Using a little-known principle of wealth distribution and income/outgo, you can save thousands of dollars in marketing while drastically increasing your organization's annual revenue.
A well-known man among economists, Vilfredo Pareto, lived from 1848 to 1923. He was instrumental in proving the law of income distribution now called “Pareto’s Law”. It is now more commonly referred to as the “80/20 Principle”.
Here’s how the principle works: Pareto proved that 80% of the wealth in society is produced and possessed by 20% of the population. This principle is highly predictable even though it seems like it’s a vastly uneven distribution of wealth. While working at a Swiss university, Pareto observed this law by noticing that 80% of the wealth was held by 20% of the families. He later went on to prove this principle does not simply apply to money, but also applies to nature – in fact it applies to almost anything.
Here’s an example of the law in use in nature: Pareto planted a pea garden. 80% of the peas were produced by only 20% of the peapods planted.
Timothy Ferriss further summarizes this theory in his book, The 4-Hour Work Week:
- 80% of the outputs result from 20% of the inputs. Alternative ways to phrase this depending on the context include
- 80% of the consequences flow from 20% of the causes.
- 80% of the results come from 20% of the effort and time.
- 80% of company profits come from 20% of the products and customers.
So what does this have to do with your organization? Answer: Everything.
As the development officer, or the person in charge of fundraising for your non-profit, you should take a good look over your donor lists. Rather than blindly soliciting donations and wasting hundreds, or thousands, of dollars from an already tight marketing budget, you can selectively decide which donors deserve more of your time and efforts.
For example if your organization relies on a combination of grant funding, as well as individual donations, which area is producing the most financial input for the amount of output it takes to solicit those donations? You might be surprised at what you find from this analysis.
As another example, let’s take the last of the above re-phrasals: 80% of company profits come from 20% of the products and customers. To put this into action, you must ask yourself where is your revenue coming from? Is it mostly a few individuals and companies – and possibly one or two grant sources? If so, then you know where to concentrate most of your solicitation efforts from now on. You also know that you must focus on finding more sources just like the ones that are giving your organization 80% of its revenue.
So the new questions to ask are, “Where did those sources come from? How did they find out about our organization? How can I locate more sources just like them?”
It can be hard to break away from how “things have always been done” and brave the fear-based queries from some of the senior staff in your organization. Nevertheless, if you want to increase your organization’s revenue, you must be steadfast in this “new” fundraising campaign.
If the numbers from your analysis still don’t convince everyone, then request to do a trial-run at focusing more efforts into soliciting from the 20% while still doing the “usual” fundraising. Once everyone is convinced, and fears are eased (including your own) you can make this the new way of thinking in your organization.
Here’s to more annual revenue!
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