Get Out & Give Back: Choosing a Charity- Do Ratios Matter?

Data point or dealbreaker?  Is the percent of a nonprofit’s revenues that support direct programming more important than its impact?
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A nonprofit's budget-to-program ratio, obtained from a Form 990, is useful but doesn't always indicate whether a nonprofit is high-impact . (Photo by Jane Hess Collins)

A nonprofit's budget-to-program ratio, obtained from a Form 990, is useful but doesn't always indicate whether a nonprofit is high-impact . (Photo by Jane Hess Collins)

     Seventy-five percent seems to be the magic percentage tossed around as the ideal ratio of a nonprofit’s budget- to-direct-program ratio. The implication, of course, is that if a nonprofit’s ratio hits 75 percent or higher, the money (your donations) is spent wisely. But is that really true? Can a nonprofit be high-impact with a lower budget- to-direct-program ratio?
   
     All nonprofits must submit a Form 990 (Return of Organization Exempt from Income Tax) annually. The equivalent of a tax return, the Form 990 is a matter of public record and can be found through the Foundation Center’s website, most state attorney general’s offices or by contacting the IRS. While the form can be as confusing and convoluted as any tax return, it offers some useful information such as revenue sources and itemized expenses.  

     To help sort through all of this, Washington Life spoke with , President and Editor of the Greater Washington Catalogue for Philanthropy and Executive Director of the Harman Family Foundation; , the Catalogue for Philanthropy’s Director of Partnerships and Business Development; and , Executive Director of the Nonprofit Roundtable to get the expert perspective.
  
     None of them viewed 75 percent, or any percent, as a magic bullet that would automatically confer high-impact status to a nonprofit. Rather, each of the experts viewed the ratio as information to be questioned and interpreted, and as an opener to ask more questions. Ask the executive director how the budget- to-direct-program ratio got to that percentage, they advised. Why (for example) is it only 35 percent? Or conversely, if the ratio is 95 percent, why is the ratio so high, and how are the other expenses paid? Is the executive director working pro bono, or is one person doing the work of four to save money? And if that is the case, could the nonprofit be more effective with more staff? Are there a lot of in-kind donations?
  
     “Some organizations have such a low admin-to-program ratio that in fact they’re disabled,” cautioned Harman.  Or, she added, “maybe the administrator is doing some really key work that can’t exactly be described as program but it is essential to the governing of the organization.”
  
     Bottom line-at best, ratios are a good rule of thumb if there is no other data available, but they generally are not dealbreakers to the average nonprofit serving the greater area. Unanimously, each of the experts believed that what really mattered was whether the nonprofit was high-impact. Or, to put it another way, how big of a difference does it make? And how do you measure that?
  
     Bean believed that the best ways to gauge a nonprofit’s impact were by measuring the nonprofit’s social ROI (return on investment, or the cost savings to society because of the work done by the organization), the multiplication of the impact (does the nonprofit seek corporate grants, government grants, volunteers and other resources) and how well the nonprofit’s work strengthens communities (does the mission of the nonprofit include citizen education, civic engagement and advocacy, and make America better and stronger?)  
  
     Jankowski recommended that potential donors also look at a nonprofit’s long-term vision, strategic plan, leadership, board engagement and programming as indicators of a nonprofit’s high-impact potential.
  
     The big question donors are asking nonprofit executive directors today, according to Harman, is what impact they feel their work is having and whether they can demonstrate that impact.
  
     Ask a nonprofit executive director to tell you a success story. Listen to the story, listen for the impact, but even more importantly, listen for the passion. That could be the most telling indicator of high-impact effectiveness of all.  

    Jane Hess Collins is a retired Air Force colonel who writes to inspire people to contribute. She is also a public speaker, conducts workshops which match clients’ values with service opportunities, and has established game nights for at-risk families throughout the country. You can contact her for at www.getoutandgiveback.com.

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  1. September 20, 2010

    […] This post was mentioned on Twitter by NikkiBurdine, Washington Life. Washington Life said: Deciding to donate? Find our info on choosing charities at: http://bit.ly/bXNMzW […]

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