Pareto Way
Sean Triner, Co-founder and Director of Pareto Fundraising and Pareto Phone, shares some of his insights into fundraising.
The Pareto Way is based on careful consideration of a whole suite of communications aimed at maximising the lifetime contributions of a donor. It starts by applying the Pareto Principle, which tells us that the majority of funds will come from a minority of your donors. While the gifts these donors make will appear to be small, it is only when they die that their potential is realised through their legacy, bequest or planned gift, provided you asked them to put your charity in their Will.
Strategically, 80 per cent of energy should be spent either on your most valuable donors, or on how to grow the less valuable donors.
In a campaign, 80 per cent of the strategic and creative processes and energy should focus on these ‘top’ donors, whilst the remaining 20 per cent should be invested in converting the approach for the other donors. The Pareto Way looks at data (donor behaviour) and drives communications based on that information; it can be applied to government funders, events, trusts and foundations, corporates and individuals. It is a process that encourages the fundraiser to think holistically, for example ‘What happens to the donor after this communication? Will this make her more likely to include a gift to our charity in her Will?’
The essence of the Pareto Way is:
- Always do what is in the long-term interest of the charity’s beneficiaries;
- Don’t ask what will work, find out what does work;
- Think holistically – each campaign, event, communication is just one piece in the puzzle. It’s part of your ‘X-Files Story’.
The Pareto Principle
Vilfredo Pareto was an Italian economist who noticed that 80 per cent of the land was owned by 20 per cent of the population. Also known as the 80/20 rule, or the law of the vital few, the Pareto principle can be generally summarised thus: for most events, the majority of effects are caused by a minority of the causes.
For a social inequality example, two per cent of the world’s population ‘owns’ more than 50 per cent of the world’s wealth. Other examples include the fact that a privileged minority of the population have access to the majority of health care, computer power, nutritional needs and so on.
From a marketing point of view, a majority of purchases are usually made by a minority of purchasers. And closer to home, at least 80 per cent of donations income will come from, at most, 20 per cent of your donors.
A final example for teachers 80 per cent of your problems will come from just 20 per cent of your students. Managers, just swap the word ’students’ for ‘employees’.
Your X-Files Story
The cult US TV show gives us a great analogy for charity communications.
The X-Files was a decade-long hit TV series that started back in 1993. It was very formulaic. Every episode would start with something bad happening. FBI agents Mulder and Scully would then investigate and make it better for the affected people, or at least the survivors. They would then file a report, but things wouldn’t be quite solved; there was still a need implied.
That’s already a pretty decent analogy for a charity appeal, but it gets better. Every episode of the X-Files contributed to a much bigger, ongoing story: the ‘X-Files Story’. Mulder’s sister had been kidnapped by aliens and he was trying to find out the truth behind that and other alien events. His motto was ‘The Truth is Out There’.
This over-arching story was communicated across the individual episodes but also helped take the viewer on a clear journey, with some progress towards the end goal made in every episode.
Appeals, thank you letters, websites, emails, tweets and phone calls – all of these are like episodes, but all must work together to tell the big charity story (which is about beneficiaries, not statistics). Using this analogy, a great exercise for charity staff is to work out your big-picture X-Files Story.
Hyper-personalisation
Part of the approach of the Pareto Way is to maximise the long-term contributions of donors. We know that building relationships with donors in a way that respects their choices and wishes, and treating them like individuals, can help bring them closer.
Personalising details like name and salutation (Dear Sean or Dear Mr Triner instead of Dear Supporter or Dear Friend) has been shown to increase donor responses to appeals. But with hyper-personalisation we go even further, personalising with a lot more detail in order to increase the chance of regular donations, major gifts and getting the charity included in a donor’s last Will and testament.
Within the Pareto Way, we try to use personalisation to deepen the relationship between a charity and its supporters, using information gleaned through surveys and any other details donors are happy to supply. The information may vary depending on the charity; for the animal welfare charity, it is using the donor’s pet’s name; for a cancer charity, it might be including the names of loved ones lost to cancer.
Key direct mail tactics
When writing a letter to donors asking for money, there are some key tactics that have a big impact and are easy to apply. (They assume you remember to include a letter, return envelope, and response coupon.)
They include:
- 1. Ask, ask and ask again. The first ask should be direct and early, within the first couple of paragraphs. “…that is why I am asking you today for a donation of $50…”. It should be repeated throughout the letter and on the response coupon.
- 2. A great, emotional story with a beginning, middle and end, focused on the beneficiary – the reason the money is needed.
- 3. A compelling, urgent proposition. What are you going to do with the money? Not technical details.
- 4. Personalised ask amount/s, repeated in the copy and matching the tick boxes on the response form.
