Math for Arts Administrators Part II: The Pareto Principle (AKA 80/20 Rule)
Let's be sure to include economist Vilfredo Pareto to a long list of Italians contributing to the field of theater. While less broadly relevant than the work Dario Fo or as foundational as commedia, Pareto's famous "80/20 rule" provides extraordinary insight--and a bit of common-sense advise--to today's arts administrator.
Pareto's principle argues there is an unequal relationship between inputs and outputs with 20% of input (typically time/money/effort) resulting in 80% of output (mission-alignment, financial gain, etc.).
This principle is true in your reading this article. You've already got the gist of it, so you can stop reading. It's like my morning espresso (or three). The first one is great, the rest I ingest almost out of duty. Or like a glass of beer: the first sip is the best and it gets progressively worse down the pint.
If you're still reading, I'll move on...
I often reference an apocryphal Enertex study which tested mailings of two alternate communications promoting the same event to prospective buyers: the first direct mail piece is a simple form letter indicating the title, featured artists, run dates, location and other basic information of a live event; the second is a glossy/big/fancy full-color brochure with all the bells and whistles. And apparently every time this test is done, the plain, black-and-white mailed letter sells at about 80% of the much fancier (and more expensive) piece.
Great arts administrators live in this "20 percent;" we're paid to optimize campaigns, track costs, ROI, find efficiency in service of the art, etc. Indeed if many of the country's leading (and even endowed) arts organizations under-performed by 20%, many would close!
This principle is so foundational, it guides our day-to-day decisions within that 20% as well. Here are a few common pitfalls I see in my work with nonprofit performing arts organizations. A note: I've taken a bit of blogger's license in stretching this principle. Might you see a bit of your company or department somewhere in this list?
1. 80% on Analog Ads, 20% on Digital Ads: While I certainly hope you're not spending 80% of your advertising dollars on print, you may be spending 80% of your time and thought on it. Spending hours (in price/schedule negotiations, design, review, etc.) on print ads, programs, or brochures is fine if you have the time. When is the last time you took a similar deep dive into one of your more important conversion pages on your site or in your purchase funnel? Less time is spent on digital assets because they can be changed later... but how frequently do change a digital asset to optimize a sale versus just fixing a typo or making other necessary contractual change? This reminds me of a former marketing director colleague who noted that the organization's artistic director spent hours directing colors/hues and other rather frivolous matters on print ads: just by the fact that the ad is going out and is accurate, you've done 80% of the job.
2. 80% on Fundraising Events Yielding 20% Return: Fundraising staff spend countless hours planning fundraising events. This is great if the return is there, but as my prior article on opportunity costs indicated, this time/money investment comes at a cost of what those staff or dollars are NOT doing. Some organizations have, rightly so, outsourced production of fundraising events like galas to third party vendors/consultants but that also has a cost (perhaps more to brand-alignment than a more quantifiable "bill"). If, in the end, you are only yielding "20%" in any given year and not significantly growing your donor base for future years, consider some adjustments.
3. Advertising Plans: This one does not align as nicely with Pareto's principle; most larger arts organizations build rather efficient advertising campaigns with a clear focus on ROI. But those ad schedules typically only account for ROI in terms of dollars spent on advertising and transacted dollars back for that particular campaign. They do not account for broader branding value (of some significant worth) and, more importantly, the value of new buyers or otherwise new names in your database. So even for very efficient campaigns, I recommend setting aside 20% of the investment (again of time and money) in new audience development: new advertising partnership, test a new outlet, hire a consultant to reach out to a particular audience you wish to target, etc. This prevents another principle (diminishing returns) from crippling the long-term success of your organization.
4. Fundraising in General: This is far more straightforward--development directors can attest to those larger foundations, individuals and government entities that take 20% of investment and represent a far greater percentage of donated revenue. I'd argue that these relationships only take 20% of time because they are being "maintained" rather than "built." And great care should be given to those donors whose relationships you are maintaining to ensure you remain closely engaged with them. In other words, don't let 20% drop to 10% as they'll know it--all good friends do. And great executive/managing directors will undoubtedly know that some of that time spent in the 80% relationship building is not going to yield immediate results.
5. IT Costs: You're an arts organization, not a tech company. With DIY website design/hosting/CMS options, low-cost and quality vendors, Google and various other office solutions, a very competitive ticketing/donation/CRM landscape, automated marketing companies, digital ad agencies, yada yada yada... only the larger budget organizations should require full-time IT staff or six-figure costs. How many dollars might you be able to put into the art if you re-structured your IT investment and resources? Do you track those costs as part of the software costs or on a separate line/department? For multi-million dollar budget companies, these savings can be staggering. For smaller budget companies, it may still mean the difference between "living without" and affording that extra "half a person" during peak sales/fundraising times.
If anyone has access to the Enertex study mentioned above: can correct, offer specifics, etc. I would greatly appreciated. Mention of this study comes from many years ago during my participation in an early "Big List" in Los Angeles.