I do think you misread Sean, by the way. Like me, he acknowledges that the fundraising/overhead ratios have SOME use - that when they are really excessively high, that is often (though not necessarily, as I explain) telling you that you’re dealing with essentially a fraud charity. I just think that the people who would even consider giving to a fraud charity are people whose donations aren’t going to accomplish much regardless, and that there is a much larger issue here with the overuse of these ratios (the distinction between ** and **** charities) that does serious damage to teh sector. On balance, we’d rather scrap it all.

I’d classify charities under two basic types:

1. Well-meaning, hard-working charities that primarily want to improve the world and waste as little money as possible.

2. Charities that primarily exist to pay their own salaries or stay in business just for the sake of it, and are not making a good faith effort to use their resources responsibly.

I put it to you that most charities fall under (1), and that anyone falling into (2) preys on a particular kind of donor: uncritical, reactive, prone to giving in response to a letter or a phone call without thinking critically.

Looking for truly *excessive* fundraising/overhead ratios will distinguish #1 from #2; it just can’t help you find the best of #1. The issue with this is that:

-Finding the best of #1 is 10,000x as important as distinguishing between #1 and #2, in terms of impact. This is because charities almost invariably work on extremely complex and difficult issues, from the achievement gap to saving lives in foreign cultures - where, just as in business - having good intentions and spending money responsibly really guarantees nothing at all about getting results.

-Using the fundraising/overhead ratios to find the best of #1 will lead you not just astray but BACKWARDS. This is because solving tough problems requires great people, great technology, and self-evaluation - all “overhead.” This is not a made-up/conceptual problem; as our research at givewell.net should show, there is a major shortage of self-evaluation and learning capacity in the sector, and the mentality behind the metrics we’re discussing is a major factor.

-All that said, IF we could get people to just use the fundraising/overhead ratios appropriately - to discard the worst charities (0 stars on Charity Navigator) without distinguishing between the best (2-4 stars), there would be a benefit relative to not using these ratios at all. How big would the benefit be? I say absolutely miniscule. The kind of person who would even consider a #2-type charity is the same kind of person who is least likely to perform this check.

To summarize: the real issue with the fundraising/overhead ratios is not that people use them at all, but that they overuse them. The issue is that they look at them well past the point of usefulness, distinguishing a charity that spends 15% on fundraising from one that spends 10%, when really what they should be doing is the hard work of figuring out which one spends the money on MORE EFFECTIVE STRATEGIES and actually helps people. This is a huge problem, and to my mind, the easiest way to fix it is to stop using these ratios altogether.

However, if we could somehow get people to use the ratios ONLY for the right purpose, there would be a tiny, tiny benefit relative to scrapping them altogether. I don’t find that worth it. I think the priority is to stop nitpicking charities’ balance sheets and start examining what they do and whether it works.

First, context. I am not a fundraiser; I am a donor who became so frustrated with the over-focus on this ratio - which I believe has been at the expense of real charity evaluation - that I left my job to do evaluation as I think it should be done. I have no ulterior motives and I have a very strong understanding of the technical issues.

You are wrong in a simple, trivial way; you are also wrong in a more complex, important way.

THE SIMPLE, TRIVIAL WAY:

Imagine that you donate $100 to a charity that gives out protective bednets. The charity then gives you two options:

1. We can spend all $100 on bednets.

2. We can spend $75 of your $100 on a fundraising campaign. The campaign will raise $150. We will then spend all $175 on bednets.

Which would you choose? According to you, you’d choose #1.

Granted, there are some reasons to be suspicious of #2. You COULD argue that raising money from others shouldn’t be counted as “new money,” because they might have given it to another charity. And you COULD argue that a charity with an unusually high fundraising expense ratio is unusually inefficient. But you could also argue that high fundraising expenses simply mean a charity is wringing money out of a particularly tough-to-reach donor base - the equivalent of drilling for oil in an expensive area, while others are doing it in a cheap area. As long as the oil’s worth more than it costs to drill for it, it really doesn’t matter.

You just don’t know. The fundraising expense ratio doesn’t tell you. It’s like looking at how much of a company’s revenue is spent on the costs of producing that revenue (i.e., the profit margin) - an obviously meaningless number. A retailer like Wal-Mart has very thin margins because it does a lot of volume; a luxury good company has higher margins and lower sales. So what.

I only commented on the fundraising ratio, because it is easiest to understand and most obvious. The fundraising ratio is the amount paid to solicit funds. Some non profits hire professionals to make phone calls, and the telemarketer receives up to 90% of the amount received. You may very well choose to ignore that, but to say Google should not provide it to donors seems nonsensical and to borrow your phrase, a step backward.

As a donor, I am always interested in how much of my donation has been spent in getting me to contribute. If you honestly think that a non profit paying its telemarketing staff 70% or 90% of the amount raised is not relevant, then I am a bit surprised, but at least I understand we have an honest disagreement rather than a misunderstanding. Still, I would think you would want other donors who do care about it to have access to the information.

Regarding the administrative and program expense ratios, based on the criticisms I have read, I am confident most of the people critical of their use are either consultants or fundraisers, or do not understand how they are calculated. For instance, people have commented that computer systems and expensive executives directly cause the administrative expense ratio to increase, and that is flat wrong, from an accounting standpoint. Fundraising should be a simpler cost to understand.

Good day.

Ranking nonprofits based on expense ratios is kind of like ranking cars on the cost per pound. A very high cost per pound may very well indicate that you are paying too much for the car. But it is by no means a metric to use as your primary indicator of a car’s value.

You originally wrote: Displaying ratios imply that the ratio should be high or low, but very few ratios in the nonprofit world are all that relevant.

I replied that the fundraising expense ratio is in some cases very relevant.

You respond by stating those are charities very few people have heard of. Charities spending over 70% on professional fundraisers have raised hundreds of millions of dolllars. You may not have heard of them, but to want to ignore them seems irresponsible, to me anyway. Cheers!

But Charity Navigator says that only 2% of the charities they rate get zero stars. As far as I can tell, no well known, national organizations have zero or 1 stars. So for most people who search CN, they will only run across 3, 4 and 5 rated charities. The problem with this is it implies to donors that a 5 star rated charity is better than a 3 star. I think this is simple wrong.

In the for-profit world, high operating margins (low overhead expenses) are considered a good thing. But no one suggests that they even come close to a top priority when evaluating a company.

I simply don’t think that CN’s worst lists are very important. For the most part they list organizations that no one’s heard of. If CN billed themselves as a group that revealed scam nonprofits I would think they were great. But they bill themselves as a comprehensive evaluator and offer a ranking system that labels 5,000 nonprofits as being better or worse than each other even though the metric they use is uncorrelated with the actual impact that the nonprofits are having on the world.

And, yes, a link to networkforgood would be nice.

I would like to better understand why the fundraising expense ratio is such a bad metric. I have read many posts on nonprofit blogs that describe it as useless, but have yet to see a single charity identified as being inappropriately wasteful based on this metric.

I would like to see one or two dozen charities with fundrasing expense ratios in excess of 35% that are considered very effective, excluding new charities or ones with such expenses paid by a single supportive donor. Perhaps some charities listed on one of Charity Navigator’s “worst 10″ lists which are actually effective. Considering the huge amount of negative attention this metric receives, I would guess examples abound.

Thank you.