Many of the ideas in this post actually come from my friend Unny Nambudiripad, but Unny doesn’t blog, so I’ll have to write this up for him.
The other day I was talking with Unny and Lisa Kimball about a nonprofit Lisa had looked at. She was disturbed because they’d spent their entire budget on salary. Unny and I didn’t think that was a problem, and Unny had a very good take on how to evaluate a nonprofit organization’s donation worthiness.
Spending on salary or office space or printing or pretty much anything else is irrelevant. The common advice you’ll hear is that a nonprofit should not spend more than X% on admin, where X may be 10% or 15% or some other essentially random number. I googled and found a good blog post that goes into more detail on this.
Of course, if an organization is spending 80% of its income on admin, something is wrong, but is 20% okay? How about 25% or 30%? The answer is “it depends”.
This obsession with admin and fundraising costs is particularly hard on smaller nonprofits that are trying to grow. Let’s look at my favorite nonprofit, Compassionate Action for Animals (yes, I’m biased, since I co-founded this organization). About 18 months ago, we started renting an office in Minneapolis. Previously, our only office space was the space allotted to us as a student group at the University of Minnesota.
Having an office has been a huge help. Going to the U is really annoying for anyone who’s not a student. It’s hard to navigate, parking isn’t free, and the space we have at the U is very small (maybe 120 square feet) and sometimes insanely loud. In contrast, our current office has lots of space, is very quiet, and is relatively easy to find. We can easily host small events (potlucks, training sessions), have meetings, store lots of equipment, and get work done.
For our current fiscal year, this office space will cost about 10% of our income. On one hand, that seems like a lot. On the other, we’re spending $700 per month for at least 700 square feet of space, which is a very good price. The office enables us to be more effective, which is exactly what you want from a nonprofit.
If we spent half the money, we’d up with a tiny office, big enough for just a few people at a time. This wouldn’t meet our needs, since what we really need is a space for collaboration (meetings, events, training), not a place to stick one employee. If we had “saved” money by getting a much smaller office, we’d actually be wasting money. This is a perfect example of how focusing on admin percentage can lead a nonprofit down the wrong path.
So how can you evaluate a nonprofit? Unfortunately, there’s no simple way. It’d be nice to look at a few numbers and declare “this nonprofit is effective”. That would make donation decisions so much easier! Too bad that doesn’t work.
Now we come to Unny’s idea. Pick ten (or five, or twenty) nonprofits in fields you care about. Now comes the hard part. Look at what they say their goals are, both in terms of mission, and in terms of year-to-year plans. Are their goals reasonable? Are they ambitious? Do their goals further their mission? Do they have a strategy?
Next, attend their events, read their newsletters, and volunteer with them. Get involved in ways that go beyond writing a check.
Now compare their reported outcome with their goals. Did they fail to meet their goals or exceed them? Did they change course when needed? Did they spend more than they said they would? If they did overspend, did they get more done for that money? How was your experience attending an event or volunteering? Was it a good experience? Would you recommend it to your friends?
You can also talk to the nonprofits. Call them up or write them email and ask some questions. A good nonprofit will be happy to talk to you.
Based on this, you can eliminate some of the nonprofits you’re following. Keep doing this for a few years, and you should have a good idea of which nonprofits are doing good work. Donate to them.
Yes, this is a lot of work, but if you care where your money goes, it’s worthwhile.