The Worst Way of Picking the Worst Charities

Dan Pallotta's popular TED TalkRecently, the Tampa Bay Times and the Center for Investigative Reporting teamed up and published a list of America’s Worst Charities. Here, they ranked non-profit organizations by the amount of money they paid solicitors, or fundraisers, and the amount those fundraisers returned. They mention that “watchdog groups say no more than 35 percent of donations should go to fundraising costs” and suggest that these organizations are basically nothing more than scams designed to get fundraisers rich. Perhaps these charities listed here actually are some of the worst. Perhaps they’re even outright scams. However, the amount of money they spend on fundraising isn’t going to let you know whether the organization is one not worth your donations.

The CEOs of GuideStar, Charity Navigator, and the BBB Wise Giving Alliance — three organizations that regularly rank non-profits — came together and wrote a Letter to the Donors of America, which states that: 

"The percent of charity expenses that go to administrative and fundraising costs—commonly referred to as ‘overhead’ — is a poor measure of a charity’s performance.”

Actually, focusing exclusively on the amount of fundraising when considering how bad a non-profit is is actually very dangerous to philanthropy. Why? As Dan Pallotta mentions in his TED Talk, entitled The Way We Think About Charity is Dead Wrong, non-profits need to spend money on overhead to grow and expand. Organizations need to spend money on fundraising in order to spread awareness and get more people to contribute to their organization.

For example, consider a for-profit car company. When they get money in from sales, they don’t spend all of it to immediately produce new cars. Instead, they spend money on advertising, market research, safety research, testing, etc. Yet, in the world of non-profits, all of this is labeled “overhead” and demonized. If a non-profit could take $1 million that it raised and re-invest it in fundraising to get $10 million, then they’ve grown a lot as an organization and can now afford to help many more people than it could before. Yet, non-profits frequently don’t do this, because donors see it as a negative thing. Therefore, the way we think about charity has to change.

As the “Letter to the Donors of America” says:

“In fact, many charities should spend more on overhead. Overhead costs include important investments charities make to improve their work. [...] These expenses allow a charity to sustain itself (the way a family has to pay the electric bill) or to improve itself (the way a family might invest in college tuition).” So when we want to decide if a charity is good or not, what should we focus on instead? The CEOs of Guidestar, Charity Navigator, and the Wise Giving Alliance suggest focusing on “transparency, governance, leadership, and results”.

I agree. What really matters is a non-profit you can trust to get things done. For example, would you rather have a non-profit that takes your $100 donation, uses it to raise $1000, and then help ten people? Or would you rather have a non-profit that takes your $100 donation and only ends up helping one person? Or would you rather have a non-profit that is just more cost-effective, able to help one hundred people on $100 instead of $1000? Or, the best of both worlds, an organization that takes your $100, raises $1000, and then helps 1000 people?

Sure, those on the list of America’s Worst Charities aren’t getting much out of their fundraising budgets. But other organizations — the ones that get results — do. And they provide you the opportunity to get a lot of bang for your buck. We should focus our efforts on figuring out which organizations are capable of being effective and support them, no matter how much they fundraise or spend on other overhead costs.


Image credit: CC-BY-NC 2.0 TEDconference / James Duncan Davidson