20% of society.
· Project Management—where 80% of the effect results from 20% of the effort.
· Businesses—that get 80% of their income from 20% of their customers.
· IT—where 80% of system crashes are caused by 20% of bugs.
The list goes on and on….”
For our purposes, it is significant to note that in fundraising, 80% of gifts come from 20% of major donors. In recent years, about 10% of contributors have contributed 90% of donations, according to some estimates.
Having a firm understanding of this is relevant given the possibility that we may be in a recession or on the verge of one at the moment. The impact on fundraising can be enormous, and how nonprofits raise funds could dictate their survival.
First, let’s define a recession.
Investopedia indicates that “Recessions are sometimes defined as two consecutive quarters of decline in real Gross Domestic Product (GDP).” In the same June 16, 2022 article, the National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” It goes further and adds that recessions are based on indicators including GDP, payroll employment, personal income and spending, industrial production, and retail sales.” It is believed that the U.S. has suffered through fourteen recessions since the Great Depression.
According to a blaring headline in the June 29, 2022 issue of Forbes, the “U.S. Economy Shrank Worse-Than-Expected 1.6% Last Quarter as Recession Fears Grow.” Economic forecasters expect the country to contract further in the second quarter or, at minimum, increase insignificantly. It’s not looking good.
I maintain that, regardless, fundraising rebounds after downturns, and in general quite well. In my new book “Learn From My Experiences” (www.normangildin.com), I explain four such occurrences—the 1987 financial crash, 9/11/2001, the 2008 Great Recession and housing collapse, and the COVID-19 pandemic. What concerns us is that during a national fiscal crisis, nonprofit fundraising more often than not is in peril.
A study by the Russell Sage Foundation and The Stanford Center on Poverty and Inequality in 2012 analyzed the Great Recession of 2008-2009. According to this analysis, “…the economic downturn of 2008 has given rise to one of the largest year-over-year declines in charitable giving since the late 1960s. Total giving in 2008 fell by 7 percent in inflation-adjusted dollars, from $326.6 billion to $303.8 billion. In 2009, matters worsened, with charitable giving dropping another 6.2 percent to approximately $284.9 billion.” Similar cases can be made for other recessions, as well. See the chapter in my book entitled, “Is There a Link Between the Economy and Fundraising.”
We also just learned in a new article by The Fundraising Effectiveness Project, “The 2022 First Quarter Fundraising Report compares charitable giving in the first quarter of 2022 to the first quarter of 2021. The report found that the number of donors decreased by 5.6%, and the donor retention rate, the percentage of donors who gave in 2021 and then gave again in 2022, decreased by 6.2% year-over-year.” Time to buckle in your seat belts.
So, if you are a not-for-profit organization and you know what’s coming, what is your strategy to counteract difficult times?
In a blog by The Better Fundraising Co. in September 2020 when we were in the throes of COVID-19, the author states, “The organizations that make the most of this reality (especially this year) are the ones who intentionally prioritize those donors with how they spend their fundraising time and budget.” What held during the early stages of the pandemic a fortiori holds truer now as we cross the threshold into an uncertain financial phase.
Foremost, should be your emphasis on the 20%, or even 10%, that bring in 80-90% of funds. Think major gift donors. This strategy is not intended to the detriment of your overall campaign, just a shifting of priorities.
Network for Good, a company that provides cutting-edge donor software posted online ten strategies to help nonprofits weather the confluence of factors causing these hard times—what I refer to as “The Perfect Storm.” Their recommendations are sound advice and can be found at this link: https://www.networkforgood.com/resource/10-strategies-recession-fundraising/
1. Practice gratitude. Send your donors a video showing them how their gift makes a difference.
2. Keep in touch. This isn’t the time to stay away. There are many ways to communicate. Do so.
3. Start at the top. This might be a good time for a matching gift campaign.
4. Focus on recurring giving. Monthly and regular gifts can be promoted for ongoing revenue streams.
5. Check the expiration dates. This may be a good time to discontinue activities that are out of date or no longer work.
6. Identify Plans B, C, and D. You might be able to sublet space, sell off equipment or start a new social enterprise.
7. Collaborate to raise money. Consider partnering with another nonprofit on an event. There is strength in numbers.
8. Be realistic. Scale back on campaigns best done during better times.
9. Avoid emergency solicitations. No one wants to be on a sinking ship. These drives can do more harm than help.
10. Get social. This would be a good time to engage your constituents on social media.
Richard Koch in his book The 80/20 Principle: The Secret to Achieving More with Less puts it best:
“We can change the way that we think about external events, even where we cannot change them. And we can do something more. We can intelligently change our exposure to events that make us either happy or unhappy.”
Hello, Vilfredo Pareto.
© 2022 Norman B. Gildin. All rights reserved.
