How much goes to the cause?

Transcription

1 Research findings on public perceptions of not for profit costs October 2013

2 How much goes to the cause? The public, media and regulators often judge charity performance by how much goes to the cause. Yet the costs of doing good are often misunderstood, misleading and hard to compare. Recent research conducted in August 2013 reveals the public view of not-for-profit costs: 84% say how much goes to the cause is an important factor when choosing to support charities 18% know or have a good idea how much goes to the cause Higher value donors are better informed and believe more goes to the cause On average the public think 55 cents in the dollar goes to the cause On average the public think 88 cents in the dollar should go to the cause The public think the rest goes to administration not fundraising The not-for-profit sector and its leaders need to help the public to understand the importance of investing in fundraising and efficiencies to ensure organisations maximise their impact not minimise their costs. The Problem Cost income ratios: the bane of a fundraisers life. Too high and you face criticism from the public, too low and you stifle future growth. So, what should your cost of fundraising be? How does your ratio compare to others and how does your ratio compare to public expectations? Under increasing scrutiny from the media, public and potential regulators there is great pressure to declare an ever lower cost of fundraising, or, in public terms, how much of my money goes to the cause. Yet underinvestment in fundraising is a far more common problem than wasteful spending. This pressure on board members and other not-for-profit leaders to show the highest proportion of your donation going to the cause can hinder long term financial sustainability. Under investment in fundraising is a far more common problem than wasteful spending More Strategic

3 The amount a charity spends on administration and fundraising is a poor indicator of the impact they have on their mission. Whilst it may look as though a charity that declares less than 10% goes on administration and fundraising is directing 90% to the cause, this does not indicate the 90% is necessarily used effectively. The cost of fundraising is largely determined by the lifestage of the not-for-profit and its fundraising mix. A charity that has a welldeveloped and successful bequest program will have a lower cost ratio than a charity that is investing in acquisition of new donors which inevitably have a far higher cost ratio but will deliver long term reliable income in the future. Indeed, many not-for-profits suffer from underinvestment in growing their fundraising income meaning they can help fewer people in the future. Like a commercial enterprise there is a need to continually invest to sustain fundraising growth. Not-for-profits can look to annual reports to provide some guidance on what is an acceptable cost ratio but they are of limited use in assessing cost effectiveness of fundraising activity. The way charities treat costs is different; the way charities treat income is different; reporting periods vary; reports are often nine months out of date when published and there is very little detail on fundraising performance. All of this makes it impossible for NFP leaders to set meaningful targets or track relative performance. New Research provides answers Currently the missing piece of evidence in all the conversations about cost ratios is what does the public think? A large survey conducted by More in August this year, finally provides the answer. Conducted across Australia with a robust, representative sample of 2,500 individuals (of which 80% were donors) the research provides vital insights into public knowledge and attitudes towards not-for-profit costs. More Strategic

4 Research Findings The public say how much gets there matters It is not a surprise to find that the proportion of funds that get to the cause is important to the public. In isolation, 84% of people say it is either a very important or extremely important factor when choosing to support a charity. When asked to rate various factors which may influence their decision to give, it ranked 4th behind the cause they address, knowing what the charity does and that they will have a tangible impact. How important is the amount that goes to the cause to you when choosing to support a charity? 50% 47% 45% 40% 37% 35% 30% 25% 20% 15% 10% 5% 8% 8% Unimportant Neither 1% 0% Not at all important Very important Extremely important Looking at the different audiences we see a near unanimous statement of its importance. And yet, when asked in groups or interviews to talk about a charity and why they support it almost no one mentions how important it is that most of the money gets there. This is because most donors make their choices based on their emotions and values not statistics and cost ratios. Donors choose to support charities for what they hope they will achieve, not how little they spend trying to achieve it. Ensuring a large proportion of your donation gets there is a category requirement. Donors expect every charity to fulfil that expectation. More Strategic 2013 Donors choose to support charities for what they hope they will achieve, not how little they spend trying to achieve it. 3

