These past two weeks in class we have been
looking at various websites that rank charities based on a set of strict
guidelines--one of them being finances. One of the main aspects of these
financial evaluations are the program, administration, and fundraising budgets.
Broken down into a big, colorful pie chart these websites show how much money
the organization has spent in relation to these three sectors, and for some
reason everyone is fixated on organizations that allocate at least 80% for
program spending. Mostly everyone in class had this belief that the best
charity is going to be spending very little money on their administration or
fundraising costs, and instead is funneling all their money into their
programs. To be honest, when I saw organizations that were putting more than
15% of their budget towards fundraising I immediately thought that they were
not being responsible with their money. However, after class I could not help
but think how absurd this conclusion was. I asked myself, “is it true that the
best charities are putting all their money towards their program or is it
possible that putting more money towards fundraising could potentially benefit
a non-profit? Also, is this way of thinking about nonprofits possibly hindering
their ability to expand and innovate?”
Just think about how often you see an
advertisement on television or a billboard and suddenly it is your sole goal in
life to have whatever is being sold. I am not going to lie, I have bought many
products that have absolutely no purpose other than the fact that it looked
cool in the commercial. If large corporations can persuade billions of people
to consume their product everyday through effective advertising, then why
should non-profits not be able to persuade consumers to support their mission
statement? Why are we so against the idea that the not for profit sector should
put more money towards fundraising to potentially make even more money? Early
in the semester Professor Campbell had us look at a chart showing where donor
dollars were mainly coming from, and the answer was individuals. Non-profits
depend on normal, everyday consumers, who are 72% of the source of donations.
If consumers are the main source of revenue for these organizations, then they
should follow the footsteps of large corporations who make billions of dollars
off us every year. Statistics can’t lie and effective marketing does make a
difference. “In 2016/17, MindBody, Salesforce, Bottomline Technologies,
Tableau, Oracle and Johnson & Johnson all had marketing and sales budgets
that were greater than 20% of revenue, some spending close to 50%! All of these companies also grew
year-over-year.” All of
these companies may have put a large percentage of their budget towards
advertising, but in the long run it proved beneficial. I mean why would
Coca-Cola be spending over 3 billion dollars on advertisements a year if they
see no return on this investment? This is definitely not me saying that
nonprofits should be spending 50% of their budget on large advertising campaigns,
but I am saying we, as donors, should be more open-minded towards organizations
that put more money towards advertising their mission. Advertising has proved
effective for companies so why would it be any different for non-profits? It
would allow them to reach a wider audience and simply make people more aware of
the organization’s purpose. If 20 million people are willing to spend their
money on a Snuggie they saw in a commercial I believe it is also possible for
non-profits to gain the support of millions of people through an increased
range of advertising. So I’m sorry David E., but I say go ahead and have the
gala!
This brings me to
my next question, “how does this stigma surrounding donations being diverted
from program expenses affect a non-profit?” A common saying in the world of
business is high risk yields high reward. Taking risks is important because it
leads to new ideas, new innovations, and new solutions. However, when
non-profits are focused on their reputation and how they appear to their
donors, they will be deterred from taking a risk. What organization is going to
want to risk not getting a 4-star rating on charity navigator because they put
money towards a new fundraising opportunity that could possibly increase their
donations? As donors we need to stop fixating on this idea that non-profits
can’t use their money for purposes other than their programs. There could be so
many benefits that come with increased fundraising budgets and taking risks,
but is the shame and possible failure that goes along with it worth it for
non-profits? I believe the answer lies within the responsibility of the donors
to be more open to organizations increasing their fundraising budget.
Lea,
ReplyDeleteI agree with you that our class, and the average donor, is far too worried about program expenses. I always question why that is the biggest problem for most of our class when analyzing an organization. In fact, I believe that if an organization's money was 99% program expenses, that is just as big of a red flag as a really low number like 50% is. To me, that means the organization doesn't care much about its own workers, or that it doesn't care much about reaching a wider following.
Additionally, I believe that proves that the organization cares more about what the public thinks, instead of what really matters to them. Perhaps an expense ratio of 75% going to program expenses and 25% to administrative and fundraising is what would make the most impact and what would be the ideal scenario for that particular organization. However, this number would immediately make a donor uncomfortable, so they avoid this, and therefore sacrifice their own ideals for what the public wants.
Interesting post, I enjoyed reading it - it's refreshing to see that someone agrees with me!
Hi Lea,
ReplyDeleteYour argument is something that never really occurred to me, and I'm glad you bring it up. My initial thoughts concerning the percentage of funds going to program expenses were also that the greater the percentage, the more effective the organization was in fulfilling its mission. However, there are many other factors that go into organization success including staff compensation, operation expenses, and fundraising which are just as vital as an organization's programs. Although I do not believe more than half (or even half) of the organization's funds should go into fundraising, I agree it is a great opportunity for nonprofits to expand and help a wider audience of people.
