Research findings on public
perceptions of not for profit costs
October 2013
How much goes to the cause?
The public, media and regulators often judge charity performance by “how much
goes to the cause”. Yet the costs of doing good are often misunderstood, misleading
and hard to compare. Recent research conducted in August 2013 reveals the public
view of not-for-profit costs:
• 84% say “how much goes to the cause” is an important factor when choosing to
support charities
• 18% know or have a good idea how much goes to the cause
• Higher value donors are better informed and believe more goes to the cause
• On average the public think 55 cents in the dollar goes to the cause
• On average the public think 88 cents in the dollar should go to the cause
• The public think the rest goes to administration not fundraising
The not-for-profit sector and its leaders need to help the public to understand the
importance of investing in fundraising and efficiencies to ensure organisations
maximise their impact not minimise their costs.
The Problem
Cost income ratios: the bane of a fundraisers life. Too high and you face criticism from the
public, too low and you stifle future growth. So, what should your cost of fundraising be?
How does your ratio compare to others and how does your ratio compare to public
expectations?
Under increasing scrutiny from the media, public and
potential regulators there is great pressure to declare an
ever lower cost of fundraising, or, in public terms, “how
much of my money goes to the cause”. Yet
underinvestment in fundraising is a far more common
problem than wasteful spending. This pressure on board
members and other not-for-profit leaders to show the
highest proportion of your donation “going to the cause”
can hinder long term financial sustainability.
© More Strategic 2013
Under investment in
fundraising is a far
more common problem
than wasteful spending
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The amount a charity spends on administration and fundraising is a poor indicator of the
impact they have on their mission. Whilst it may look as though a charity that declares less
than 10% goes on administration and fundraising is directing 90% to the cause, this does not
indicate the 90% is necessarily used effectively. The cost of fundraising is largely determined
by the lifestage of the not-for-profit and its fundraising mix. A charity that has a welldeveloped and successful bequest program will have a lower cost ratio than a charity that is
investing in acquisition of new donors which inevitably have a far higher cost ratio – but will
deliver long term reliable income in the future. Indeed, many not-for-profits suffer from
underinvestment in growing their fundraising income meaning they can help fewer people in
the future. Like a commercial enterprise there is a need to continually invest to sustain
fundraising growth.
Not-for-profits can look to annual reports to provide some guidance on what is an acceptable
cost ratio but they are of limited use in assessing cost effectiveness of fundraising activity.
The way charities treat costs is different; the way charities treat income is different; reporting
periods vary; reports are often nine months out of date when published and there is very little
detail on fundraising performance. All of this makes it impossible for NFP leaders to set
meaningful targets or track relative performance.
New Research provides answers
Currently the missing piece of evidence in all the conversations about cost ratios is “what
does the public think?” A large survey conducted by More in August this year, finally
provides the answer. Conducted across Australia with a robust, representative sample of
2,500 individuals (of which 80% were donors) the research provides vital insights into public
knowledge and attitudes towards not-for-profit costs.
© More Strategic 2013
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Research Findings
The public say how much gets there matters
It is not a surprise to find that the proportion of funds that get to the cause is important to the
public. In isolation, 84% of people say it is either a very important or extremely important
factor when choosing to support a charity. When asked to rate various factors which may
influence their decision to give, it ranked 4th behind the cause they address, knowing what
the charity does and that they will have a tangible impact.
How important is the amount that goes to the cause to you when
choosing to support a charity?
50%
47%
45%
40%
37%
35%
30%
25%
20%
15%
10%
5%
8%
8%
Unimportant
Neither
1%
0%
Not at all
important
Very important
Extremely
important
Looking at the different audiences we see a near unanimous statement of its importance.
And yet, when asked in groups or interviews to talk about a
charity and why they support it almost no one mentions
how important it is that “most of the money gets there”.
This is because most donors make their choices based on
their emotions and values not statistics and cost ratios.