5 But they don t know how much it is Although people say that knowing how much of their donation goes to the cause is important, the majority do not actually know what proportion of their money gets to the cause. Only 4% of people actually claimed to know how much of the dollar gets there for the charities they support with just 14% having a good idea and 21% having a general idea. The majority either trust that it gets there or admit they don t know. Thinking about the charities you like to support, which of the following best describes what you know about the proportion of your donation that goes to the cause 38% 40% 35% 30% 25% 20% 15% 10% 5% 0% 23% 21% 14% 4% I know exactly I have a good idea I have a general how much goes to how much goes to idea of how much the cause the cause goes to the cause I trust that most I don't really know of it goes to the how much goes to cause the cause Again, it is not surprising, but the people who donate more claim to be better informed about how much goes to the cause with just over a third of those claiming to donate over $500 having an exact or good idea how much goes to the cause. Knowledge of where money goes by claimed donations over the past year 47% 50% 40% 19% 20% 10% 31% 28% 30% 2% 7% 23% 17% 17% Under $$50 9% Over $500 0% I know exactly I have a good I have a general I trust that I don't really how much goes idea how much idea of how most of it goes know how much to the cause goes to the much goes to to the cause goes to the cause the cause cause More Strategic

6 They think far more should get there than it does The big question then is how much do they think goes to the cause? We have already discovered that this is important but they are not well informed. However, the public have a strong opinion about how much goes to the cause and how much should go to the cause. Overall the public think that just 55 cents in the dollar gets to the cause. They believe this should be 88 cents. This is a significant expectations gap of 33 cents. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% When you give to charity what proportion of your donation do you think goes to / should go to the cause? 55% Goes to Cause 88% Should go to the cause As we know from most data analysis, looking at averages can be misleading. When we look at the distribution, we see that whilst 82% of people think that over 90 cents in the dollar should go to the cause, only 10% think it does. More Strategic

7 When you give to charity what proportion of your donation do you think should go to the cause? 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% Does Should 10.00% 0.00% Cents on the Dollar that goes to the cause Examining this data in more detail we see some interesting differences arise: People in South Australia think a little more goes to the cause than other states (SA 60 cents) Those who say they live their life in accordance with religious beliefs think more goes to the cause (60 cents in the dollar v 53 cents) Women believe marginally more gets to the cause than men (56 cents v 54 cents) Those under 24 think less goes to the cause than other age groups There was great consistency of view about how much should go to the cause, with only the strictly religious and city dwellers having lower expectations of the proportion that should go to the cause. Most significantly we see a difference in the amount people think goes to the cause dependant on how much they say they have donated in the past 12 months. Those who give more are more likely to say a higher proportion goes to the cause than the low or non-giving group. This fits with what many fundraisers have suspected claiming your money doesn t get there can be used as a justification for not giving. More Strategic

8 Comparison of amount that goes to the cause by amount donated in past 12 months 25% 20% 15% Under $100 10% Over $100 5% 0% Cents in the Dollar that goe to the cause Some interesting differences arise between people who give through different mechanisms and to different types of cause. In the past year in which of the following ways have you contributed to charities? 25% 20% Regular Givers 15% Mail donors Phone donors 10% Lottery players 5% All Donors 0% Regular givers and appeal donors were more likely to say a larger proportion goes to the cause. This is likely to be correlated with their higher giving value as well, hopefully, as receiving informative communications from the charities they support. More Strategic 2013 Cost ratios are not a determinant to giving but can be a deterrent 7

9 The rest is admin If the public think that, on average only 55 cents in the dollar is going to the cause, where do they think the rest is going? Within the not for profit sector we distinguish between administration and fundraising but the public do not. Nearly 50% of respondents described the remainder as going to administration. The diagram above is drawn to scale so, from the 2,100 comments, half were about administration and a quarter salaries, wages or staff. Only 38 people explicitly mentioned fundraising and a further 60 made comments about fundraising (collectors, commissions etc). People were more likely to mention in someone s pocket than fundraising. It could be argued that the public do not distinguish between fundraising and marketing and this would boost the combined fundraising, marketing and advertising to 300 comments from the 2,100 respondents When asked a series of attitudinal statements about charities 42% of the survey respondents agreed or strongly agreed that money that does not go to the cause is wasted. Perceptions of "waste" The money that does not go to the cause is "wasted" 2%14% 42% 30% 12% 0% 20% 40% 60% 80% 100% Strongly Disagree Disagree Neither Agree nor Disagree Agree Strongly Agree This is strongly related to their perceptions of how much goes to the cause with, 54% of who those believe that fewer than 60 cents in the dollar goes to cause agreeing or strongly agreeing that the rest is wasted, compared to 31% of those who think more than 60 cents in the dollar goes to the cause. More Strategic

