HOW TO MEASURE A NONPROFIT’S SUCCESS
A conventional rule of thumb for measuring a nonprofit organization’s effectiveness is to compare its operating and administrative costs to its spending on programs.
When the operating costs top 40% of the annual budget — which puts spending on programs at 60% — many pundits and experts argue that it signals that the organization is inefficient or that something may be very wrong.
Yet this bit of conventional wisdom is not the best way to make decisions about what to fund — nor is it a good way to judge whether or not your gift has fueled results.
Charities raise money and carry out programs in widely different ways, depending on the type of cause, the organization’s location, age, its hip quotient (what’s in style, now?) and other factors.
Listen up: There is no ideal fund-raising percentage or standard for administrative costs that can be applied across the board. For example, if one group needs significant staff to manage its programs, then administrative costs might look off the charts, yet the group could be effectively leveraging scant resources. Similarly, if a nonprofit in, say, Milwaukee, ships aid and supplies to Kenya, then operating costs would look out of whack because of high transport expenses. But the group could be super-streamlined about its work.
What’s more, accounting rules allow nonprofits several different methods of calculating fund-raising percentages. So you may be comparing apples to kiwis when you look at such figures.
Then, too, there’s plain common sense to rely on. Basing giving decisions entirely on such formulas begs the reality of trying to get the job done. New York donor-activist Barbara Dobkin has contributed and pledged millions of dollars, including as a founding donor for the White House Project, which is led by Marie Wilson. A decade ago, Dobkin donated $1 million to help launch the project, which works to put women into top electoral and corner offices. Her support of causes and programs extends to organizations. “I also fund operating costs,” says Dobkin, “because if an organization can’t pay its staff and turn on the lights and have an office, how do you expect them to be successful with programs?”
When you are thinking about a donation or a contribution of any kind, the best measure of an organization’s impact is how well it is achieving results and how efficiently and effectively it is fulfilling its mission — not some arbitrary ratio.