pic from Fuffer

I challenge the myth of larger nonprofits being overall more efficient than the smaller organizations.  I do this to help donors better understand that statements and reality of the perception are not necessarily true.  The more something is stated and the more one remembers something does not necessarily make it true.  It is human nature to think it is true and to generalize.  The larger nonprofits would like funders and donors to believe it more.  The larger the nonprofit’s funding, the larger their ability to pay higher salaries, multiple layers of administrative costs and keep the administrative percentage lower. 

Questions a donor should ask of themselves: 

1. As a donor making choices within their day-to-day experiences what variables are important to me when making a donation? 
2. As a donor what purpose do you want my donation to serve?
3. As a donor who may donate constantly, periodically or almost never what is my motivation? 

The sample of the nonprofits below are those from the Commonwealth of Massachusetts who contracted in 2002 to provide human services and reported their full financials to the Commonwealth.

Out of a sample of 217 nonprofit providers with revenues under 2.5 million the administrative costs were calculated on FY ‘02 costs.
 
23 providers, 25% plus admin, average revenue $701,219  
20 providers, 20% -24% admin, average revenue $1.024M
65 providers, 15% -19% admin, average revenue $1.167M
83 providers, 10%-14% admin, average revenue $1.48M
26 providers, 8%-9% admin, average revenue $1.491M

Out of a sample of 220 nonprofit providers with revenues over 2.5 million the administrative costs were calculated on FY ‘02 costs.
 
2 providers, 25% plus admin, average revenue $8.008M 
14 providers, 20% -24% admin, average revenue $23.863M
45 providers, 15% -19% admin, average revenue $12.609M
92 providers, 10%-14% admin, average revenue $11.564M
67 providers, 8%-9% admin, average revenue $12.095M

Ask yourself what impact I as the donor would make if I required savings through outsourcing or capping administrative costs at 10%.  It was estimated that the potential savings for the entities below 2.5 million was 18 million dollars.  The potential savings for the entities over 2.5 million was 143 million dollars.  Therefore, I ask you to think about where the real savings can be realized.

Nonprofits have to think like the donor.

This entry was posted on Thursday, January 21st, 2010 at 12:01 am and is filed under Budgeting. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.