10 Who is responsible? The public are largely uninformed and uninterested in regulation of NFP s. 60% believe NFP s are either self- regulated or not regulated at all. 70% were unable to name any regulatory bodies and although the Australian Charities and Not for Profit Commission registered a 12% awareness, so did Charities Australia which does not exist! However, whilst only 12% strongly agreed that better regulation would make charities more accountable a further 48% agreed with this statement. 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% How do you think charities are regulated at the moment? 39% 33% Voluntary self regulation By state government departments 29% By Federal departments 21% They are not More Strategic

11 Implications For the fundraising sector We need to shift the narrative in the media (and potentially amongst government regulators) away from using cost income ratios as a proxy indicator of charity effectiveness. It is too often used as a justification for not giving and as a tool to undermine the charity sector. In many ways people are focusing on the amount that gets there as an indicator of effectiveness in the absence of anything else. There is no accepted, comparable way of measuring the actual impact charities have on the causes they address. Our challenge then, is to help explain why investing in fundraising is important and helps not-for-profits to achieve the very outcomes people support with their donations. Explain why investing in fundraising is important and helps not-for-profits to achieve the very outcomes people support with their donations. At the very end of the survey we tested reframing some negatives about fundraising into positive expressions. Perhaps in tribute to Dan Pallotta whose inspiring presentation stimulated this work we should call this Pallottisation. Dan s compelling case for change in how not-for-profits are viewed, regulated and managed can be seen on Would you agree or disagree with the statements below about charities? The amount a charity spends on admin is a good indicator of how effective they are 23% 4% Charities should invest more in fundraising so they can raise more money to help more people 24% 4% Using my donation for fundraising multiplies my donation 19% 3% Agree Strongly agree Administration allows charities to run more efficiently 39% 4% 0% 20% 40% 60% When reframed we see that only 27% say administration costs are a good indicator of effectiveness and 43% agree that administration actually allows charities to run more efficiently. Even 22% recognise that using their money for fundraising acts as a multiplier, if only we could get more people to see the world this way! More Strategic

12 For Boards Charity Board members must also recognise that the real judgement of charity performance is the impact they have on the cause they serve. Board members should push for the same level of rigorous reporting that they quite rightly expect from fundraising in other parts of the organisation. Above all you need to resist the pressure from the media and regulators to join the race to declare ever lower costs of fundraising. Tracking your real cost ratios compared to other organisations will help make a more informed decision on investment. For CFO s and CEO s Not for profit leaders must continue to track a range of indicators of fundraising performance to broaden the focus beyond the cost of fundraising. Indicators such as return on labour, income mix, growth rates by activity, active donor numbers, percentage of donors with multiple Benchmark yourselves against others relationships and bequest lead conversion rates are all better indicators of long term fundraising sustainability. When reporting cost income ratio s internally use a range of versions, some that exclude the volatility of bequests or the high cost of lottery and sales, so you can see the underlying trends of your core fundraising programs. Benchmark yourselves against others so you can see if you are under investing. For Fundraisers Don t apologise: educate! All fundraising costs money and in today s ultra-competitive market it costs more to get less. Set realistic expectations of returns but demonstrate the three year value of any investments. Make sure you are looking at your lifetime value rather than individual campaign results. Don t be tempted to look for the quick marketing fix of hiding your costs or saying costs are covered by an investment or external funder as this further reinforces the notion that the costs are unimportant as opposed to the vital investment in delivering your mission. Don t apologise: educate More Strategic

