Wednesday, October 05, 2022

Vilfredo Pareto: Who was he? Quasimodo might respond with, “The name rings a bell.” Fundraisers should know who he is!

Pareto was the Italian economist who, in 1895, conceived the idea that 80% of the wealth and property in Italy was owned by 20% of the inhabitants. Theorizing that it may be by natural law, he proposed we could find this ratio in many situations throughout the physical world.

For our purposes, it is significant to note that in fundraising, 80% of gifts come from 20% of major donors. There is even some evidence that about 10% of contributors have contributed 90% of donations in recent years.

Having a firm understanding of this is relevant given that we are in a recession now. The impact on fundraising can be enormous, and how nonprofits raise funds could dictate their survival.

First, let’s define a recession.

Investopedia indicates: “Recessions are sometimes defined as two consecutive quarters of decline in real Gross Domestic Product (GDP).” The United States has experienced such a double whammy this year.

In a 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 elaborates further and adds that stagnations “are based on indicators including GDP, payrolls, employment, personal income and spending, industrial production, and retail sales.” The U.S. has suffered through 14 recessions since the Great Depression.

We also learned in a recent story 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.

I maintain that, regardless, fundraising rebounds after downturns, and in general quite well. In my 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 is concerning is that during a national fiscal crisis, nonprofit fundraising, more often than not, is still 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% in inflation-adjusted dollars, from $326.6 billion to $303.8 billion. In 2009, matters worsened, with charitable giving dropping another 6.2% to approximately $284.9 billion.” Similar cases can be made in other recessions.

So, if you are a not-for-profit organization, what is your strategy to counteract difficult times?

In a blog by The Better Fundraising Co. in September 2020, during 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 in the early stages of the pandemic a fortiori holds truer now, as we crossed the threshold into an uncertain financial phase.

Foremost, you must focus 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 10 strategies online to help nonprofits weather the confluence of factors causing these hard times—what I refer to as “The Perfect Storm.” Their sound advice 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 contribution 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 brand-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.

Norman B. Gildin is the author of the book on nonprofit fundraising “Learn From My Experiences.” He is the president of Strategic Fundraising Group, whose singular mission is to assist nonprofits to raise critical funds for their organization. His website is www.normangildin.com

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