Research Findings From Nonprofit Donors and County Supervisors and Staff By David Mermin and Jacklyn Jue3en Washington, DC | Berkeley, CA | New York, NY LakeResearch.com 202.776.9066 THANK YOU to those organizaCons who made this research possible CALIFORNIA COMMUNITY FOUNDATION FIRST FIVE LOS ANGELES JAMES IRVINE FOUNDATION AND TO THE FOUNDATIONS THAT PROVIDE CORE SUPPORT TO CALNONPROFITS, WHICH HELPS PAY FOR OVERHEAD CALIFORNIA WELLNESS FOUNDATION DAVE AND LUCILE PACKARD FOUNDATION WEINGART FOUNDATION And the nearly 10,000 California nonprofits that support CalNonprofits through their memberships! 2 Research Goals Based on the importance of nonprofit funding from counZes and from mid-­‐level donors, we were looking to explore: •  How these groups perceive nonprofits generally. •  How they perceive nonprofits that are worthy of their donaZon versus those that are not. •  What overhead means to them and how comfortable they are funding it. •  Donor confidence. •  How to develop and test messages on overhead. 3 Methodology •  Lake Research Partners conducted 10 in-­‐depth interviews with elected California County Supervisors and key staff, between October 28 and December 28, 2015. –  In order to reach a geographically diverse set of Supervisors, we spoke to Supervisors and staffers from across California in San Francisco, Los Angeles, Riverside, Alameda, Contra Costa, and Fresno counZes. –  All interviews were conducted via telephone, recorded, and transcribed. All parZcipants were assured anonymity. •  Two focus groups of nonprofit donors were conducted May 4, 2016 in San Francisco and May 5th in Los Angeles, lasZng two hours each. –  The focus groups consisted of non-­‐profit donors who made a single donaZon of between $200 -­‐ $1999 to a nonprofit organizaZon last year. •  An online survey was conducted from June 20-­‐30, 2016 reaching 801 nonprofit donors in California. –  The margin of error for the online survey is +/-­‐3.5 percentage points. –  The online survey was a representaZve sample of nonprofit donors who made a single donaZon of at least $200 to a nonprofit organizaZon last year. 4 Summary of County Supervisor Findings: Funding Process, PrioriCes, and Messaging • 
Although Supervisors vote to approve or reject contracts with nonprofits, they themselves have limited familiarity with nonprofit contracts. They rely heavily on the recommendaZons of County departments and staff to determine how the County should disburse its funds. • 
When it comes to assessing nonprofits, Supervisors are much more concerned with the service being provided and the overall competency of the organizaZon than they are with its specific rate of overhead. • 
Supervisors acknowledge that nonprofit overhead is a reality of doing business, and they are not opposed to funding nonprofit overhead in general. To the extent that they have concerns about nonprofits, they are more concerned with ineffecZve management than with dishonesty or malfeasance. • 
Supervisors tend to view their counZes’ relaZonship with nonprofits in transacZonal terms. They are most interested in the services and outcomes being provided. This priority should be central in messaging. • 
As poliZcians, County Supervisors are highly tuned in to messaging, and are resistant to being messaged to. Simply replacing “overhead” with another term would elicit a strongly negaZve reacZon. Language that comes across as doublespeak—intenZonally vague or misleading—quickly raises red flags. • 
Supervisors value transparency in their relaZonships with nonprofits, and they want overhead, as well as language about overhead, to be clearly defined. The phrases “real costs” and “foundaZonal costs” both test well, but they sZll raise quesZons about definiZons. Supervisors want to know what, specifically, they are being asked to fund. 5 Key Focus Group Findings – PercepCons of Nonprofits, Reasons for DonaCng, and Messaging • 
