This entry is in response to an op ed piece by Nicholas D. Kristof in the New York Times on December 24, 2008: The Sin in Doing Good Deeds.
Easing our insistence on low overhead ratios for charities, will help them to co-opt the profit motive. One reason that nonprofits are not as effective with their own in fundraising is not specifically the profit motive, but the fact that the public insists on nonprofits maintaining low overhead ratios (such as 85%). On the face of it, it makes sense that donors don’t want to see their money spent on administration or fundraising costs – they want it to go directly into programs.
However, this is not sustainable for the nonprofits. Charities, like businesses, need money to run their operations – to pay competitive salaries to attract good talent, to train their staff, invest in technology, and create effective marketing and fundraising programs. In industry jargon, this is called capacity building.
Insisting on low overhead ratios through charity rating sites (and nonprofits are caught up in this as well, citing their low administrative costs in their fundraising appeals) effectively limits nonprofits’ abilities to be successful over the long-term. Putting most of their contribution into programs leaves little to invest in generating the fundraising returns that they need today, or investing in the strategies that will make a difference for their operations tomorrow.
WAKE UP CALL: We need to get past short-term thinking and allow nonprofits more latitude with their spending. This will help to co-opt the profit motive. For example, if charities were allowed to spend 30% ratio on fundraising, they would not need to rely on people like Dan Pollata to deliver such huge returns.
