Political Fundraising Follows 80-20 Rule
After pouring over some of the fundraising data points culled from the June FEC filings of President Obama and Republican Mitt Romney, what I found most interesting is that political donations are following the Pareto Principle.
The Pareto Principle is more commonly known as the 80-20 rule and it’s is a basic rule of thumb which states that roughly 80 percent of results come from 20 percent of the causes or efforts. There seems to be no escaping my favorite economic principle.
The 80-20 rule can be applied to almost anything and the June fundraising data proves that political fundraising follows the same natural laws. If we look at the fundraising for the various presidential committees, we see that 18 percent of the money raised comes from small donations. Small donations are defined as those that are less than $200.
If we look at the Romney and Obama committees, victory funds and Super PACS all together, we see that 82 percent of the total money donated comes from just 14 percent of the donors, according to an analysis by Politico and the Campaign Finance Institute.
According to the Romney team, of the $101 million raised in July, 25 percent of the donations came in amounts of $250 or less.
All of these data points roughly match the scale-invariant nature of the Pareto principal.
The bottom line is that you get a much better return on investment by soliciting donations from donors who have the ability to max-out. The Romney team has successfully followed this strategy since they launched their first presidential effort back in 2008.
The Obama team, though they are uncomfortable admitting it to their base, is also following the same strategy this cycle. Just last month the Obama team held a fundraiser in New York City that brought in $2.4 million from only 60 guests.
The other take-away is that both the McCain-Feingold Bipartisan Campaign Reform Act and the public financing of presidential campaigns have failed in their objective of limiting the impact of large dollar donations on the political process.
A version of this post was also published on the Campaigns & Elections Campaign Insider blog.