Redefining Charity Efficiency

In our tirades against the "charity watchdog" organizations, who use fundraising ratios as an arbitrary (and misleading) measure of the efficiency of a non-profit organization, we have missed an opportunity to talk about what we think donors should use to measure the effectiveness of charities, and what non-profits should be saying about the work they do so donors can make informed decisions about their charitable giving.

Effective non-profits invest donor contributions in ways that help fulfill the mission of the organization — and organizations should be proud of how they spend these valuable dollars. It’s critical that organizations tell donors — and potential donors — how contributions are effectively invested. Charities must not fall into the trap of allowing the watchdogs to define their effectiveness.

What kinds of information should charities make readily available to help people make donation decisions?

• Report on annual impact and progress towards mission fulfillment. Did you provide shelter for 600 people who otherwise would have slept on the streets? Tell people. Did you mount a new exhibition that explores a part of history that people do not understand? Tell people.
   
• Be transparent about the cost of that impact. Don’t be afraid to tell donors how much of their money you spent to house people, to put up an exhibition, to fund research initiatives. Quantify it and explain how you spent their donations — talented social workers, exhibit space, etc.
   
• Be explicit that you spent money on fundraising. Yes, it costs money to make money — tell donors that by spending XX% on fundraising you were able to produce YY% money for your mission.
   
• If there will be a two- or three-year wait for a return on your fundraising investment you made in fundraising — tell people. For-profit corporations are expected to invest resources to plan for a brighter future — charities should be expected to as well. Educate your donors about the fact that your increased fundraising costs allowed you to hire a new Director who could raise considerably more money, or fund acquiring new donors to take the organization to the next level.
   
• Give your donors your strategic vision. Bring them on the journey with you — tell them how a greater investment will impact your efforts.
   
• Use numbers, use ratios. The reason the watchdogs get so much news coverage is because the "fundraising ratio" is easy for people to understand. Well, so is "return on investment" and "wow, you are helping us raise more money to fulfill our mission." Show donors — when you invest $XX with us, you are feeding YY people — make it simple to see. This is not always easy, but you can do it.
   
• Make all of this information easy to find. Have a part of your website that says "The impact of individual donors and how we put your dollars to work." Publish an annual report. Instead of putting the charity watchdog rankings on your direct mail pieces — tell donors where to find good information on your effectiveness.
   
• And, make sure you are defining your own story. On all of the watchdog sites, there are places for "comments" — make sure you are commenting, and often about your impact. Measure yourself on mission fulfillment — not fundraising ratios.

It’s going to take a long time, but movement has started. If you want to get more involved, you can become part of the Charity Defense Council (charitydefensecouncil.org) or the DMA Nonprofit Federation effort to redefine the discussion (nonprofitfederation.org/ethics-policy/ethics). Measure effectiveness — not "fundraising efficiency."