- 5. A target amount that needs to be raised, along with a deadline. A reason to get the money in by a certain date. You can always find a deadline. Targets can be based on the cost of something; the generic ‘My target is to raise $540,000 by xyz date’ is better than none at all.
- 6. First person. I write letters, Pareto Fundraising doesn’t. I am asking you to write in the first person, we are not.
These six tactics, done well, will account for 80 per cent of the increase in effectiveness. The other 24 will account for the other 20 per cent. Finally, it is well nigh impossible to get all the tactics to work well together in a short letter. Don’t be afraid of longer letters; the longest one I ever wrote was 18 pages – and it worked.
A word about net income and ROI
Charities only exist to help their beneficiaries. For most of them, the only way they can do this is to spend money on, for example, experts’ salaries (nurses, vets, social workers, field workers, researchers) or direct costs (food, distribution and so on).
All fundraising activity, marketing, policy and all committees, employees and volunteers doing these activities are the means to this end. The only piece of the fundraising puzzle that can be used to help beneficiaries is the money left over after meeting all your costs. In other words, your net income.
Yet so often, policy and practice is ruled by an efficiency rating with no justification anywhere. This rating is known as “Cost of Fundraising” (COF) or, its opposite twin, “Return on Investment” (ROI). The only time these measures are useful is when a fundraiser is choosing to NOT do some activities that make net income, or when deciding which acquisition campaign to invest in.
For most activities, ROI is actually a damaging measure. Net income is much more useful. As an extreme example, it is better to raise $1 million at a cost of $500,000 (ROI of two) than $300,000 at a cost of $100,000 (ROI of three). The former provides $300,000 more net income. That is $300,000 more to spend on your cause.
The big problem is that, with no logical or objective evidence backing this position many legislators have ruled that charities must fundraise within a legislatively set ROI. These rules are rarely thought through and don’t really take into account long-term activities, donor care, the rising cost of fundraising and the fact that a good ROI has never been correlated with a charity’s impact. It is a myth that better charities have a better ROI.
Those that perpetuate this myth legislators and fundraisers bear a diabolical responsibility for the subjugation of the sector and its ability to have a greater impact now, and into the future.
How charities are funded
Worldwide, governments, government agencies and alliances, such as the UN and EU, are the biggest funders of organisations that exist to help fellow humans, the environment and animals.
However, government money is not available to all, and some charities will not accept money from government sources. Also, the very act of accepting government money sacrifices some degree of independence.
Philanthropic trusts and foundations are the next best bet, not necessarily because of their size, but because they are easy to get money from, if you meet their criteria.
Many newer fundraisers, and many charity boards, follow strategies to raise money from corporates; yet despite all the hype, almost everywhere in the world, corporates account for only around five per cent of the sector’s income.
We measured the income sources of some 30 Australian charities, looking at non- governmental funding, and found that individual giving dominated their income. Looking at information from Giving USA, the Charities Aid Foundation (UK) and our own research in Hong Kong, New Zealand and beyond, we see a similar pattern everywhere. Individuals dominate non-governmental fundraising income.
Pareto Fundraising’s Australian research: Individual giving dominates charities’ income.
The Fundraising Trinity
Looking at where this individual income comes from, we see that regular giving (monthly), major donors (who give gifts of greater than $1,000) and bequests (legacies) are the three most important growth areas. We call these the Fundraising Trinity of individual giving.
At Pareto Fundraising we believe that income from these sources is linked. We believe in a holistic approach to donors and implementing communications programmes that encourage donors to find the best way for them to have the greatest impact.
Each element of the trinity requires a good relationship to be maintained to maximise lifetime value. The first challenge with this approach is that it requires a complex matrix – a holistic communication program that often crosses different departments within a fundraising team.
The second challenge is that it requires genuine long-term thinking. The activities that get cash now, and the cheapest donors acquired, are not usually the best long-term bets. Budgeting for asking people to put a charity in their Will (legacy or bequest marketing) is often put off because it doesn’t realise a decent income for up to seven years. Regular giving programmes are expensive, and can take 15 to 36 months just to break even.
But, those charities that invested in the Fundraising Trinity five to ten years ago are the ones dominating growth within the sector now and they are the charities in the best position for coping with whatever the world throws at them.
SRM supporter relationship management
When we talk about SRM, we are not talking about a piece of software for managing contacts. We are actually talking about a holistic approach to communicating with donors that respects their choices and donations to improve relationships. It also means we use data to identify those most likely to respond to a different ask.
In less clinical terms, it involves us putting together a coherent strategy of communications to maximise the opportunities for people to give, whilst making them feel great about it.
We use technical skills and knowledge to bring donors closer to the organisation by recognising them as individuals through highly personalised and targeted communications.
