Donors across the nation are increasingly using charity “watchdog” sites to help them in choosing organizations to donate to. Many donors who are interested in aiding a specific cause can log on to Charity Watch, Charity Navigator, Give Well, or the Better Business Bureau’s Giving Alliance, among others, to help them research and analyze the organization they feel would spend their donation most appropriately.
Based on a review of the sites noted above, we have captured the top five items these sites focus on when rating an organization, as well as what your organization can do to potentially increase its rating.
1. Money management
What does this mean?All sites focus first and foremost on how the organization spends its money. They look at various data and a number of ratios with the most important being the program cost percentage. This ratio reflects the percent of total expenses an organization spends on program-related items during the year (the remaining being spent on general and administration, as well as fundraising expenses). In general, the theory is the higher the program expense percentage, the more fiscally responsible the sites consider the organization to be. Per a few of the different sites, a program expense percentage of at least 75 – 80 percent appears to be considered positive.
The sites also consider the “cost to raise” which analyzes the fundraising efficiency of the organization. This ratio measures how much was spent in fundraising costs to raise $1 in contributions.
The last major money management measure relates to an organization not “hoarding” funds. The benchmark used on the sites points to an organization setting aside reserves (i.e., net assets) of no more than three years’ worth of its annual budget. Any funds over and above this amount should be used for more urgent needs and the mission and programs of the organization.
Review and analyze administrative and fundraising functions to verify they are being carried out as effectively and efficiently as possible. This will allow more funds to be directed toward the organization’s programs.
Analyze your fundraising efficiency ratio and fundraising activities and consider changes/options to ensure your organization is getting the most out of your fundraising expenses.
Consider the level of reserves at year end, how this level compares to your organization’s annual operating budget, and adjusting spending levels, if necessary.
What does this mean?
3. Governance and transparency
What does this mean?
4. Results reporting
What does this mean?As discussed above in Governance and Transparency, the organization’s audited financial statements and IRS Form 990 are important to consider disclosing on the website. In addition, an Annual Report is also a great way for the organization to report on results from the year. The reporting in this document is not prescribed and, as such, organizations have the opportunity to analyze and share their results with the outside world in any number of creative ways. An organization with a more robust annual report has a better chance of bringing in more donors than does an organization that does not report on results from previous years.
Action itemsEnsure your organization has a means to communicate its results to donors and other stakeholders, whether it be in an annual report, or via another method. Ensure these results are easily accessible on your organization’s website for donors and so sites are able to rate your organization on the consistency and value in your results reporting.
What does this mean?Donor privacy in this age of technology and identify theft is an important factor. Organization websites should have secure payment methods for donors who want to donate online. Website disclosures are also important to ensure donors that their information will be kept safe and secure. Allowing donors to make anonymous donations and keeping this information truly anonymous will build trust with donors and may garner future donations from first-time donors.
While implementation of these five items will not guarantee your organization receives a sites’ top rating, it certainly provides you an opportunity to maintain or improve the rating. They should also provide current and prospective donors with additional information about your organization so they can make an informed donation decision.