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The 80/20 rule

In the early 1900's an economist, Vilfredo Pareto, proposed a mathematical formula to demonstrate that 80% of the wealth in Italy was controlled by 20% of the population. This was later reinterpreted and applied in the field of quality management and the 80/20 rule was also found to work reasonably well in a number of other disciplines.

The 80/20 rule is a very powerful marketing and fundraising tool and can be applied to help an organisation to segment its current and potential donors or customers and to allocate resource appropriately.

If an organisation segments its current donors or customers using the 80/20 rule, it will invariably find that the real world approximates this ratio and 20% of its current donors will provide approximately 80% of total income. The ratio also appears to work within individual segments (e.g. the top 20% of the top 20% donors/customers will generate 80% of the income within that segment).

There has been a considerable body of research into the relevance of the Paereto Principle in the current economic climate and especially in its application to capital campaigns. If anything the research confirms its relevance, although precise percentages are debated.

It obviously makes sense to invest more of an organisation's marketing and communication resources in retaining and growing the top 20% of donors/customers if they are generating 80% of the income. It also makes sense to profile the top 20% and formulate strategies to gain the support of those who share similar characteristics.

Many organisations have in place account planning and management strategies to ensure effective stewardship of their top 20% of customers/donors. Not-for-profits and universities are generally not as advanced in their account management and planning for major donors as commercial organisations are with their top customers.

Donorcentricity can help analyse your current donors or customers, work with you to apply the Pareto Principle and help devise strategies to maintain and grow sources of income. We can also apply further market segmentation techniques to help refine and target your marketing and communication efforts more effectively.

The Pareto Principle is one of the most practical analysis tools available to a marketing or fundraising professional. The 80/20 rule is as relevant today as when it was first proposed to describe the distribution of wealth in Italy in the early 1900's.

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