Last year, despite the political and economic roller coaster, charitable giving grew by 4.1% according to Blackbaud Institute's 2017 Charitable Giving Report. It’s hard to know if this trend will continue in 2018. If all is right in the charitable world again, why did a poll conducted by the Chronicle of Philanthropy show stalled levels of confidence in nonprofits?

Sixty-four percent of the 1,000 or so people surveyed said they had a great deal of confidence in charities. That number represents more than 50% of those surveyed which is pretty good, right?  But there’s still a problem: Donor trust levels have stayed about the same since 2002 when Professor Paul Light from New York University started studying donor confidence.

Donor trust is directly tied to how well they think an organization is using their gifts.

Increasingly donors believe that charitable organizations waste money on staff salaries, fundraising expenses, or other core costs considered administrative or anything not directly benefiting its programs. You know what comes next: donors favor organizations with low administrative and fundraising costs. In fact, 54% of donors who participated in that Chronicle poll said they like charities with good ratings from validators like Charity Navigator or the Better Business Bureau. These ratings seem to reward the “lean and mean” organizations, putting us squarely back in the thick of the Overhead Myth.

Many people have written about and discussed the Overhead Myth and the charity validators. The reality is that they are here to stay. Think about it: we use external validators every day, whether it’s an Amazon or Yelp review or a movie review from Rotten Tomatoes. Donors who want to find the best investments of their gifts in this sea of 1.5 million nonprofits in the U.S. do the same. As an unintended consequence, the measure of nonprofit performance has gotten stuck on financials which we know is only one part of analyzing effectiveness.

Charities’ fear of disapproval pressures them to cater to public prejudices: lowering overhead, keeping salaries down, making low investments in fundraising and marketing expenditures. When the true cost of a nonprofit’s program is not met, communities pay the price of compromised or interrupted effectiveness. This result is the exact opposite of what we believe to be the main driver of donor intention. As effectiveness is compromised,  the organization cannot meet donor expectations, leading to broken trust, and so the cycle continues.

So, if we know that donors are scrutinizing charities more than ever and they question how nonprofits really are using their money, how can we change the conversation?

  1. Set your organization up for operational success. High-performing organizations focus on effective leadership and operational results, regularly monitoring performance and making course corrections when necessary. In fact, part of Charity Navigator’s rating formula evaluates these aspects of fiscal management, operational excellence, and good governance. Understand how these areas are measured and reported on your 990. Ensure you have all the systems in place to perform at your very best.
  2. Stop talking about overhead versus program expenses. It’s a hard habit to break, I know. You can change the conversation by focusing on what programmatic success looks like and what the costs are inclusive of those darn “indirect” expenses. Get rid of any pie charts that break down your organization’s costs. These charts only perpetuate the focus on the Overhead Myth.  Your programs couldn’t possibly exist without “indirect” expenses like accounting, legal, and fundraising. Instead, celebrate your successes and be honest about your challenges and how you are addressing them. Quantify your results and impact both in numbers and stories. Show donors you are doing good work with visible results. Then the story of how you spend money on staff and fundraising, for example, will fit within a broader context of organizational effectiveness.

Donor trust should never be assumed. It’s earned. While you may not be able to shift your donors from restricting their gifts to specific programs, you can inspire greater investment by sharing the true cost of what you need to continue to do your work well—from vision to staff to resources.

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