Issue 1- Summer 2013: Cut ratio to build mission spending

Tap coinsAt Charity Intelligence, we often hear donors ask, “What are their fundraising costs?” In most cases the answer is, “They are fine. Now let’s talk about what really matters in analyzing a charity,” and we move on to discuss how the charity is, or is not, able to illustrate the impact its work has on its clients or on society. However, there are two cases where looking at fundraising costs tells me something important about a charity.

We view the donation pool as a relatively scarce resource. If one charity pulls from that pool, there is less left for others.

First, there are still charities that do not disclose their fundraising costs or they obscure these costs. Transparency in the charitable sector is becoming more and more important as donors ask more and more questions. So, even if the ratio of fundraising costs to donations typically has very little bearing on how I view the charity, I should still be able to see what that ratio is. If I cannot, I wonder why, in this age of obsession on fundraising costs, the information is not available.

Second, there are some charities that still spend astronomical sums of money to raise a dollar. There is talk in the sector today that charities may, in fact, be spending too little money on fundraising — that if everyone just spent more, there would be a greater amount of money flowing into the sector.

Unfortunately, I have not seen any data to support this position. In fact, what we have experienced is that charities that spend more in a community or in a particular sector take donations from charities that do not, rather than increasing the overall donation pool.

More activity won’t grow donation pool

What this means is that we view the donation pool as a relatively scarce resource. If one charity pulls from that pool, there is less left for others. In this scenario, it is pretty easy to see what happens when some charities spend significant amounts to raise funds. Unfortunately, others are forced to compete for funding and the overall amount spent on fundraising escalates. Given this, we believe that all charities, especially those spending significant amounts on their fundraising, should work to reduce this cost as much as possible. This obviously does not mean slashing fundraising costs and hoping to maintain your donations — this cannot happen. It simply means that charities should examine each of their fundraising methods, understand the costs associated, and work both to reduce those costs, if possible, and to shift emphasis towards less expensive methods.

Half a billion more for mission

The total amount given by Canadians last year to Canadian charities was an estimated $15 billion. (Charity Intelligence calculations, based on $8 billion tax-receipted revenue plus other fundraising revenues reported on T-3010 forms filed by charities). If average fundraising costs are in the range of 18%, that means that $2.7 billion was spent on fundraising last year. That is big business. If this ratio were to decrease to 15%, this would add over half a billion dollars to charitable programs. At Charity Intelligence, we believe that this is worth striving for. Ideally donors will choose charities to support based on their social results — the impact of their work. If charity impact can be better displayed for donors to see, high impact charities should not need to spend as much to raise a dollar and we will all be better off.