5 Tips to Support High-Impact Charities, Not Good Marketing

“Americans set a new record for charitable giving in 2017.” You may have seen a headline like this after last month’s release of the Giving USA report. While this headline is not dishonest, it would probably be less misleading if it read “Americans gave away about 2% of GDP – something we have been doing consistently for decades.” But this fact does not mean the industry is stagnant. In fact, American public charities grew in number by an astonishing 60% from 1998 to 2013. As of July 9, 2018, more than 1 million public charities qualify to receive tax-deductible donations. Naturally, competitiveness in the nonprofit landscape has followed.

With increased competition, the pressure on nonprofits to invest more in fundraising has brought about better marketing materials, more development staff, and stronger donor pitches. This trend has made it harder for even the smartest donors to tell the difference between hearing a good story and identifying the right place to make a big gift.

A Better Resource for Smart Giving

To inform their choices, donors have historically relied on expense allocation data: “How much goes to program vs. overhead?” By giving to charities that spend little on “overhead”, donors think they are getting more for their money. Unfortunately, because federal guidelines on expense allocations are not clear or consistently enforced, accounting variances can account more for apparent cost-efficiency than actual spending habits.

But donors are getting smarter. Increased competition has led to higher demand for impact reporting to the point that it has become a standard practice. This is a big win for smart philanthropists because impact reporting is a far better resource for informing giving decisions than expense allocations.

Using Impact Reports to Give Smarter

Like making good business investment decisions, smart philanthropy is not just about access to the right information; it is also about knowing how to interpret it. At Excellence in Giving, we specialize in looking past development pitches to make clear judgment calls about which organizations do the most good with the gifts they receive. If you would like to do the same on your own, here are 5 quick tips:

1. Understand the goals of each organization. Like good businesses, good nonprofits know what they are trying to accomplish. Good nonprofits commit to goals they can be held accountable to later. If a nonprofit organization inspires you with their vision and client stories, ask for measurable targets.
2. Recognize that inputs are not enough. All nonprofits report the number of people they serve. It helps donors understand the scope of work. But smart donors know that giving money because of how many people a nonprofit serves is like investing in a car dealership because of how many people test drive a car. More people shopping creates greater potential for sales, but the number of cars sold is what matters. Large numbers of people served creates potential for impact, but donors must assess if a nonprofit achieved its goals with each person to decide whether or not to give.
3. Look for positive outcomes. A car manufacturer takes steel and turns it into a car. The manufacturing process is successful if the car does what it is designed to do and can reliably drive you around. The intervention process is successful for a nonprofit when a life is improved in a measurable way that lasts – this is called an outcome. To report outcomes, nonprofits must record baseline information about their clients – “we recruited 200 homeless people who were unemployed for at least a full year before we met them.” Then they can report outcomes after programs are over – “100 of the clients who entered our program were employed for more than 6 of the 12 months immediately following our intervention.” This is an outcome, and it signals that an organization has a process that works. If the organization’s goal is emergency aid or disaster relief, then the outcome may be the avoidance of a greater negative rather than sustainable improvement in someone’s life (such as prevention of death, suicide, eviction, isolation, or another disastrous outcome).
4. Find the best outcome value. Every dollar you invest in company A is a dollar you cannot invest in company B, and the same is true of nonprofits. Assuming two nonprofits offered the same service (which is rare), if nonprofit A spends $250,000 to secure sustainable employment for 100 homeless people and nonprofit B spends $500,000 for the same result, nonprofit A is providing double the return on investment as nonprofit B. Given just these two options, a smart donor could either give all available donations to nonprofit A or help nonprofit B learn how to become more cost-effective.
5. Analyze more than marketing materials. Nonprofits will report their program highlights in promotional materials. You may not find enough data to assess the scope, impact, and cost of their work on websites and in newsletters. To assess cost-effectiveness, you need to know the “annual number of people served,” the outcomes achieved, and the total expenses. A “high success rate” with a low number of people served may not be more cost-effective than a “lower success rate” with a large number of people. Similarly, cost-effectiveness will not matter to you if the outcomes achieved do not align with your mission and values as a donor. Asking the right questions to get the information you need can ensure your philanthropy has the impact you want.

No Need to Go Alone

If you care about making the world a better place with your philanthropy but don’t have the time to become an expert in giving well, Excellence in Giving is happy to help. Our experts can tell you if that nonprofit you want to support cost-effective and aligned with your values, so you can give with confidence, know you are making a difference, and spend your time doing the things you love. We have been helping smart philanthropists and their families give with greater joy and impact for more than 15 years, and we would love to do the same for you.