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Should My Pareto Score Worry Me?

2 Comments

Should you be concerned about your Pareto ‘score’?

Following a post on Moceanic Facebook about the Pareto Principle, Daniel Peyton from Habitat for Humanity asked me if there was a Pareto split that a charity fundraiser should be concerned about.

For example, if you look at your data and find out that 20% of donors DON’T give 80% of revenue: should you be worried!?

Well, it depends.

Very few charities have a true 80/20 split – a ‘perfect’ Pareto score. But when you combine the data of a number of charities, they usually come close. The diagram below shows the Pareto Principle across all of Pareto Fundraising clients – representing about $1.4 billion.

It turns out that of all donations, 20% of donors give 73% of donations, and four percent of donors give 46% of donations. A little ‘flatter’ than the ‘perfect’ Pareto score.

Take monthly giving out, and only look at one off donations, and those ratios come much closer to the true Pareto principle at 78% of donations from 20% of donors, and 56% of donations from just four percent of donors.

So the lessons from Pareto – put your effort into the top 20% – still apply!

Pareto Principle

But what about monthly giving? Here the numbers are much flatter, with just 45% of revenue come from the top 20% and 16% of revenue from the top four percent. Concentrating efforts on the top donors is likely still worth it, but not to the same degree as with one-off donors.

So what should concern you?

Let’s look at some scenarios:

‘Extreme’ Pareto

My Pareto split turns out to be 95% of income from 20% of donors. Is this a concern? Possibly. If I raised $1 million from 10,000 donors that means $950,000 was coming from 400 donors (average $2,375) and just $50,000 from 1,600 people (average $31).

Let’s say it was just one donor who gave me $750,000.

Take that out, and I am raising $250,000 from 9,999 donors.

I still raised $50,000 from 1,600 (average $31) lovely people and $200,000 from the top 399 donors (average $501). My Pareto split is now 80/20!

So is it bad that I got that huge donation? Probably not. BUT it is risky if such a high proportion of my income is from just one donor. Perhaps a government grant?
If I were head of fundraising I would want to diversify, probably with a monthly giving campaign.

‘Flat’ Pareto

My Pareto split turns out to be 30% of income from 20% of donors. Is this a concern? Probably.

If I raised $1 million from 10,000 donors, that means $300,000 was coming from 400 donors (average $750) and just $700,000 from 1,600 people (average $437).

This looks like a monthly giving program to me. And it looks like we are doing well on initial retention (otherwise I would have more people giving very little) and are not doing great at upgrades (otherwise I would have more people giving much more).

It also tells me I am likely not doing well with major donors or bequests. So in this case, if I were head of fundraising I would want to diversify, probably increasing investment my major donor and bequest marketing.

If you do look at your data, you will likely see you are actually closer to a Pareto split unless you have one or two massive donors, or the lion’s share of your income is from monthly giving.

Thanks Daniel for this great question!

Sean

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2 Comments. Leave new

  • Glynis Corkal
    April 12, 2017 1:44 pm

    I have one other question – are you including foundations and corporate giving in these scenarios? Or ONLY individuals?

    Reply
    • Hi Glynis
      What I wrote would apply to ALL your donations – including foundations, corporates and even Government. Think of them as ‘major donors’.
      However, after analysing with all sources of income to get a big picture strategic health check, I would do it again just on individual donations for a health check of your individual donor programs too.
      Sean

      Reply

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