The New 80/20 Rule: How Much of Today's Budget Are You Investing in the Future?

Those of us in the direct-response fundraising profession are living in the age of walking a tightrope. A strategic high-wire act. The stakes are high. Our equipment is critical. Balance, thoughtfulness and steadiness are the characteristics we must exhibit to succeed.

That’s especially true when we wrestle with budgeting issues. How much should we invest in social media? How much mail is too much? Is this the right time to test DRTV? Let me suggest we begin with two key insights: (1) Who nonprofit fundraisers should target to maximize revenue, and (2) how and where to best communicate with the target audience to accomplish this.

First the Who
As I noted in a previous column, “The Quest for Younger Donors,” research and experience teach us that older segments (55 and older) are giving significantly more money to nonprofits on an annual basis than younger segments (younger than 55).

In fact, both the percentages of donors in each age group and the average annual donation increase as age increases.

What the numbers indicate to us is this: If a nonprofit has a limited and finite marketing budget (and I think it’s safe to say that we all do), and if our goal is to deliver the maximum return on investment and net dollars to our organization, then we should focus the bulk of our strategic and budgetary efforts on the donors who provide the best value.

Yet, surprisingly, we continue to see nonprofits refocus their spend on younger, less generous, less giving audiences like millennials. Will this audience engage, get involved in advocacy or volunteer? Will the not-yet-ready-to-give donors be more likely to give to them in the future? They may well be, but that’s not going to help meet this year’s income shortfall.

How and Where Do Donors Give?
In Russ Reid’s “Heart of the Donor” study, donors indicated that on average they used three to four channels for giving during the last 12 months. For example, 55 percent of donors who gave online also gave via mail, and 20 percent gave in response to a phone call.

For our purposes, the predominant methods of giving are mail and online.

Obviously, mail is the most productive and profitable channel among older donors, but it’s also surprisingly well-used by younger donors—more than four in 10 donors between the ages of 18 and 39 gave via mail in the 12 months prior to the survey. This is 10 to 20 percentage points less than their online giving, but they’re still remarkably engaged in mail.

The 25- to 54-year-olds, donors who will be most important to us in the mid-term, are essentially equally facile with mail and online.

The 55 and older crowd, today’s most valuable and productive audience, is still highly engaged through direct mail, despite ample opportunity to engage online.

Ultimately, donors are telling us that it’s not mail or online—it’s mail and online (with much online giving fueled by offline channels). In-market testing strongly supports that it is a combination of offline and online media that drives new donor acquisition and a much higher long-term donor value.

What about social media? The growth trajectory of engagement through social media is off the charts. It’s a great way to build awareness, engage volunteers, fuel advocacy efforts and market special events. But only 6 percent of all donors have given through or due to the influence of social media. More telling, only 18 percent of online donors have given through or due to social media.

Of course, a key reason that social media is driving engagement more than revenue ties back to donor quality by age. Social media usage is still concentrated in the younger end of the populace, such as millennials, who, while willing to volunteer and engage, just aren’t giving that much yet.

Today.

But where will tomorrow take us?

Pareto Principle Revisited
My colleague, Lisa Scott Benson, who heads strategy and product development at Russ Reid, is creating quite a buzz these days with a new take on the Pareto Principle (that roughly 80 percent of the effects come from 20 percent of the causes). In the nonprofit world, we often see that 80 percent of our funds come from 20 percent of our donors.

Depending on your short-term and long-term revenue goals, and how these are balanced and prioritized, Lisa suggests that somewhere between 80 percent and 90 percent of your fundraising budget be spent on acquiring and cultivating the donors who are going to deliver the greatest revenue impact to your organization today.

Still, it’s vital to get fit for your future. That means you should be investing 10 percent to 20 percent of your budget in learning how to attract, engage, acquire and cultivate the younger donors who will make up the lion’s share of your future revenue. This means trying new offers, new channels and new modes of communicating—and doing our due diligence to understand the differing motivations that drive giving for new audiences.

I think Lisa’s onto something. It’s comparable to allocating 10 percent to 20 percent of our fundraising budgets to research and development. It protects our core income streams while testing for new audiences, offers and channels that will fund our future.

What do you think?