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Donors judge nonprofits on a range of intangible metrics, including their gut feelings – but generally like when they are visible in the community. To the extent that nonprofits can do what they say they will do, and demonstrate this to donors, the be3er. Most donors want to see that nonprofits are spending their money responsibly. Donors are encouraged to give based on urgent problems that they see in the news or their community, and are highly moved by personal stories. We know from the survey that donors are highly trusZng of where their money goes. The focus groups indicated that donors may feel this way parZally out of a desire to stand by the organizaZons that they have decided to support. Donors overall were recepZve to the messages tested. The strongest messages emphasize how nonprofits reinvest in their communiZes and use their resources effecZvely and efficiently. We were able to strengthen the messages tested in the focus groups by curng words like “top-­‐notch” and “high-­‐quality,” which imply a costly operaZon. Donors are not convinced by losy or corporate sounding messages. For many, donaZng to a nonprofit is not comparable to invesZng in a company. 6 Key Survey Findings – DonaCons to Nonprofits and CommunicaCng About Costs • 
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Donors give to a wide range of groups with a clear majority saying they give because they see the need in their community. Donors are highly confident of how their money is being used and believe in the organizaZons they are giving to. DonaZons to nonprofits aren’t seen as investments. These acZons are need-­‐ and value-­‐
driven. Donors are comfortable with operaZng costs in the 10-­‐20% of budget range and definitely want to see less than 30% of the overall budget being spent on operaZng costs. Donors give to organizaZons that share values and because they feel they have a responsibility to help. Powerful words to use when talking about nonprofits include: effecZve, responsible, and viable. Donors prefer to receive email updates from nonprofits they donate to. The preferred term for overhead is “operaZng costs.” Men, LaZnos, and those living in LA County are most responsive to the persuasive messages tested. 7 County Supervisors Findings Supervisors talk about County contracts with nonprofits in transacZonal terms. The County pays for a service, which the nonprofits provide as part of a business relaZonship. Rather than a3empt to shis this transacZonal frame, which is highly prevalent, messaging can effecZvely work within it, addressing the role of overhead expenses in the producZon of the service—linking overhead explicitly to results. A TransacConal RelaConship Although nonprofits are not for profit and they have, you know another mission, I think… that we have to kind of hold them accountable like I said to a good business model. I think that when you’re giving large sums of money to an en<ty, you know you want to make sure that it’s being used for the purposes that you want in order that you know to provide that service whatever that may be. I mean with me it’s always about making sure that they have the capacity to do the work and I mean and the skill and the ability; so the capacity, the skill, and the ability to do the work. They have an impact on the community so the amount of money we pay for service provided. I don’t think that the decision at this level is made by whether they deserve it or whether they don’t. I think it’s made by the service that they can deliver. So if a nonprofit is saying; we’re going to provide mentoring services to 100, um, for this cost… it’s a ma=er of determining whether they can actually provide what it is the county is asking to be provided. Those would be nonprofits that provide services in exchange for funding. 9 No Supervisor we interviewed categorically opposed County funding for nonprofit overhead. Supervisors across the poliZcal spectrum take a pragmaZc view of nonprofit overhead, acknowledging that overhead is a reality for nonprofits, essenZal to their ability to operate. Overhead as a Reality The most convincing reason [for counFes to fund nonprofit overhead] is just it’s a reality. You have to fund bricks and mortar and you have to fund folks to run the program so it’s not that I quesFon overhead or I'm not a believer in overhead, overhead is a reality. [Overhead is] not negaFve, it’s part of doing business… I understand that’s the cost of doing business so as long as it’s reasonable and related. I don’t know of any really successful long-­‐term sustainable nonprofit that doesn’t spend some porFon of the revenue they receive in sustaining their future by fundraising. I mean somebody has to run the show. You know somebody has to you know create the vision, the mission and at some point execute the plan and you can’t do that without an administra<ve staff at some level doing that. So somebody has to be in charge and somebody has to pay for that. I expect that the larger organizaFon like that is gonna have higher overhead... When you’ve got an organiza<on that’s handling millions of dollars in dona<ons