The Real Cost of Nonprofit Fundraising
June 10th, 2013
Reporters seem to take great interest in exposing nonprofits who allocate large percentages of their fundraising dollars to administrative costs. Charity “watch dog” associations have lured donors into looking at these percentages closely, while charities tend to champion the mantra of “the more we spend on programming, the better we are.” In addition, research groups have plumbed the depths of how many charities do a poor job of accurately reporting their fundraising expenses. They want to know more about nonprofits’ overhead costs – and in particular, what nonprofits spend on fundraising.
We, at the Pennsylvania Association of Nonprofit Organizations (PANO), agree that charities should not be expending large percentages of their revenue on fundraising. Research found on GiveWell.org does show, however, that nonprofits spending a bit more on administrative expenses attain greater impact and achievement of their missions. We are not talking about astronomical percentages, or advocating for nonprofits who spend 96% of their revenue on program expenses, but simply noting that nonprofits with slightly higher administrative costs have yielded more positive results compared to their peers with lower expenses.
We can’t agree more with the fact that many nonprofits have a hard time understanding what a fundraising expense is and how to report it correctly. An Urban Institute study, published in 2007, showed that 25% of nonprofits that raised $1 to $5 million in fundraising revenue reported $0 fundraising expenses. Another study reported by Scripps Howard News Service showed the problem had gotten worse by 2012, as 40% of these nonprofits now reported $0 fundraising expenses.
Is focusing on this issue going to keep nonprofits from achieving our missions? Maybe not directly, but it can hurt our credibility – which impacts the community’s trust in how we operate and, in turn, their willingness to support. Reporters call PANO all the time with questions about what charities are reporting, especially as they’ve gotten more comfortable with the non-profit information site GuideStar. This pattern indicates that many people are interested in this information and will likely use it when making charitable decisions.
So, what is PANO doing to help nonprofits report things the right way? We have created a program for nonprofit staff and board members to show them how capture and report their expenses more accurately. By offering this program throughout Pennsylvania over the past five years, we have helped the state become the 14th best at effective reporting of fundraising expenses. We hope that by continuing our efforts, we will break into the top five.
You can help us achieve this goal right here in Bucks County on June 19, in conjunction with United Way of Bucks County. See Fundraising Practices: Book it Right Track it Right, Report it Right for details on this program.
About the Contributor: Tish Mogan directs PANO’s Standards for Excellence: the Ethics & Accountability program for the Nonprofit Sector. Her background includes work in education and nonprofit administration. Tish is an adjunct faculty member at Eastern University’s MS in Nonprofit Management program. Education: MA in Theology, St. Bonaventure University; MBA (concentration in Nonprofit Management), Eastern University.