Donors choose to support charities for what they hope they
will achieve, not how little they spend trying to achieve it.
Ensuring a large proportion of your donation gets there is a
“category” requirement. Donors expect every charity to
fulfil that expectation.
© More Strategic 2013
Donors choose to
support charities for
what they hope they
will achieve, not how
little they spend trying
to achieve it.
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But they don’t know how much it is…
Although people say that knowing how much of their donation goes to the cause is
important, the majority do not actually know what proportion of their money gets to the
cause. Only 4% of people actually claimed to know how much of the dollar gets there for the
charities they support with just 14% having a good idea and 21% having a general idea. The
majority either trust that it gets there or admit they don’t know.
Thinking about the charities you like to support, which of the following
best describes what you know about the proportion of your donation
that goes to the cause
38%
40%
35%
30%
25%
20%
15%
10%
5%
0%
23%
21%
14%
4%
I know exactly
I have a good idea I have a general
how much goes to how much goes to idea of how much
the cause
the cause
goes to the cause
I trust that most I don't really know
of it goes to the how much goes to
cause
the cause
Again, it is not surprising, but the people who donate more claim to be better informed about
how much goes to the cause with just over a third of those claiming to donate over $500
having an exact or good idea how much goes to the cause.
Knowledge of where money goes by claimed donations over the past
year
47%
50%
40%
19%
20%
10%
31%
28%
30%
2%
7%
23%
17%
17%
Under $$50
9%
Over $500
0%
I know exactly I have a good I have a general I trust that
I don't really
how much goes idea how much idea of how most of it goes know how much
to the cause
goes to the
much goes to
to the cause
goes to the
cause
the cause
cause
© More Strategic 2013
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They think far more should get there than it does
The big question then is how much do they think goes to the cause? We have already
discovered that this is important but they are not well informed. However, the public have a
strong opinion about how much goes to the cause…and how much should go to the cause.
Overall the public think that just 55 cents in the dollar gets to the cause. They believe this
should be 88 cents. This is a significant expectations gap of 33 cents.
When you give to charity what proportion of your donation do you
think goes to / should go to the cause?
100%
88%
90%
80%
70%
60%
55%
50%
40%
30%
20%
10%
0%
Goes to Cause
Should go to the cause
As we know from most data analysis, looking at averages can be misleading. When we look
at the distribution, we see that whilst 82% of people think that over 90 cents in the dollar
should go to the cause, only 10% think it does.
© More Strategic 2013
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When you give to charity what proportion of your donation do you
think should go to the cause?
80.00%
70.00%
60.00%
50.00%
40.00%
Does
30.00%
Should
20.00%
10.00%
0.00%
0-9
10-19 20-29 30-39 40-49 50-59 60-69 70-79 80-89 90-100
Cents on the Dollar that goes to the cause
Examining this data in more detail we see some interesting differences arise:
•
People in South Australia think a little more goes to the cause than other states (SA
60 cents)
•
Those who say they live their life in accordance with religious beliefs think more goes
to the cause (60 cents in the dollar v 53 cents)
•
Women believe marginally more gets to the cause than men (56 cents v 54 cents)
•
Those under 24 think less goes to the cause than other age groups
•
There was great consistency of view about how much should go to the cause, with
only the strictly religious and city dwellers having lower expectations of the proportion
that should go to the cause.
Most significantly we see a difference in the amount people think goes to the cause
dependant on how much they say they have donated in the past 12 months. Those who give
more are more likely to say a higher proportion goes to the cause than the low or non-giving
group. This fits with what many fundraisers have suspected – claiming your money doesn’t
get there can be used as a justification for not giving.
© More Strategic 2013
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Comparison of amount that goes to the cause by amount donated in
past 12 months
25%
20%
15%
Under $100
10%
Over $100
5%
0%
0-9
10-19 20-29 30-39 40-49 50-59 60-69 70-79 80-89 90-100
Cents in the Dollar that goe to the cause
Some interesting differences arise between people who give through different mechanisms
and to different types of cause.
