Non profit organizations / Charity

October 14, 2005 2:07 AM

What percentage of the money raised by the average non-profit organization is usually going to cause, and how much is spent on salaries & expenses? What will be a cut-off point where you will still feel comfortable giving? What are the main taxation issues with setting up a NPO?
posted by growabrain to Society & Culture (13 answers total)

Charity Navigator says that 7 out of 10 charities spend at least 75% of their budget on the charitable services they provide. They have a breakdown of median expenses for several classes of charities from their database. However, grouping all charities together the median charity's expenditures are as follows:

Charitable Services: 81%
Administration Expenses: 10.5%
Fundraising Expenses: 7.5%

GuideStar has an article on how to evaluate program ratios, from a donor's point of view.
posted by RichardP at 3:15 AM on October 14, 2005

What about charities who put their money into bonds and investments, so as to use the income for the cause? How would you say that this has been distributed? In theory it'd be totally to the cause, but there'd be a lot of assets and capital sitting around.
posted by wackybrit at 3:48 AM on October 14, 2005

What about charities who put their money into bonds and investments, so as to use the income for the cause? How would you say that this has been distributed?

In the general case, the financial instruments a charity uses to save its contributions doesn't affect it expenditure ratio in either direction. No matter whether the contributions are placed in a savings account or invested in bonds, presumably the only significant expenses incurred are the relatively small transactional expenses. However, it may well be the case that federal or state regulations limit the types or size of investments a public charity is permitted to make.
posted by RichardP at 4:20 AM on October 14, 2005

Here is some information from Wikipedia about endowments - invested contributions. The it's specifically about universities, but the section at the end is a pretty good overview of the hows/whys of seeking endowments vs. annual contributions.
posted by SashaPT at 6:28 AM on October 14, 2005

Non-profits that hold endowments usually charge a fee of 1% per year to do so. Mature NPs of this type usually run on about 1.5 to 2% overhead requiring some fund raising to augment the 1% fee.

Be careful in holding a NP to these standards though as there are a lot of circumstances that might cause varience in these percentages.

All NPs in this country are governed by regulations from the IRS and from their state's corporation commission. The major tax load on 501(c)(3)s is payroll taxes.
posted by leafwoman at 7:08 AM on October 14, 2005

As a lifelong not-for-profit person, I also caution people not to judge a charity solely by percentage of donations that go to cause. In order to grow and develop the strength to get good work done, NPs need to spend money on marketing and advertising, fundraising events, and salaries. It's impossible to attract really good people without liveable salaries -- NPs can become a haven for mediocrity when the pay scale is too far below the private-sector wage for equivalent work. Paying for the best people results in the most effective work toward the cause.

Obviously, there are limits to this. The organization should be able to demonstrate that fulfilling its primary mission is its greatest priority. But I hate hearing someone grumble that their donation is going to 'pay for the staff's coffee.' I do good work, and I deserve a decent working environment, with benefits, and, dammit, that includes coffee. When staff are expected to labor solely for their reward in heaven, you find that you attract people who are hiding out from the expectations of the private sector. Everyone in a not-for-profit organization is already making a financial sacrifice to be there, and is there primarily because of values and interests. There is no shame in supporting a strong staff, or in leveraging funds toward advocacy and promotion in order to increase the donor base and raise money at a greater level.
posted by Miko at 7:50 AM on October 14, 2005 [1 favorite]

Yay, Miko. Well said.
I work for a non-profit as well. I don't have the budget sitting in front of me, but I'm pretty sure the largest percentage of our funds goes to salaries. Then, we provide legal services, so at least half of those salaried people are providing the services of our organization, "the cause," in other words. So judge that how you will.
If you're interested in the specifics of a particular organization, the budgets are generally printed in detail in the annual report. You could contact an organization you're interested in and they can easily provide you with that information. It's possibly on their website as well (it's on ours).

And for the record, we spend less than $30/mo on coffee around here.
posted by ruby.aftermath at 8:16 AM on October 14, 2005

I'd imagine that the expense ratio of a non-profit had a lot to do with the nature of its fundraising. A large national charity dedicated to a popular cause has the advantage of scale and name recogniition.

My father's company does telemarketing for various regional police and veteran non-profit groups. Their expense ratios are very high because it's an aggresive cold calling effort to residences and businesses. But 20% of any number is greater than 90-100% of nothing. I'm sure donors feel ripped off when they find out 80% of their money is going to expenses, but the only reasons they even know about the organization may be due to the efforts of the fundraisers.
posted by mullacc at 8:55 AM on October 14, 2005

I steadfastedly refuse to donate to charities that have a high expense ratio. There are plenty of efficient charities that can do better with my dollar.

My favourite is The Heifer Project, which provides livestock to families, teaches the families how to create a sustainable business using the livestock, and requires the families to then share that knowledge and some of the livestock with others in their community. It's a "teach a man to fish" strategy that maximises the benefits.
posted by five fresh fish at 10:05 AM on October 14, 2005

What are the main taxation issues with setting up a NPO?

One major issue is that NPOs can lose their non-profit status (and thus have to pay all the taxes that regular corporations pay) for abuse. "Abuse" generally means (a) paying unusually high salaries to upper management (judged by the size of the NPO), and/or (b) paying excessive prices for goods or services provided to the NPO by for-profit entities controlled by or related to upper management. (For example, the CEO selects a public relations firm to be paid major amounts each year, and the CEO's spouse coincidentally happens to be the head of the PR firm. An extreme smoking gun would be if there was no evidence that the PR firm actually did very much for the NPO in exchange for payments to the firm.)

And I strongly discourage the listing of favorite charities in this Q&A - there are at least two recent AskMetafilter threads on that specific subject, with lots of great suggestions to be found there.
posted by WestCoaster at 1:12 PM on October 14, 2005

Agree WestCoaster. And FFF, for your edification, here is the Job Opportunities page at Heifer Project. Their salaries are appropriate to the job, as they are where I work. They certainly seem to be paying a lot of development people, as well (and heck, these are just the open positions!). This is what I'm saying -- you've got to pay rnough to get the job done.
posted by Miko at 1:45 PM on October 14, 2005

And here's the Charity Navigator analysis of their program. It ranks highly, afaikt.

The Top Ten Lists are interesting. Especially regarding the worst performing charities. Hale House is spending $1.33 to raise a buck!
posted by five fresh fish at 2:22 PM on October 14, 2005

What percentage of the money raised by the average non-profit organization is usually going to cause, and how much is spent on salaries & expenses?

That's a thorny question. An average NPO is not a charity -- it's probably an educational or cultural institution of some kind. At a museum, staff money is going "for the cause". At a public education NPO, advertising costs might be the top expense, but "the cause" is getting the word out.

What will be a cut-off point where you will still feel comfortable giving?

My philosophy is that, like any investment, I should know the institution and what it does and have some idea how well it does it. I don't think it serves anyone to drop money into the infinite bucket of many big national NPOs. I'd want it to be a membership organization where I can be expected to have some say and perhaps have opportunities for further involvement.

My main rule of thumb is the more insistent and anonymous the postal-mail spam the org sends out, the less I like them. Most of those solicitations (which are often personally addressed) go straight to the shredder.

What are the main taxation issues with setting up a NPO?

Uh, for what purpose? An NPO, properly set up, is non-taxable. If you're looking at a way to offset business expenses this isn't necessarily it. I'm sure there are ways to do it, but it's at least as complicated as setting up a C-corporation.
posted by dhartung at 11:56 PM on October 14, 2005