On August 17th, we observe National Nonprofit Day. This is a day set aside to recognize the immense effort nonprofits and charities put into making an impact in their communities and across the globe.
Today, we have a chance to be grateful for the millions of nonprofits around the globe that serve human, animal, and environmental needs and strengthen our communities. We also have a chance to thank all the volunteers and donors who help further those causes. It’s a common site to see our sisters sporting their letters and doing hands-on work with a charity, but this is a chance to talk about the philanthropic side of supporting nonprofits.
Perhaps you’re in a place in your life where you’re financially able to donate 5-10% of your paycheck to a cause, or you got a bonus at work and want to put half of it to charity that needs it. Maybe a commercial came on or a flyer in the mail that really compelled you. Perhaps that $1 you donate at the Starbucks drive-thru isn’t much to think about, but if you’re considering a regular or sizable donation, you want to think more critically about the organization(s) you’re considering. How do you know what’s a responsible and legitimate nonprofit to put your funds towards?
Analyzing a nonprofit’s financials and their outputs/outcomes is its own complex field in and of itself. You can go very in-depth, including reading every line of their tax statements, annual reports, expenses, ratios, salaries, cost-to-raise-a-dollar, funders, key performance indicators, and dozens of other metrics. This is out of the realm of what’s possible or necessary for the average donor. In fact, most of this wouldn’t even make sense and would make your decision more difficult! So what kind of steps can the layperson take to give responsibly?
1. Create a list of nonprofits that match what you care about. Animal welfare? Environmental protection? Healthcare for all? Reproductive rights? Racial justice?
2. Use resources at your disposal. Three websites that I use are Charity Navigator, Charity Watch, and GuideStar. The first two are the most user-friendly and have a simple dashboard. A few of the main measures you want to look at are program-expense ratio (the percentage of what goes directly to programs; it excludes administrative and fundraising costs), fundraising efficiency, and what programs a majority of their funding is going towards.
3. Do not overly rely on numerical data from the above websites. An organization that has a program expense ratio of 83% is not necessarily “better” or more responsible than an organization with 75%. If an organization has higher outcomes, that should stand out more so than a slightly higher program-expense ratio.
4. Know which numbers to flag. A program-expense ratio of less than 65% should be a yellow flag. This is the Better Business Bureau’s standard recommendation. The fundraising efficiency (cost to raise a dollar) should not be more than $0.20 to $0.35. This is industry standard. Again, numbers don’t paint the entire picture, so you should look closely at other measures, like what they’re accomplishing.
5. Distinguish outputs and outcomes. Outputs are the things an organization does, usually in a measurable format. Organizations often brag about these numbers, but we need to think bigger! Outcomes are the things they accomplish, often more broad and abstract. An organization may tout that they provide tutoring to 500 at-risk children but only a fifth of those children ended up completing the next school year, having low program expenses isn’t super compelling anymore. Another organization may have provided tutoring to 350 at-risk children and had higher program expenses. Yet, if their outcomes are more meaningful, such as 200 of those children completing high school when measured five years out, what they’ve accomplished is more significant.
Your Turn: Organization A provided 500 free CPR/First Aid trainings. 50 people reported back that they used the skills to save a life within the next year. They have an 85% program-expense ratio and a stellar fundraising efficiency rate of $0.08. Organization B only provided 300 classes, but 100 people reported back they used the skills. This organization targeted more high-risk communities so their administrative and fundraising costs are higher. They have a program-expense ratio of 70% and a cost-to-raise-a-dollar rate of $0.25. Which has more significant outcomes? Do the outcomes outweigh the higher operating cost? What do you think and which would you choose?
Money is a finite resource, and we should make informed decisions when choosing where to donate! After deciding on causes that are important to you, take a little bit of time to explore the program’s website, annual report, and some of the websites mentioned above. This is a great way to give responsibly and with confidence.
Did you know that Kappa Delta Phi NAS used these types of websites to assess the American Foundation for Suicide Prevention before partnering? In fact, the AFSP is one of the most financially healthy and responsible nonprofits! They’ve received the highest possible ratings on both CharityWatch and Charity Navigator! They ensure that every initiative has at least one outcome (and not just a list of outputs). They have a fundraising efficiency of $0.08 and over 80% of their revenue goes directly towards programs! We are grateful to raise money for an organization like the AFSP!
By Lauren Porter
Lauren (she/her) is our National Philanthropy Chair and heads up our partnership with the American Foundation for Suicide Prevention. She’s a Portland-based social worker and in a graduate program for nonprofit management. In her work for the National Philanthropy, she aspires to keep our financials responsible, aiming for the highest outcomes possible and a $0.20 fundraising efficiency in any campaigns we lead. She’s passionate about the work of the AFSP because of their micro-macro blend, collaborative nature, and commitment to financial health and accountability.