you need a good accountant. You need an audi<ng firm. You need to have a desk and a chair and you know a computer for people to generate leGers of thanks and so there’s costs in involved. I don’t disagree that they need overhead costs. The quesFon that always comes is how much and for what. 10 Message Test: Performance Results should define the performance of a nonprofit, not the percent of nonprofit expenses that go to administraCve and fundraising costs—or “overhead.” Governments shouldn’t ask how low a nonprofit’s overhead is; they should ask how high its impact is. The people and communiCes served by chariCes don’t need low overhead, they need high performance. WHAT WORKS • 
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The theme of performance is very important to Supervisors and staffers, who cite outcomes as the top priority, when it comes to nonprofit funding. This message mirrors the prioriZes that Supervisors express: outcomes are more important than specific overhead rates. WHAT DOES NOT WORK • 
Respondents are turned off by the language that governments “shouldn’t ask” about overhead. Supervisors value transparency and open communicaZon and are generally wary of being “messaged” to; an explicit direcZve not to focus on something raises red flags. SUGGESTIONS • 
Make performance central to messaging but don’t frame performance and overhead in binary terms (i.e., pay a3enZon to X, not Y). Rather, integrate overhead into the value of performance, explaining that outcomes ma3er most, and overhead is necessary to achieve them. 11 Message Test: Flexibility Overhead costs include important investments nonprofits make to improve their work: investments in training, planning, evaluaCon, and internal systems. By financing a charity’s overhead costs, county governments are giving nonprofits the flexibility to make these investments and the freedom they need to best help the people and communiCes they are trying to serve. WHAT WORKS • 
Supervisors respond well to the list of specific investments itemized in this message. In general, they express a desire for transparency around what, specifically, overhead costs fund, and they like the items listed here. WHAT DOES NOT WORK • 
The term flexibility raises red • 
flags for many Supervisors, with many associaZng this • 
term with the noZon of a blank check or slush fund. Flexibility, in and of itself, is not a posiZve value. SUGGESTIONS Specify the investments included within “overhead.” Talk about flexibility only in the context of flexibility to meet emerging needs (rising rents, etc.), a reality supervisors know nonprofits face. 12 Summary of County Supervisor Findings: Message Triangle Overhead is FoundaConal for these Results Outcomes Ma]er Most • 
When it comes to County funding for nonprofits, outcomes ma3er most. CounZes should contract with nonprofits that deliver services and produce real, measurable outcomes for county residents and support them in the delivery of these services and community outcomes. • 
Funding Nonprofit Overhead In order to produce these outcomes, nonprofits need to cover overhead expenses—these are the cost of doing business, including rents and salaries for key staffers, as well the investments in training, planning, evaluaZon, and internal systems necessary for any well-­‐run organizaZon. These are the foundaZonal costs for a nonprofit to operate. Federal Guidelines for Nonprofit Funding Should Be Followed • 
Despite the best intenZons of County staffers and departments, the County is not consistently following the OMB guideline on reasonable compensaZon for nonprofits, a standard that the county should provide 10% of funding for overhead costs. Further acZon is needed to ensure the County is following this guidance, compensaZng nonprofits at reasonable rates for the services they provide to our community. 13 Donors’ PercepCons of Nonprofits and Deciding to Donate For many donors, a good nonprofit is one that uses money responsibly and is visible in the community. Donors tend to judge nonprofits based on gut feelings rather than objecCve criteria. Quality Nonprofits “Unless you are geWng very involved like Elizabeth said, if you are in the trenches and you are not handing over a check because you are there, then you get more of a feeling.” –San Francisco Woman “The one that uses the most percentage of the dollar goes to services rather than administraFon costs.” –San Francisco Woman “Well that they’re funds are actually going to where they say they’re going to, and they’re spending money