Using “Marginal Utility” in Fundraising

It is not often that I use economic theory and principles when addressing fundraising matters…but perhaps I should more often. The notion of “Marginal Utility” is the additional satisfaction a consumer gains from consuming one more unit of a good or service.

Marginal utility is an important economic concept because economists use it to determine how much of an item a consumer will buy. Positive marginal utility is when the consumption of an additional item increases the total utility. Negative marginal utility is when the consumption of an additional item decreases the total utility. Economists use the concept of marginal utility to measure happiness and pleasure, and how that affects consumer decision making.

Total utility is the aggregate level of satisfaction or fulfillment that a consumer receives through the consumption of a specific good or service. Classical economic theory suggests that all consumers want to get the highest possible level of total utility for the money they spend.

Let’s substitute “consumption” and “consumer” with “contribution” and “donor” because there is a linear relationship. In a practical fundraising situation, the marginal utility of giving $100,000 to a stakeholder organization with a budget of $3 million is much greater than to an organization with a budget of $500 million. It can be argued the smaller donor will perceive a higher level of MARGINAL utility and will be happier by giving the $100,000 compared to the $100,000 given by the larger organization, presuming both projects / organizations are aligned with the donor’s interests.

If you are a smaller organization, this $100,000 donor will have a special place in your donor list and donor recognition engagement opportunities. The gift will likely represent a larger proportion of the financial goal you need to raise to implement the program or capital project for which the funds were sought, and they may also get a significant Legacy Naming Opportunity. You might even showcase the donor in your newsletter.

If you are a large organization, the $100,000 is also an important gift, but it is likely one of many six and seven-figure gifts you have received and the donor will be represented among many others in your donor list and recognition framework. The gift will likely represent a small proportion of the financial goal you need to raise to implement the program or capital project, and the Legacy Naming Opportunity will be less significant to the overall project or facility. And a newsletter feature is unlikely.

We all know donors want to see impact through their giving…so for smaller organizations a discussion about the marginal utility of donor giving is an important discussion to have.

Your takes:

1. Be able to effectively describe the impact “major” gifts and ongoing giving will have on your organization.
2. Warm up the term marginal utility so you can discuss it in plain language with donors.
3. Most organizations have an even larger organization they can point to to make the case for relative giving impact. (Harvard and Stanford are easy examples to use.)