Give Vilfredo Pareto More Respect
In 1906 Vilfredo Pareto made the observation that 80% of the property in Italy was owned by 20% of the population. With further embellishment, this morphed into the Pareto Principle, or 80/20 rule, which posits that for many phenomena, 80% of the consequences stem from 20% of the causes.
It's also called the law of the vital few, which perhaps makes its relevance to marketing and fundraising more readily apparent.
Major gift fundraisers, with their donor pyramids, apply the principle everyday. They routinely apply the most and best cultivation resources against the top layers of the pyramid. And they produce nifty Powerpoint slides using an inverted revenue pyramid next to the donor pyramid to illustrate that the few give by far the most. If you've ever been to a nonprofit board meeting, you've seen that slide!
What's not as obvious, or at least not as aggressively acted upon by most nonprofit marketers, is the application of the law of the vital few to rank and file donors and members … the ones you direct market to.
Sure, most direct mail (and now, online) fundraising programs make a nod toward some rudimentary segmentation of the house file on the basis of giving history, usually to drive a “high dollar” track for their special appeals solicitations. For most orgs, this probably amounts to sending a slightly more “upscale looking” package to folks whose last previous gift was, say, $100 or more.
We suppose that's better than no segmentation at all. But not much. Pareto deserves more respect.
Today's database tools, coupled with the ability to customize appeals (especially online appeals) far more cost-efficiently, enable nonprofit marketers to optimize their donor bases to a much greater degree, generating more funds and less cost per dollar raised.
Here are some steps and issues to consider …
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