in adverFsing in certain, you know, things that they say they’re doing. They’re doing what they say they’re doing, and they’re books are really what they are.” –Los Angeles Woman “If they've been around that many years, I trust that they are doing what they are supposed to do with the money because they are s<ll in business.” –San Francisco Woman “Thanksgiving they’re actually out there giving turkeys, you see them; they’re present in the community.” –Los Angeles Woman “That they sponsor ac<vi<es in the community.” –Los Angeles Woman “If you’re giving in your community, you wanna see it going back to your community, at least in some form.” –Los Angeles Woman 15 For many donors, the decision to make a donaCon to a nonprofit is based on what they see in their own community. While “community” can mean different things to different people, donors tend to focus on the problems that are the most visible to them. What Prompts You To Donate? 57 Seeing the need in my community 39 Hearing about an urgent problem 29 Receiving an appeal from the organizaZon 24 When friends or familiries ask me to give 14 Because it's near the end of the year 12 Other Unsure 1 What typically prompts you to make a donaZon to a nonprofit organizaZon? [ALLOW MULTIPLE RESPONSES] 16 Hearing about an urgent problem in the news or a personal story exposes many donors to related nonprofits and encourages them to contribute. “Newspaper. You hear about something that happens and maybe a charity goes in and helps them. You get interested in that and maybe do a li=le research. Then you say I can help a liGle and then when you become more interested in it, then you help a liGle more. You see that what your dollars are going towards is making a difference.” –San Francisco Woman How do you decide to give? “I knew someone whose child was having heart failure. The child was staying over at the Ronald McDonald House in Palo Alto. I hadn't really thought about that before, never really knew much about the Ronald McDonald House. I only got wind of it because I knew somebody whose child was staying there.” –San Francisco Woman “I can tell you personal experience. When I was a teenager I and friends got stuck. Car broke down. We were way out of town. It was night and we really didn't know what to do, so we called the police. They contacted the SalvaFon Army. Over the years I have conFnued to give to them because of my personal experience. They came to my aid.” –San Francisco Man “Reading about different stories of refugees in various countries because of the war. In the arFcles I read it didn't name a charity but then I would look for a charity that would support children or families in that country.” –San Francisco Man “I heard about a story where the people were going to [inaudible] City jails, coming out they have no jobs. Their families have lea them. They have no money, no skills and they go right back in. Come back out and the same. It is like a revolving door, revolving door.” –San Francisco Woman 17 Donors are more likely to donate to nonprofits that they perceive as being “effecCve,” more so than having a good reputaCon, a wide reach, or focusing on local issues. How Do You Decide Between Two Nonprofits? Nonprofits that use their funds effecZvely 46 Nonprofits that have the best reputaZon 18 Nonprofits that focus more on local issues 17 Nonprofits that have the widest reach 12 Other 3 None Of The Above 3 Which of the following phrases best describes how you decide between donaZng to two nonprofits that might have a similar focus? 18 Almost one-­‐third list “responsible” as the word that best describes the last nonprofit they donated to, followed by “effecCve.” Defining a nonprofit as both responsible and effecCve can be powerful. Donors clearly are less interested in donaCng to a frugal nonprofit. Which Word Best Describes the Last Nonprofit You Donated To? 30 Responsible 22 EffecZve 20 Sincere 17 Reputable 8 InnovaZve Frugal 2 Other 1 Unsure 1 Thinking about the nonprofit organizaZon you donated to most recently, which word BEST describes that organizaZon? 19 Nonprofits’ Use of DonaCons Survey donors express overwhelming confidence in regards to how their money is being spent, with nearly all respondents saying they feel very or somewhat confident about how their donaCon will be used. How confident do you feel about where your money goes? More/Less Likely to Support the Measure if you knew… 98 2 Confident Not Confident (Unsure) Darker colors indicate intensity. How confident do you typically feel about how your money will be used when you make a donaZon to a nonprofit organizaZon? 21 When given the space to expand on how confident they feel that their donaCons are being spent well, focus group parCcipants express a degree of doubt. Even though they can never be sure the money is being spent well, they WANT to trust the organizaCons they give to. Donor Confidence “It is 50/50. I am hoping. I give from my heart so…” –
