We need to talk.
Let me start by asking you to picture some of your favorite products or services. It might be that stunning pair of shoes by Via Spiga, the fabulous Kate Spade bag, or a gorgeous pair of Chanel sunglasses. Maybe it’s a spa treatment at your favorite salon or an amazing dinner at the hottest new restaurant in town. Perhaps it’s a dream vacation at an all-inclusive tropical island resort.
Can you see them? Great.
Now, have you ever asked yourself what the salary is of the CEO for the company who provides your favorite products and services? Or have you ever wondered about the company’s overhead ratio? How often do you question management’s approach to running their business?
If you’re like me, you NEVER think about it. You’re simply thrilled that they provide a product or service that you absolutely love and you willingly spend money to reap the benefits of being their satisfied customer.
Why do we try to manage the non-profit community?
So why do we ask these questions of the non-profit community? Why are we so focused on the salary level of a CEO who runs an organization that is attempting to solve our social ills? Why do we insist that management only spend so much on administrative expenses as they attempt to implement solutions to society’s greatest challenges? Why do we not willingly provide the support they need to make a real and sustained impact?
Whenever I ask women how I can help them make more effective decisions with their charitable contributions, 9 times out of 10 they tell me they want me to help them identify organizations who spend their dollars on programming rather than overhead.
You don’t want to waste your money!
I get this! I understand that you don’t want to see your money wasted. And we absolutely must steer clear of organizations that are guilty of fraud.
But when we tell a reputable organization that they can only spend so much on administrative costs we actually limit their effectiveness. It’s been dubbed the “nonprofit starvation cycle” and, thankfully, smart funders are figuring out that this has got to change if we ever want to solve the most pressing social issues of our time.
The non-profit sector needs your support to solve our social issues.
It hasn’t helped that Charity Navigator, one of the oldest and most popular charity evaluators, historically based its rankings largely on ratios of overhead to programmatic spending. But even they are beginning to see the light after receiving criticism from the non-profit and funding communities. Charity Navigator is now in the process of launching an effort to assess how well charities measure and report on their impact.
GuideStar is another online service that helps donors evaluate charities by posting information including the IRS 990 Form for individual non-profits. GuideStar makes no judgments about the effectiveness of the charities, but organizations can earn Bronze, Silver, or Gold Exchange status, depending on how many details of their operations they submit.
GuideStar is also shifting its emphasis from overhead costs to programs and results using it’s “charting impact” questions that focus on goals and accomplishments. The GuideStar Platinum seal can be earned by charities who display the highest level of transparency by sharing measures of their effectiveness and outcomes.
Don’t believe the Overhead Myth!
Charity Navigator, Guidestar, and BBB Wise Giving Alliance have teamed up to dispel “The Overhead Myth” through a campaign begun in 2013. If you’re interested in learning more, I encourage you to explore this at http://overheadmyth.com. There you will find facts about this movement and letters written to donors and nonprofits encouraging an end to the focus on overhead. Here are some highlights:
- Research shows that the overhead ratio is imprecise and inaccurate
- The overhead ratio tells one next to nothing about compensation rates as the vast majority of salary expenses are counted as programmatic rather than as administrative or fundraising
- Organizations that build robust infrastructure (technology systems, financial systems, skills training…) are more likely to succeed than those that do not
- Under-investing in administrative costs is consistently linked with poor organizational performance and sustainability
So now you know! No more focusing exclusively on overhead ratios to determine whether or not to donate to a particular organization.
Now you know!
Members of the AWE Community are smart, strategic and intentional in their giving! Join me next month to discover what you should be focusing on instead.