The New York Attorney General’s office recently released a report ostensibly to educate the public about nonprofit effectiveness.
The problem is that the annual Pennies for Charity report misses the point. Big time.As stated by Anne Wallestad of BoardSource, the report is built on assumptions about fundraising that are “quite flawed.” (Fist bump to you, Anne, for your tact.)
Pennies for Charity narrowly focuses on a few metrics, and by doing so betrays a near complete ignorance of how nonprofits actually allocate funds to acquire and retain donors, let alone raise money. Rather than helping the donating public make better decisions about which charities to support, the report distorts and misleads.
To quote Mark Twain, “There are three kinds of lies: lies, damned lies and statistics.”
One of the statistics Pennies for Charities gets wrong is that 31% of funds raised by New York State registered charities was retained by professional fundraisers.
The reason this is the wrong perspective is simple—the Pennies report completely eliminates the context and understanding of each individual nonprofit’s costs to acquire and retain donors.
Further, a myopic focus on fundraising expenses gives you zero detail as to the size or effectiveness of a nonprofit’s work. It’s a metric. But not the metric. And shouldn’t be the primary focus for a report on effectiveness.
(Cue the now age-old Dan Palotta’s infamous TED Talk on overhead, given in 2013.)
Nonprofits, like their commercial cousins, need to invest in infrastructure and resources to leverage and scale their operations. Wise investments should not be penalized or given public scrutiny, labeling them as ineffective.
Therefore, a measure of a nonprofit’s effectiveness cannot be limited to a single focus, the percentage a nonprofit spends on programs versus operations and marketing. It’s too relative of a metric to use as the sole measure.
Instead of using the report to back in to promotion of the NYAG charity registry, the team behind the Pennies report would do well to look deeper at how Charity Navigator and other assessment organizations evaluate nonprofits.
Charity Navigator leads with Financial Health, a seven-point scale to determine efficiency and capacity. Second for Charity Navigator is Accountability & Transparency, a blend of seventeen metrics to assess the nonprofit.I believe the intent of the Pennies report is to encourage nonprofits to be more transparent and to quantify their impact, so donors can make wiser giving choices. These are good things.
Our research has shown that a nonprofit’s “About Us” page, typically including detail on leadership and financials, is among the top five pages visited for most nonprofits.Clearly, nonprofits need to do a better job articulating the impact of a donation. This should be a conversation in every nonprofit conference room and a part of your next campaign strategy discussion.
Start by having your team read this timely post from Seth Godin, who said, ”We say we care about overhead, but what we really care about is impact, or status, or momentum. What we measure isn’t a simple percentage, it’s a lot deeper than that.”
Go deeper. There’s a thought for the Pennies team.
How does your nonprofit differentiate who you are, what you do, and why you’re effective?
If you have a strategy to support your effectiveness and impact, go deeper; ring that bell hard, and let’s continue to do good work that drowns out the misinformed approach of the Pennies report.