Actions Have Consequences!

Vilfredo Pareto was an economist in the early 1900s who is still famously credited with the Pareto Principle, stating that 80% of consequences come from 20% of causes. Although this theory started off as a general explanation for life outcomes, it has been consistently applied to fundraising for years. Moreover, nonprofits have used the 80/20 rule for nonprofits to measure efficiency in activities such as volunteering, marketing, and programming, working toward not wasting resources. However, as we continue to progress through this time of economic volatility, these numbers have begun to shift toward a “90/10” or “95/5” split, as explored in recent fundraising analysis, showing the sector’s newfound reliance on major gifts and large donors.

So, should nonprofits completely ignore their small and mid-level donors? Absolutely not; in fact, they may be the key to balancing out the distribution. CCS completed a study within the last 5 years that analyzed an organization’s 732 largest donors. In the analysis, it was found that almost 33% of those donors started off as smaller donors, giving under $250, as detailed in this CCS Fundraising study on donor pathways. While small and mid-level donors may not deeply impact the immediate balance sheet, the long-term relationship can ultimately transform into a major gift. The question then is: are donors giving less, or are they just giving later?

The answer is the latter. Charitable giving has made up 2% of the United States GDP for the past 40 years, and that number will not change anytime soon. Therefore, to answer the question, donors are giving later, as accumulated wealth peaks around age 75 with proper investment strategies (especially among the Baby Boomer generation). Basically, even though smaller donors are not making up the bulk of the financial contributions, they eventually will. In order to establish financial sustainability in the future, nonprofits must cultivate these newer, smaller donors to become their new “top 5%.”

What Does the Data Say About Pareto Principle Fundraising?

The Gini Coefficient is generally used by the World Bank to measure economic inequality on a scale from 0-100, with 100 representing complete inequality. From 2021-2023, the coefficient jumped 2 percentage points, the greatest increase since the 1990s, according to World Bank data on U.S. inequality. Basically, the US is becoming more economically inequitable, and as a result, there is a mass movement toward asset preservation and economic conservatism by the wealthy.

All of these factors suggest that people are going to continue to give later and later in life. While these amounts may be bigger because of yearly returns, accumulated income, and smart investments, this trend will ultimately hurt nonprofits because of inconsistent cash flow. As nonprofits often have many receivables, liquidity is a common issue and will be hurt drastically by a reduced frequency in giving. In order to combat this change in donor behavior, organizations are increasingly turning to approaches outlined in sustainable fundraising strategies.

Overall, however, the trend is indicative of our current economy: more wealth in fewer places. So, whether we like it or not, we as a sector must adapt- the work is too important not to.

Here are some best practices for sustaining development within our economic landscape.

Best Practices

• For planned giving & major gifts, a higher concentration of wealth means the reliance on fewer donors at the top. Now, more than ever, data is essential for tracking the likeness of giving.
• Monthly giving programs can engage younger donors and seem less daunting in terms of commitments. Eventually, these younger donors can become the organization’s next leading givers.
• Event-based community engagement is the best way to capture the spirit of giving in a young donor; it may be a long courtship, but it can also create a pipeline for becoming a major donor.
• Fundraising must be integrated and holistic; the development team should connect with staff and constituents in order to learn all networks and methods to raise money.
• As the average middle-class American is involved on social media (a recent study reported about 75 percent of respondents aged between 18 and 24 followed at least one virtual influencer), as reported by Statista research on virtual influencers, micro-influencers are the key to raising awareness and expanding low-and-mid-sized donations.
• Accept and integrate internal tools to accept different kinds of financial vehicles, especially Donor Advised Funds.
• Research other important charitable tools used by high earners include Charitable Remainder Trusts, Charitable Annuity Devices, and other devices that can transfer liquid & non-liquid assets to development offices.