13 More Cost Effectiveness Benchmarking We are embarking on an ambitious goal to help NFP leaders to make better informed decisions about fundraising investments by launching a comprehensive income, expenditure and salary cost benchmarking service. Using timely, granular and accurate financial information from your management accounts we will show you how you compare to industry averages, to other organisations and to recent trends. Are events growing? Are you investing enough in your fundraising staff? Are you getting a good return from corporate fundraising? Are you over reliant on bequests compared to others? The More cost effectiveness benchmark report will help you to: Know how well you we doing Set realistic budgets based on market data Identify areas where you are under performing Identify areas where you are under investing The More Benchmarks Report includes analysis of: Income by type of fundraising Expenditure by type of fundraising Gross and net income per head of population Cost income ratio by activity based on true costs Growth rates by type of fundraising Reliance on each type of fundraising Return on labour More Strategic

14 Real costs: the report is based on detailed management accounts submitted by each participating charity. Detailed instructions ensure we are comparing apples with apples. Granularity: income and expenditure is captured in 9 types of fundraising and 20 categories giving you the most detailed report on cost ratio s available. Anonymous: to encourage the most open reporting and participation results are all deidentified. No one but you will know your results. Annual: We will report results to participating NFP s every year so you can see how the market is evolving and how you are keeping up. Timely: We aim to release reports within 3-4 months of the year end giving a far quicker view of recent performance than annual reports. This data can then inform your next year budget process. Evolution: as the number of participants increases we will offer a more segmented breakdown of comparisons allowing you to track performance against other NFP s serving the same cause, in the same state or of a similar program size. To participate contact Martin Paul on or martin@morestrategic.com.au More Strategic

15 About More More is a specialist consultancy dedicated to helping not-for-profits achieve their mission. We ve worked with more than 100 organisations in Australia and New Zealand About to help More them get more people involved in their causes, raise more money, and change more About lives More for the better. More is a specialist consultancy dedicated to helping not-for-profits achieve their mission. We More understand is We ve a specialist worked how people consultancy with connect more than dedicated with 100 causes organisations to helping why not-for-profits they in Australia will give, and achieve volunteer, New their Zealand to advocate mission. help them or We ve change get more worked their people behaviour. with involved more than We re in their 100 building organisations causes, a wealth raise in more of Australia knowledge money, and and into New change what more motivates Zealand lives people for to help the to better. them act and get more we use people these involved insights in to their drive causes, your strategy. raise more money, and change more lives for the better. We understand how people connect with causes why they will give, volunteer, advocate About We understand the or Author change how their people behaviour. connect We re with building causes a why wealth they of will knowledge give, volunteer, into what motivates advocate people or change to act their and behaviour. we use these We re insights building to drive a wealth your of strategy. knowledge into Martin what Paul motivates is one people of Australia s to act and most we experienced use these insights and respected to drive not your for strategy. profit consultants. He has a great interest in the numbers behind fundraising and frequently About undertakes the Author benchmarking studies for clients. Having worked for leading not-for-profits such About as the the Cancer Author Council NSW, Heart Foundation and WWF Martin is well aware of Martin the challenges Paul is one facing of Australia s fundraisers. most The experienced creation of this and service respected is a not combination for profit of consultants. Martin s love Paul He of is numbers, has one a of great Australia s fascination interest most in with the experienced public numbers perceptions behind and respected fundraising and deep not and desire for profit frequently to ensure undertakes the consultants. fundraising benchmarking He sector has thrives. a great studies interest for clients. in the numbers Having worked behind for fundraising leading not-for-profits and such frequently as the Cancer undertakes Council benchmarking NSW, Heart studies Foundation for clients. and WWF Having Martin worked is well for leading aware of the not-for-profits challenges facing such as fundraisers. the Cancer The Council creation NSW, of this Heart service Foundation is a combination and WWF of Martin s love is well of numbers, aware of the fascination challenges with facing public fundraisers. perceptions The and creation deep desire of this to ensure the service fundraising a combination sector thrives. of Martin s love of numbers, fascination with public perceptions and deep desire to ensure the fundraising sector thrives. More Strategic 2013