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Tuesday, July 6, 2021

The Trillion Dollar Opportunity


Last week, we were excited to announce changes to our Board of Directors leadership at Charity Navigator, including our new Chair Marie Wieck. We also announced our new 2026 Strategic Plan, which includes a new mission, vision, and values, as well as a moon shot to guide a $1 trillion dollars of giving within the next 10 years. While ambitious, Stephen Rockwell, Charity Navigator's Chief Ratings Technology Officer, believes this can be done. Read Stephen's thoughts about our efforts, as year 
over year we have galvanized philanthropic support to nonprofits making a
 difference in the U.S. and around the world.


A trillion dollars.  That’s a huge number, almost unfathomable.  Now that I scared you, let’s take 10 percent of that number.  $100 Billion.  Less scary? That’s still a really big number.  How big?

  • Uber, Square, Target, CVS all have market capitalizations around $100 Billion.
  • The GDP of 125 countries is smaller than $100 Billion.
  • The combined endowment values of the top 4 US foundations are $100 Billion.
  • The endowments of the next 20 foundations gets you another $100 Billion.
  • Bill Gates is now worth north of $100 billion at $126.  Bezos and Musk also surpassed $100 billion in the last year. 

What if I told you that it was well within Charity Navigator’s grasp to influence $100 billion in philanthropic giving per year?  Would you believe it?  And if we did so every year for 10 years that would be, yep, a trillion dollars.

Would you believe we are already well on our way?
Charity Navigator raised $33+ million through the Giving Basket, our giving platform on our website, in 2020, and over $120 million in the first five years of the product. The growth has been organic and good, but represents only a tiny fraction of philanthropic giving.  Our influence over the philanthropic market is much, much larger. How large?

  • Nonprofits, The suppliers of social outcomes - While there are over 1.6 million nonprofits, Charity Navigator has estimated that the rateable universe is around 400,000 organizations. With Encompass, we now rate more than 173,000 total organizations or about 50% of the addressable nonprofit market.  While our focus is on the giving side of the market, our experience is that when we evaluate a domain or metric, nonprofits respond. I’ll return to this notion.
  • Donors, The buyers of social outcomes - The number of Americans who give to nonprofits decreased over the last two decades since Charity Navigator has been in existence and is now around half of adult Americans.[1]  This longitudinal study has high reliability, but for what it's worth, when Gallup asks, 73% of Americans claim that they give.  If we work with half of the 197 million Americans above the age of 21, then 98.5 million Americans give each year.  In calendar 2020, we had 9.4 million unique visitors to Charity Navigator or about 10% of the donor audience.    
Let’s extend the meaning of the 10% to the dollars and the philanthropic market.  In 2019, individual donors donated $309 billion dollars.[2]  If Charity Navigator influenced 10% of individual giving, that’s $31 billion dollars. We’re a third of the way to $100 billion! 

In 2019, overall giving, which includes foundations, corporations, and bequests., was $449.64 billion.  Our influence in total was 6.6% of the philanthropic market.  Total giving by all foundations was $75 Billion.  Charity Navigator influencing $31 billion stacks up well against our philanthropy sector friends.

We of course could quibble with these numbers a bit:

a) Could be higher, as many foundations use our ratings in their evaluation of potential grantees,  but we don’t have any idea of scale (foundation users probably represent a minuscule part of site traffic but could influence a lot more dollars);  

b) Could be lower because we think of Charity Navigator as servingsmaller donors who are making up a lot less of the total giving; 

c) Could be higher because we aren’t clear about  to what degree major donors are using our site.


How does Charity Navigator get to $100 billion?
At $31 billion, there are a number of pathways to $100 billion.  Some combination of the following strategies would get us there:

  • Natural growth - Given the current growth rate, within the next five years, individual giving should be around $350 billion.  Natural growth would give us another $4 billion for a total of $35 billion,
  • Double site traffic - 20% market share would get double the $35 billion for a total of $70 billion.  We could also get ratings into other platforms and count that site traffic towards our goal.
  • Partner/Get data into Donor Advised Funds (DAFs) - Giving from DAFs was $27 billion.  While this is part of the $350 billion individual giving, it is likely to be part of the market we’re missing with the current product.  Assuming growth to $30 billion, and we get our data into a third of DAF’s, that would affect another $10 billion in giving for a total of $80 billion. 
  • Quantify effect on foundations - Assuming we could similarly effect 25% of foundation giving and at a  similar growth rate or around $80 billion, that’s $20 billion for a total of $100 billion.

