The Downside of the 90/10 Rule in Fundraising
22 May 2023
Feasibility Study
If you're afraid to look at your 401(k) balances lately, join the club. The stock market has been in a rut (officially called a trading range) for many months now, and your balance is likely to be significantly lower than it was two short years ago. Rising interest rates have been blamed for everything from bank failures (with Silicon Valley Bank being the second largest in history) to a slower housing market (not unusual). In the financial world, especially those of you that work with a financial planning professional, you may have heard talk that the classic rule of thumb of the 60/40 split between stocks and bonds in your portfolio is no longer a good benchmark. This suggested mix has been around for decades, and these balanced portfolios did fairly well in the 80s and 90s, but more recently have come under fire as too simplistic and underperforming. All of this leads me to another common benchmark in the world of fundraising that may not be as valid as it used to be.
The resource development industry loves to quote the 90/10 rule, where 90% of the money raised comes from 10% of the donors. In fact, some are suggesting that it is moving closer to a 95/5 split, quoting the fact that from 1989 to 2019, the top 1% of earners in the U.S. saw their wealth increase almost five times, from $2.3 million to $11.1 million. Their conclusion is that development departments will get more bang for their buck by pursuing the big fish, because they ‘want to make their mark through transformational gifts.’
While there is some logic to this, it smacks of the old joke about looking for your lost car keys only under the streetlamp, because that is where there is light. It may be easier to look, but if that is not where you lost your keys, all the looking in the world will not turn them up. Just because someone has the capacity to write a big check completely ignores that fact that they may have no connection at all to your organization. Put another way, if those big fish do not value your outcomes, they will never be the transformational investor you might hope they will be.
This big fish strategy also focuses your fundraising efforts on a small number of prospects, and they will be the very same prospects that everyone else is pursuing! Over time, this will have the unintended consequence of narrowing your prospect pool and could easily backfire and lower the amount of money raised.
As a counter to focusing on the mega-donors, consider this: use what you do well (your outcomes) to surface those that have the capacity fund them. This is a complete reversal of the mega-donor strategy of capacity (wealth) being the starting point for cultivation and going from there. Rather than assume you can convert these folks from prospects to investors because they have money, use your outcomes as the starting point and find those that value them. This strategy also gives much more hope to the smaller nonprofit that does not has entre to the mega-donors and has proven to be an effective process in many of our tougher campaigns.
One more thought on the 90/10 theory. I've reviewed our campaigns for the last three years and found that between 50% and 70% of the dollars raised come from less than 9% of the investors. This broadening of the base provides a good foundation for the next campaign and ensures that no money is left on the table. Down the road, some of those smaller investors might strike it rich!
About The Author
More Topics