Especially with advances in technology and the expansion of the internet and social media, nonprofits have the ability to take advantage of these outlets to reach out to a large group of potential donors. Even TV commercials (as you mentioned the Snuggie) are and would be effective tools in raising donations. I know how touched I am after watching the animal shelter commercials and how these emotions translate to an urge to donate to the cause.
Although I feel like this expansion of fundraising and using similar marketing techniques as big companies such as Coca Cola may take advantage of viewers slightly, I think ultimately it would be beneficial to society as a whole as more people may be inclined to funnel more of their resources towards organizations that help others. This also may have an impact on our culture, intertwining donating to nonprofits as a part of daily life.
Here I have attached an article about how the Internet has helped expand many nonprofit organizations and allow them to reach out to a wide and diverse audience:
https://www.classy.org/blog/its-official-online-fundraising-is-for-every-nonprofit-organization/
Dear Lea,
ReplyDeleteI stumbled across an article that ties together all the thoughts that I had around the “administration cost” discussion and that fits really well with your blog post. This article argues that this concept that nonprofit organizations should do more and more work, while ideally using the minimum amount of financial resources is not only highly unrealistic but also harmful for nonprofits as such. According to Ann Goggins Gregory and Don Howard, nonprofits are often “ […] unable to pay competitive salaries for qualified specialists, and so instead make do with hires who lack the necessary experience or expertise. Similarly, many organizations that limit their investment in staff training find it difficult to develop a strong pipeline of senior leaders.” (1). However, it is no secret that underfunding can have disastrous effects. Nonprofits that have a robust infrastructure are more likely to succeed than those that do not. A program can be as great as it gets, if there is no one to coordinate it, it becomes meaningless.
According to the authors, the cycle starts with donors having delusive ideas how much it costs to run a charity organization and thus leads to a situation in which the organizations aim to live up to these unrealistic expectations. As a result, nonprofits spend too little on their administration and misrepresent or underreport their expenses. The authors call this situation the Nonprofit Starvation Cycle.
To break up this cycle, one should start by lowering or altering donor’s expectations. This is something that I think is so crucial to the process because it truly fuels this entire cycle. Often, the unrealistic expectations that donors have are supported by the charities themselves. “They find it difficult to justify spending on infrastructure when nonprofits commonly tout their low overhead costs. For example, Smile Train, an organization that treats children born with cleft lip and palate conditions, has claimed that ‘100 percent of your donation will go toward programs … zero percent goes to overhead.’ Nevertheless, the fine print goes on to say that this is not because the organization has no overhead; rather, it is because Smile Train uses contributions from ‘founding supporters’ to cover its nonprogram costs.” (1).
I agree with the authors who state that such an effort must be coordinated on a sector – wide scale. BBB Wise Giving Alliance, Charity Navigator and GuideStar have actually come together and published an open letter addressing the problem of the “Overhead Myth”. GuideStar president and CEO Jacob Harold states that, “We hope the Overhead Myth campaign will inspire nonprofits to focus on results, not ratios when engaging with donors and funders. […] Through this campaign we want to encourage donors to give with their heads as well as their hearts, and consider the whole picture when determining which charities to support.” (2.) We should try to avoid a one – dimensional focus and discussion on overhead because as we have seen, its a harmful way to assess an organizations’ performance.
1. https://ssir.org/articles/entry/the_nonprofit_starvation_cycle
2. https://www.guidestar.org/Articles.aspx?path=/rxa/news/news-releases/2013/2013-06-17-overhead-myth.aspx
Hi Lea,
ReplyDeleteYou certainly provide a unique, alternative view to what we have so often discussed in class. When people hear the terms "charity," or "nonprofit," they often think of doing good, volunteering, and of organizations which dedicate their time toward a good cause, asking for little in return. However, what most people do not realize is that there are numerous technical and financial aspects to operating a nonprofit; (as we have discusses throughout the semester) the nonprofit sector of business is not so one-dimensional. For instance, no nonprofit organization is built completely on volunteers. There are always at least a few paid employees (or in the case of Allyson's charity pitch, at least one paid employee) who make a living out of running these organizations. A small amount of the revenue any given nonprofit receives must go toward supporting these employees who dedicate their lives to run their organization. In addition, there are electric bills, financial costs, rent, etc. The point which I am getting to is that most people do not realize that nonprofit organizations, like for-profits, have bills to pay, a few salaries to cover, etc.; if they could potentially raise more money toward supporting their cause, keeping their lights on, and therefore allocating more resources toward their cause, than they should be able to allocate a higher-than average amount of resources toward fundraising without being frowned upon, so long as they remain within the ethics of not "guilting" people into giving them any money.
Overall, I thought you provided a diverse and unique view of what is a popular opinion of most ordinary people. If an organization is able to raise more money by dedicating more of their resources toward fundraising (within reason), then why should they not be able to do so without being frowned upon? We must consider this question whenever we delve into the financial aspects of a nonprofit organization.