Do donors want to provide nonprofit operating costs?

If you don't follow the comments here at the Donor Power Blog, you might want to, because we get some good ones. Commenting on my recent post on Kiva's too-much-money problem, my former colleague Jeff Schreifels challenges my assertion that Kiva has too much money because their marketing is so good.

Jeff says, rather, that the problem is Kiva has failed to raise enough operating funds to keep the organization running optimally. That is, if they would spend a little more of what they raise on administering their programs, they'd be able to keep up with the funds they're raising:

We have been so brainwashed by organizations like GuideStar and Charity Navigator who tell us effective organizations are those that have ... low fundraising to cost ratios. But is that really the true measure? I believe the true measure is in the effectiveness of the project or work of the non-profit. I believe people understand that their gifts have to also go to overhead to MAKE their gifts work.

It's true that GuideStar and Charity Navigator, the most popular charity evaluation sites, emphasize efficiency, sometimes at the expense of ignoring effectiveness. Are they "brainwashing" donors, or simply following donors demands?

The questions this raises for Kiva (and all nonprofits, really) are these:

• Would Kiva accomplish more good in the world if they spent more on administration?
  
• Would donors rather see Kiva accomplish more, or would they rather maximize the efficiency of their giving?
  

My guess: Given the choice, Kiva's donors would gladly fund more administration costs if they knew that would lead to more good work happening.

One organization that handles this well is DonorsChoose. They add an optional "fulfillment fee" of 15-25% to donors' gifts, which donors can pay or not. As their How It Works page says:

Donors' inclusion of the fulfillment fee is essential to the existence and success of DonorsChoose.org. Thankfully, 90% of our contributors choose to include it, and income thus earned allows us to continue our work.

The magic that Kiva is missing out on here is giving donors the power. You just might be amazed at how open-minded, helpful, and flexible donors will be when you put the reins in their hands.

Technorati Tags: fundraising, Kiva

Comments

[mikemuses]

I love the idea of giving people the option to choose to pay for the fulfillment costs. Of course, you need to have a very accurate idea of what the core costs are, and ensure that the cost of fulfilling it is not too high a %, or it would put people off, but could we (everyone) be brave enough to do it?

would it work in a situation where a charity has much less clearly defined 'shopping lists'.

Do people even want to pay for something as mundane as say 'an hour of specialist care', or is this the kind of thing that will only work for some charities?

[Joe Hungler]

I have donated to Kiva and they do give you the opportunity to give to their operating costs. I know they do it when the money is paid back as I just had two donations paid back by the business people. I seem to remember having the oppotunity to donate directly to kiva when I made the original "loan" as well.

[Suzanne Coffman (GuideStar's director of communications)]

If I might make an itsy-bitsy comment on behalf of GuideStar: We don’t rate organizations! We never have!! We don’t advocate using fundraising ratios to evaluate organizations! We never have!! We advocate _both_ nonprofit efficiency and effectiveness! And frankly, if you held a gun to our collective heads and told us we had to choose between efficiency and effectiveness, we’d go for effectiveness every time. (We are not, however, anxious to try that particular experiment.)

In fact, we say on our site, "At GuideStar, we believe that the ultimate test of an organization's efficiency is how well it performs its mission. Unfortunately, this criterion is not always reflected in ratios of any kind." You’ll find this statement, along with many others along the same lines, posted in "Why Ratios Aren’t the Last Word," http://www.guidestar.org/DisplayArticle.do?articleId=850. If you look at our 10 tips for donors (http://www.guidestar.org/DisplayArticle.do?articleId=794), you’ll see that we emphasize defining one’s own values and identifying nonprofits whose missions correspond to those values as the most important aspects of determining which charities to support. Finances aren’t even mentioned until tip number 8.

Oh, and we don’t comment on individual organizations because we are a neutral platform of nonprofit information, so we can’t contributed to the Kiva debate. But the other issues, those of not advocating financial ratios for evaluating charities and our _not_ being a watchdog, are near and dear to us, striking at the heart of who we are and what we do. I appreciate having the opportunity to set the record straight here. (GuideStar: striving for the truth, one forum at a time.)

[Grant]

I just wanted to post a quick "me too" re: Joe's comment - Kiva do offer donors this option (I know because I took them up on it in the last contribution I made).

I also think that, in Kiva's case, it's actually v. hard for them to "charge" for admin - as their whole case to "donors" is not one of donor/recipient, but lender/recipient. All money donated to the "cause" is repaid in full by the recipient. It's harder in that model to put some away to general funds, because that's not the model they're pitching.

You hit the nail on the head, though, when you say:
"Given the choice, Kiva's donors would gladly fund more administration costs if they knew that would lead to more good work happening."

I, for one, do believe that Kiva will do good work with those administrative funds I donated. But many people are extremely sceptical of admin costs - esp. due to high-profile misteps by larger organisations around mis-representation and misappropriation of funds, and also many organisations that have admin costs well in excess of 30% (which from my straw poll amongst friends is a kind of "high water mark" in perceived value of administration).

I think Kiva have tapped into this scepticism in their lender/recipient model - and introducing a "general funds" concept would break that (and I know you're not suggesting that, but I feel it worth stating).

Kiva are a very lean organisation - and as you mention have experienced explosive growth. They've always had a "too much money" problem, ever since they put up their first businesses - I remember trying to lend money less than 6 hours after they went up and the loans had already been filled.

Reading Kiva's blog is a clear window into the thinking of the organisation, and "scalability" has always been at the center of their thinking. They are always looking for ways to increase their reach and distribute funds. I don't think that they'll rest now in finding ways to scale further, with a minimum of overheads.

[Venkat]

Like everything else, fundraising costs will have their own price-demand curve, and in my anecdotal experience, the # of donors willing to pay >10% is very low- the curve tapers off very quickly once you cross 10-15% as admin costs.

Which is why fundraising costs of some of the most reputed agencies are never public knowledge and where they do have to report them, they get understated by dressing out some costs as "advocacy".

[Mikemuses]

Something I find, and this is only anecdotal, when I explain face to face why charities need admin costs, and what they go towards people agree that they're needed and are happy that they exist. but they still want 'their money' to go to everything else.
We have a few charities here that have admin costs covered by corporate sponsorship, and people like it, but here's my big bugbear - how do we know that they're minimising their admin costs? Could the sponsorship money be better spent elsewhere? yet it makes people delighted to give.

We have a similar debate restarting:
http://www.intelligentgiving.com/the_buzz/the_blog/sport_relief_a_worthy_cause#comment-3008