Handcuffs
Imagine a business forced to spend 90 cents of every investment dollar on the production of its widget. There would only be a tiny residual budget left for retaining quality personnel, marketing, new product development, financial management, customer service....
This "handcuff" is commonly applied by a funder or donor to a charity. A charity breaks out its budget by program and administration costs. The idea is that the most of the budget should be allocated to "program." A fashionable question donors or funders ask nonprofits is "What is your admin and fundraising percentage?" In other words, how much do you spend on infrastructure vs. program? If the answer is 20% or higher, the common perception is that you are not efficient or effective.
This notion, while well intentioned, is harmful to the continued growth of the sector. Sure, we want a nonprofit organization to invest our donations wisely. As donors we want to see the most bang for the buck, the most food available to malnourished children, the most affordable housing available, the most beds possible in a shelter, the most meals given out at Thanksgiving....
However, 99.9% of the people running the nonprofits that deliver these services want that too. Sure, there are a few bad eggs that misuse donations for high salaries, perks, or other trappings, but the vast majority of people in the sector are completely committed to making the most out of any gift. They understand their obligation to be efficient and effective in their work, delivering measurable results.
So why the overfocus on an organization's administrative costs? David Miller, the CEO of the Denver Foundation, made some outstanding points in an opinion column in the Denver Business Journal a couple of years ago. He wrote, "The infrastructure needed to run a nonprofit agency or a business is an integral part of the organization. It is impossible to produce high quality products or programs without quality planning, financial management, marketing, personnel, and other 'backoffice" operations." He went on to say that costs are important but not determinative. "The cities with the smallest police department budgets rarely have the lowest crime rate; Sports teams with lowest player salaries rarely win the World Series or Super Bowl."
David's commentary is right on the money. Donors should respond to results and achievement of mission. Paying attention to costs is important but should not be the overriding reason to make an investment. The old saying "you get what you pay for" is true in the noprofit sector just like anywhere else.
Don't handcuff your favorite charity working on a cause you care deeply about. Give them unrestricted funds to invest where they have the greatest need. Hold them accountable to delivering meaningful, tangible results. If they don't deliver, then invest your money elsewhere.
- Jesse
This "handcuff" is commonly applied by a funder or donor to a charity. A charity breaks out its budget by program and administration costs. The idea is that the most of the budget should be allocated to "program." A fashionable question donors or funders ask nonprofits is "What is your admin and fundraising percentage?" In other words, how much do you spend on infrastructure vs. program? If the answer is 20% or higher, the common perception is that you are not efficient or effective.
This notion, while well intentioned, is harmful to the continued growth of the sector. Sure, we want a nonprofit organization to invest our donations wisely. As donors we want to see the most bang for the buck, the most food available to malnourished children, the most affordable housing available, the most beds possible in a shelter, the most meals given out at Thanksgiving....
However, 99.9% of the people running the nonprofits that deliver these services want that too. Sure, there are a few bad eggs that misuse donations for high salaries, perks, or other trappings, but the vast majority of people in the sector are completely committed to making the most out of any gift. They understand their obligation to be efficient and effective in their work, delivering measurable results.
So why the overfocus on an organization's administrative costs? David Miller, the CEO of the Denver Foundation, made some outstanding points in an opinion column in the Denver Business Journal a couple of years ago. He wrote, "The infrastructure needed to run a nonprofit agency or a business is an integral part of the organization. It is impossible to produce high quality products or programs without quality planning, financial management, marketing, personnel, and other 'backoffice" operations." He went on to say that costs are important but not determinative. "The cities with the smallest police department budgets rarely have the lowest crime rate; Sports teams with lowest player salaries rarely win the World Series or Super Bowl."
David's commentary is right on the money. Donors should respond to results and achievement of mission. Paying attention to costs is important but should not be the overriding reason to make an investment. The old saying "you get what you pay for" is true in the noprofit sector just like anywhere else.
Don't handcuff your favorite charity working on a cause you care deeply about. Give them unrestricted funds to invest where they have the greatest need. Hold them accountable to delivering meaningful, tangible results. If they don't deliver, then invest your money elsewhere.
- Jesse
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