In the past year in which of the following ways have you contributed to
charities?
25%
20%
Regular Givers
15%
Mail donors
Phone donors
10%
Lottery players
5%
All Donors
0%
0-9
10-19 20-29 30-39 40-49 50-59 60-69 70-79 80-89 90-100
Regular givers and appeal donors were more likely to say
a larger proportion goes to the cause. This is likely to be
correlated with their higher giving value as well, hopefully,
as receiving informative communications from the charities
they support.
© More Strategic 2013
Cost ratios are not a
determinant to giving
but can be a deterrent
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The rest is admin
If the public think that, on average only 55 cents in the dollar is going to the cause, where do
they think the rest is going? Within the not for profit sector we distinguish between
administration and fundraising but the public do not. Nearly 50% of respondents described
the remainder as going to administration.
The diagram above is drawn to scale so, from the 2,100 comments, half were about
administration and a quarter salaries, wages or staff. Only 38 people explicitly mentioned
fundraising and a further 60 made comments about fundraising (collectors, commissions
etc). People were more likely to mention “in someone’s pocket” than fundraising. It could be
argued that the public do not distinguish between fundraising and marketing and this would
boost the combined fundraising, marketing and advertising to 300 comments from the 2,100
respondents
When asked a series of attitudinal statements about charities 42% of the survey respondents
agreed or strongly agreed that money that does not go to the cause is “wasted”.
Perceptions of "waste"
Strongly Disagree
The money that does not go to
2%14%
the cause is "wasted"
Disagree
42%
30%
12%
Neither Agree nor Disagree
Agree
Strongly Agree
0%
20%
40%
60%
80%
100%
This is strongly related to their perceptions of how much goes to the cause with, 54% of who
those believe that fewer than 60 cents in the dollar goes to cause agreeing or strongly
agreeing that the rest is wasted, compared to 31% of those who think more than 60 cents in
the dollar goes to the cause.
© More Strategic 2013
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Who is responsible?
The public are largely uninformed and uninterested in regulation of NFP’s. 60% believe
NFP’s are either self- regulated or not regulated at all. 70% were unable to name any
regulatory bodies and although the Australian Charities and Not for Profit Commission
registered a 12% awareness, so did Charities Australia which does not exist! However,
whilst only 12% strongly agreed that “better regulation would make charities more
accountable” a further 48% agreed with this statement.
How do you think charities are regulated at the moment?
45%
40%
39%
33%
35%
29%
30%
25%
21%
20%
15%
10%
5%
0%
Voluntary self regulation By state government
departments
By Federal departments
© More Strategic 2013
They are not
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Implications
For the fundraising sector
We need to shift the narrative in the media (and potentially
amongst government regulators) away from using cost
income ratios as a proxy indicator of charity effectiveness. It
is too often used as a justification for not giving and as a
tool to undermine the charity sector. In many ways people
are focusing on “the amount that gets there” as an indicator
of effectiveness in the absence of anything else. There is no
accepted, comparable way of measuring the actual impact
charities have on the causes they address. Our challenge
then, is to help explain why investing in fundraising is
important and helps not-for-profits to achieve the very
outcomes people support with their donations.
Explain why investing
in fundraising is
important and helps
not-for-profits to
achieve the very
outcomes people
support with their
donations.
At the very end of the survey we tested “reframing” some negatives about fundraising into
positive expressions. Perhaps in tribute to Dan Pallotta whose inspiring presentation
stimulated this work we should call this Pallottisation. Dan’s compelling case for change in
how not-for-profits are viewed, regulated and managed can be seen on
www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong.html
Would you agree or disagree with the statements below about
charities?
