How NOT to Measure Your Charity
Administrative and operational costs are part of the picture. Don't negate them.
About six years ago, AIDS Ride Founder Dan Pallotta did a TED talk called “The way we think about charity is dead wrong”, in which he implores donors to stop “equating frugality with morality” when measuring a given non-profit. The talk has garnered over 4.7MM views to date.
Despite a detailed, passionate, and highly compelling presentation, with loads of folks weighing in following it (often strongly supporting Dan’s message), not a whole lot has changed. When talking with other donors about non-profits, the administrative/operations cost question still comes up — almost as often as it did six years ago, before Dan’s talk.
There are several reasons for this, including the occasional news story about ridiculously inappropriate salaries being paid to certain non-profits. Just recently there was a story about a “non-profit” organization in Texas that houses migrant children, where six of the employees make at least $1MM annually, including $3.6MM to the CEO and $2.4MM to the CFO.
But that’s an anomaly. Most non-profit leaders make reasonable, market-appropriate salaries, and many make far less than they should relative to their experience and the work that they do.
So the salary question really doesn’t need to be part of the measurement/evaluation. In fact, as a donor, I’d want to make sure that the leadership of the organizations I support are well compensated, as I want good leaders to stay with the organization for a long, long time. Raising money is all about trust, and turnover of staff tends to make donors suspicious and uncomfortable with the organization — regardless of the group’s cause.
In terms of administrative/operational costs, most — if not all — donors, especially ones who come from business, understand that all non-profits, like any business, have operational costs. It’s clear to the donor that the person sitting across from them at the table asking for a donation needs to get paid. Is it more appealing to a donor to hear that their donation is going “100%” to the particular cause? Maybe. The only way that the “100%” thing makes sense is if, like a few organizations I’ve heard of in the past, the costs of the company’s operations is pre-funded in full already. (This is the case with a non-profit I know of, where the board agreed to pay all of the operational costs of the organization, so that 100% of the donations from non-board members could go directly to the cause.)
In fact, donors have been “trained” over the last few years to be aware of the costs of procuring donations. Most online giving apps ask for an additional small percentage “to cover our administrative costs” (or similar language). While the 2-5% typically asked for isn’t even close to the full costs of running the organization, the message — that it costs money to raise money — is clearly there.
Is there a concern that money donated to a given charity is being wasted on unnecessary administrative costs? Absolutely. This concern comes from real-world examples of government, business and a whole slew of non-profits in the news for misusing or wasting funds. However, there’s no reason to expect that most charities are doing so. An astute donor, though, should look at the Board of Directors and the executive leadership to ensure that people with real-world business experience are included in those roles. When doing so, we should all be very clear that strong and competent staff command — with good reason — higher salaries. And that’s okay.
I’d much rather give to a well-run organization that is making significant impact on their given cause — but spends a comparatively high percentage of their budget on admin costs — than an organization that spends very little on admin costs but makes little or no impact on their cause. Wouldn’t you?
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- Lisa