November 30, 2011

A Potential $15-Billion Windfall for Effective Nonprofits

It's one of the holy grails of philanthropy: Finding ways to steer more donor money to the highest-performing nonprofits rather than to less-effective or downright fraudulent groups.

A new study by GuideStar and Hope Consulting examines what charities and nonprofit watchdogs can do to help donors make smarter giving decisions—but shows that the groups face an uphill battle. The study is a follow-up to a 2010 report, which found that only 35 percent of people conducted research on a charity before they gave.

The study released today, "Money for Good II," estimates that individuals, foundations, and corporations would shift about $15-billion each year to more effective groups if they had better information. But that's only about 5 percent of total annual giving.

"The reality is that changing behaviors within the charitable marketplace is incredibly difficult," said Greg Ulrich, director of Hope Consulting, in San Francisco. "There are high levels of satisfaction with nonprofits that people do give to, there are high levels of loyalty, and there are a variety of motivations for giving, not all of which are to give to the highest-performing nonprofits."

The study was based on surveys of 5,227 individuals, plus 873 people who advise donors and 727 foundation officials.

Not surprisingly, it found that foundations and advisers do significantly more research on charities than individuals do. About 89 percent of foundations surveyed conduct research on nonprofits before donating.

But all types of donors said they valued a charity's effectiveness. About 71 percent of individuals, 68 percent of advisers, and 90 percent of foundations said they had a strong desire for information about the impact of a charity's work.

Rating Charities

The donors also agreed on how they wanted information about nonprofits packaged and presented to them. Nearly 60 percent of individuals, advisers, and foundations said they wanted detailed, Consumer Reports-style ratings of charities.

Much smaller shares (26 percent of individuals, 23 percent of advisers, and 19 percent of foundations) said they wanted "simple grades" of nonprofits.

The donors polled said that it was more difficult to access data on a charity's effectiveness and impact than other types of information; 25 percent said available information on a nonprofit's expected impact did not meet their needs.

Lindsay Nichols, a spokeswoman for GuideStar, said that nonprofits can take steps to better provide the sort of information that donors say they want.

They include:

  • Filling out the Charting Impact questionnaire, an effort by GuideStar, Independent Sector, and BBB Wise Giving Alliance to encourage nonprofits to articulate their results more clearly.
  • Sharing information about what the charity's programs achieve, not just what portion of the group's money goes to programs. "Don't just say, 'You gave $4,000 to homeless people.' Say, 'Here are the people and here is how they were impacted with this $4,000,' " she says. "Give hard data when possible."
  • Following up with donors so they know how the group is spending its money throughout the year.