San Francisco Woman “The ones that I do [donate to], I feel preGy good about but I think there is a lot of room for someone to be skep<cal for sure.” –San Francisco Man “But then you see the amount of money they take in, and what they say they’re gonna do with the money, then you see they don’t do that, all of it with the money. And it’s like tens, and tens of thousands of dollars, like so what do they do with this money, it makes you wonder? So it’s kind of leaves you…” -­‐Los Angeles Man “I just, just how I feel. You know someFmes you just say, I’m gonna bite the bullet, and I’m gonna give because I feel like giving, and if all of it doesn’t get spent the way it’s supposed to be, you know, some<mes that may have to happen. But…” -­‐Los Angeles Woman “Some of the smaller ones -­‐-­‐ well maybe you never know. I don't know.” –San Francisco Woman “In terms of sending a check, how would you ever know, especially these bigger organizaFons. Who knows where it goes and they don't have to tell you.” –San Francisco Woman 22 OperaCng costs is the preferred term to describe all of the non-­‐service costs that nonprofits need to dedicate resources to. No other term reaches 20%. Which term best describes rent, salaries, fundraising, etc.? 41 OperaZng Costs 17 Overhead Costs 14 Real Costs 13 Full Costs 9 Basic Costs None of the Above Unsure Other 2 3 1 We all know that nonprofits need to spend a porZon of their budget on rent, salaries, fundraising, legal services, and the like. Which of these terms do you think best describes these types of costs and their role in accomplishing the organizaZon’s overall goals? 23 While donors clearly want to see nonprofits spending below 30% of their total budget on operaCng costs, the median percent that they are comfortable with is in the 10-­‐19% range. About half think a number below 20% is appropriate. What porCon of a nonprofit’s budget is appropriate to spend on overhead? CumulaCve Total Less than 5% 6 6 16 5%-­‐9% 22 27 10%-­‐19% 21 20%-­‐29% 13 30%-­‐39% 40%-­‐49% 6 49 70 83 89 50% or More 5 94 Unsure 5 100 24 What porZon of a nonprofit organizaZon’s budget do you think is an appropriate amount to spend on these operaZng costs or overhead costs? CommunicaCng About OperaCng Costs Survey Messages Community: Funding for nonprofits’ operaZng costs allows them to hire local staff who are paid fair wages that enable them to live in the communiZes they serve. These dollars go right back into the local economy and help build partnerships at the grassroots. Overhead funding builds stronger nonprofit organizaZons and stronger local communiZes. Efficient/Quality: When it comes to nonprofits, a small investment goes a long way. Volunteers and dedicated staff make it easier for nonprofits to deliver essenZal services at lower costs than in the private sector, but even highly efficient nonprofits have costs. If we want these nonprofits to run as effecZvely as possible, they need quality management and staff. A reasonable investment in management, staff, and systems is well worth the cost. Now, you are going to see statements some people have given for wanZng to help fund nonprofit overhead costs. For each one, please rate it as a VERY convincing, SOMEWHAT convincing, NOT very convincing, or NOT AT ALL convincing reason to help fund nonprofit overhead costs. 26 Survey Messages (cont.) Capacity: Overhead costs include important investments nonprofits make to improve their work: investments in training, planning, and evaluaZon, as well as upgrading the methods they use to deliver their services. By financing a nonprofit’s overhead costs, you are giving your nonprofit the power to improve its effecZveness without reducing the quality of services. These expenses provide the capacity nonprofits need to best help the people and communiZes they serve. Performance: Basic overhead costs like rent, insurance, accounZng, and staff are necessary for nonprofits to operate efficiently and effecZvely and deliver bigger and be3er results. These are part of the cost of the services nonprofits provide. The people and communiZes served by nonprofits don’t need the lowest possible overhead; they need enough overhead for high performance. Now, you are going to see statements some people have given for wanZng to help fund nonprofit overhead costs. For each one, please rate it as a VERY convincing, SOMEWHAT convincing, NOT very convincing, or NOT AT ALL convincing reason to help fund nonprofit overhead costs. 