The amount a charity spends on admin is a good
indicator of how effective they are
23%
4%
Charities should invest more in fundraising so
they can raise more money to help more people
24%
4%
Agree
Using my donation for fundraising multiplies my
donation
19%
Administration allows charities to run more
efficiently
0%
3%
Strongly agree
39%
4%
20%
40%
60%
When reframed we see that only 27% say administration costs are a good indicator of
effectiveness and 43% agree that administration actually allows charities to run more
efficiently. Even 22% recognise that using their money for fundraising acts as a multiplier, if
only we could get more people to see the world this way!
© More Strategic 2013
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For Boards
Charity Board members must also recognise that the real judgement of charity performance
is the impact they have on the cause they serve. Board members should push for the same
level of rigorous reporting that they quite rightly expect from fundraising in other parts of the
organisation. Above all you need to resist the pressure from the media and regulators to join
the race to declare ever lower costs of fundraising. Tracking your real cost ratios compared
to other organisations will help make a more informed decision on investment.
For CFO’s and CEO’s
Not for profit leaders must continue to track a range of
indicators of fundraising performance to broaden the focus
Benchmark yourselves
beyond the cost of fundraising. Indicators such as return
against others
on labour, income mix, growth rates by activity, active
donor numbers, percentage of donors with multiple
relationships and bequest lead conversion rates are all better indicators of long term
fundraising sustainability. When reporting cost income ratio’s internally use a range of
versions, some that exclude the volatility of bequests or the high cost of lottery and sales, so
you can see the underlying trends of your core fundraising programs. Benchmark yourselves
against others so you can see if you are under investing.
For Fundraisers
Don’t apologise: educate! All fundraising costs money and in today’s ultra-competitive
market it costs more to get less. Set realistic expectations of returns but demonstrate the
three year value of any investments. Make sure you are looking at your lifetime value rather
than individual campaign results. Don’t be tempted to look
for the quick marketing fix of hiding your costs or saying
Don’t apologise:
costs are covered by an investment or external funder as
educate
this further reinforces the notion that the costs are
unimportant as opposed to the vital investment in delivering
your mission.
© More Strategic 2013
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More Cost Effectiveness Benchmarking
We are embarking on an ambitious goal to help NFP leaders to make better informed
decisions about fundraising investments by launching a comprehensive income, expenditure
and salary cost benchmarking service.
Using timely, granular and accurate financial information from your management accounts
we will show you how you compare to industry averages, to other organisations and to
recent trends.
Are events growing? Are you investing enough in your fundraising staff? Are you getting a
good return from corporate fundraising? Are you over reliant on bequests compared to
others?
The More cost effectiveness benchmark report will help you to:
•
Know “how well you we doing”
•
Set realistic budgets based on market data
•
Identify areas where you are under performing
•
Identify areas where you are under investing
The More Benchmarks Report includes analysis of:
•
Income by type of fundraising
•
Expenditure by type of fundraising
•
Gross and net income per head of population
•
Cost income ratio by activity based on true costs
•
Growth rates by type of fundraising
•
Reliance on each type of fundraising
•
Return on labour
© More Strategic 2013
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Real costs: the report is based on detailed management accounts submitted by each
participating charity. Detailed instructions ensure we are comparing apples with apples.
Granularity: income and expenditure is captured in 9 types of fundraising and 20 categories
giving you the most detailed report on cost ratio’s available.
Anonymous: to encourage the most open reporting and participation results are all deidentified. No one but you will know your results.
Annual: We will report results to participating NFP’s every year so you can see how the
market is evolving and how you are keeping up.
Timely: We aim to release reports within 3 -4 months of the year end – giving a far quicker
view of recent performance than annual reports. This data can then inform your next year
budget process.
Evolution: as the number of participants increases we will offer a more segmented
breakdown of comparisons allowing you to track performance against other NFP’s serving
the same cause, in the same state or of a similar program size.
To participate contact Martin Paul on 0435 306 202 or email
[email protected]
© More Strategic 2013
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About More
More is a specialist consultancy dedicated to helping not-for-profits achieve their
mission. We’ve worked with more than 100 organisations in Australia and New Zealand
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© More Strategic 2013
www.morestrategic.com.au