Are there some ambitious strategies for the next five years to position Charity Navigator for a trillion dollar decade?  Absolutely.  I believe they are ambitious, though entirely possible in a plausible path to influencing $100 billion annually.


Sorry, Not an Original Idea
This notion is not new.  Charity Navigator can’t claim originality.  Senator Bill Bradley and others at McKinsey & Company did a version of the math now 18 years ago.[3]  Their path to $100 billion is instructive in that it was not about new resources but about using existing resources more intelligently.  Their math was based on activities largely endogenous to the nonprofit, such as efficiency in management and fundraising—y’know, all those things that Charity Navigator often is challenged for including in the ratings.    They suggested the following math:

  • Reducing the fundraising expense from 18% to somewhere between 5-10% would create $25 billion to plough back into programs.
  • Foundations raising their distribution of funds from 5% to 7% would create $30 billion (these are the only “new” dollars in their math).
  • Reduce the program service costs by 15% of the bottom half of performers, which would create $55 billion (there’s that pesky program cost effectiveness). 
  • Trim administration expenses by 15% for the bottom half of performers would create $7 billion for programs.

The Bradley team noted that the biggest X factor in which they could not quantify a return: “Increase sector effectiveness by allocating funds to organizations that produce the greatest social return.”  Read that statement again!  In other words, the biggest return is to create a better functioning philanthropic market that allocates more resources to the better performers.  


What does Influencing $100 billion Mean?
Charity Navigator aims to improve market transactions in exactly the manner the Bradley team describes.  Steer individual donors to those organizations that are performing better and delivering the best results with reasonable program cost structures.  Charity Navigator influences  these individual decisions at a scale that truly creates shifts in market behavior and social outcome results. The multiplier effects should be well beyond the $100 billon.

  • Higher social returns yield more investment.  Improving social return on investment at the transaction level means improving the efficacy of a donation. This is likely to increase overall giving levels in a reinforcing positive loop of donors receiving a positive stimulus of their dollars making more of a difference.  
  • Aggregate social outcomes improve.  This X factor that the Bradley-McKinsey team identified is sure to extend well beyond $100 billion in social benefits for the $100 billion in philanthropic investment..  Shifting financial resources to more effective organizations should yield many more positive social outcomes for the same investment level.  To what extent this shift happens and how much additional good is created is research to pursue over the next decade.
  • Improving nonprofit effectiveness.  As I’ve noted above, Charity Navigator’s evaluation system changes the behavior of nonprofit organizations to improve practice.  The Bradley-McKinsey points to four shifts that in and of themselves could yield close to $100 billion in benefit (taking out the guidance for foundations).  This is worthy of more research and analysis from our team.

Finally, what good could $100 billion do?
As it relates to improving aggregate social outcomes, we should allow ourselves to think big—systems level change big. We should allow ourselves to conceive of a world where we’re actually moving the needle, actually solving our seemingly intractable problems.  A couple examples of what less than $100 billion could do:

  • $60 billion would end homelessness in the US[4]
  • $25 billion would end hunger in the US[5]
  • $4 billion a year for 20 years would reforest the US with 60 billion trees.[6]

Within five years, Charity Navigator could establish a decade of the “Trillion Dollar Opportunity”, supporting the philanthropic market to actually achieve the positive social outcomes in which donors want to invest and that nonprofits seek to achieve.  I believe the path to $1 trillion is challenging, but well within our organization’s grasp with the right set of strategies and solid execution.  


“Fortune favors the audacious.”
Desiderius Erasmus


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1 comment:

Unknown said...

I sought out your site to determine if a 501-c , was actually using the money or just paying a "service" to bring money to them. I do not support charities that use too much of the donation to pay these 3rd party companies or those who use my money to let the people in charge have huge salaries and lifestyles. My strong preference is for animal charities, ie.: arizona humane society, ushs, spca, best friends, peta, Those people help those without a voice. Marilyn DeCesari, Phx, Az.