27 All of the updated survey messages tested well. Donors are most moved by the Community message and Efficient/Quality message. The term “quality” is a good way to talk about management costs. The Community message highlights nonprofit funding building the local economy. Messages Not convincing Convincing Unsure Community 18 4 37 79 2 Efficient/Quality 17 4 34 80 2 4 32 6 29 Capacity Performance 21 26 77 70 2 3 Darker colors indicate intensity. 28 Now, you are going to see statements some people have given for wanZng to help fund nonprofit overhead costs. For each one, please rate it as a VERY convincing, SOMEWHAT convincing, NOT very convincing, or NOT AT ALL convincing reason to help fund nonprofit overhead costs. By the end of the focus groups, donors seemed to understand the importance of overhead and gave reasons for covering these costs that focused on supporCng the staff and making sure the nonprofits have the resources they need to succeed. Donors understand the importance of overhead “I would tell them you have to understand that it is a business, and for a business to survive it has to cover its costs so part of the money that they raise goes to -­‐-­‐ if you want to use the word overhead or something different, but it goes to pay the salaries of those people in the organiza<on, the rent, all the costs that are involved with running a business. Whether it is a nonprofit or a profit business it sFll has to cover those costs. You have to understand that.” –San Francisco Man “Without having money for overhead they can't keep the lights on; they can't keep the space they are in. They need to have space. To use Charlie's example, someone had to take that call from the police to come get him. That is the person that you are paying for.” –San Francisco Man “I would say volunteers and dedicated staff make it easier for nonprofits to deliver essenFal services at lower costs.” –Los Angeles Woman “I would say they need some type of management to keep going. It’s not all about tears.” –Los Angeles Man “Basic to say, hey forget that they’re a business. There are certain needs, basic needs and you grow from that.” –Los Angeles man 29 Dos and Don’ts When CommunicaCng with County Supervisors DO DON’T !  Emphasize results "  Use unfamiliar terms or vague or flowery language. !  Build on Supervisor’s exisCng recogniCon of the importance of overhead funding " 
!  Be specific about the OMB requirements and the problem with counCes not implemenCng that guidance. Explicitly divert focus from overhead costs. "  Talk about threats to nonprofit sustainability. !  Reach out to Supervisors with personal backgrounds in the nonprofit world. "  Message broadly about “nonprofits” and “nonprofit overhead” in a generic way. !  Reach out to County staffers. "  Assume county supervisors react to messaging the same as individual donors 30 Dos and Don’ts When CommunicaCng with Donors DO
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Treat giving as a values-­‐driven acCon ! 
Focus on immediate needs that the organizaCon " 
is meeCng ! 
Use words like “effecCve”, “responsible” and “viable” when developing persuasive messaging ! 
Use the term “operaCng costs” ! 
Demonstrate that you can stretch a budget ! 
Follow through with what you say you will do and demonstrate this to donors ! 
Share with donors the importance of operaCng costs in your ability to meet your organizaConal goals Talk about the community you serve and how your organizaCon’s dollars are reinvested in the community ! 
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Treat giving as a financial investment Focus on long-­‐term structural improvements " 
Use words like “top-­‐notch”, “high quality” or other words that imply high costs when developing persuasive messaging " 
Use the terms “overhead costs”, “real costs”, “full costs”, etc. " 
Come across as defensive when discussing how the nonprofit uses donaZons " 
Promise more than you can reasonably achieve " 
Overwhelm donors with financial details " 
Talk about your organizaZon as if it were a business 31 Washington, DC | Berkeley, CA | New York, NY LakeResearch.com 202.776.9066 David Mermin [email protected] Jacklyn Jue]en jjue][email protected]