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Monday, January 23, 2017

Charity Navigator Metric Mondays #10: Fundraising Efficiency

Charity Navigator Metric Mondays #10: Fundraising Efficiency
Last week, Charity Navigator focused on the importance of a Conflict of Interest policy. Today’s Charity Navigator Metric Monday will address Fundraising Efficiency!

Fundraising Efficiency is the amount spent by a charity for each dollar they bring in as contributions. We determine this by dividing fundraising expenses by the amount of total contributions. We get this data from an organization’s 3 most recent Form 990s, and average the totals for fundraising expenses and total contributions across those 3 years, and then divide the two averages to get a raw value for Fundraising Efficiency. For this metric, a lower raw value will result in a higher score for the metric itself, for example, spending $0.05 is preferable to spending $0.25 to fundraise $1.

As we explored in our Metric Mondays post on Fundraising Expenses, it is understandable that an organization must spend some money to bring in the contributions it depends on, but in addition to the amount spent on fundraising, it’s important to know that the organization is efficient in its fundraising efforts. Our Fundraising Efficiency metric captures that relationship. Fundraising is a specialized skill, and those organizations who are able to do so efficiently not only ensures security for future operations through the funds they have raised, but are able to spend less on fundraising in that moment, allowing the organization to spend more operational or mission-driven activities.

There are a number of reasons why an organization may be inefficient in its fundraising, but as with fundraising expenses, donors are looking to see that their donation is going towards more than just solicitations for more donations. Additionally, there are certain types of organizations that because of the way they operate, have a higher fundraising efficiency ratio, for example, public broadcasting organization typically must spend more to bring in each dollar of contributions, than say, food banks, whose fundraising costs are typically lower compared with the amount contributed. In our ratings we take these factors into account, comparing organizations with those that operate similarly to them, and therefore not penalizing an organization that because of its operating model, has a higher fundraising efficiency ratio. To learn more about the fundraising efficiency metric, please see our methodology.

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