In a blog post a few months ago, Getting Past the Overhead Ratio, I wrote:
If we in the nonprofit sector want to bust the overhead myth and bring attention to the things that really matter, then it’s our responsibility to take the lead by communicating differently and better. In order to take that lead, don’t wait for the question to come in and then argue why the ratio isn’t important or meaningful. We have to replace it.
I got emails and comments from many of you agreeing with the post, and thanking me for being a part of the chorus of voices spreading this message.
And then I got this question (paraphrased.) “Thanks for the great post! Since we agree that overhead is not the best way to measure nonprofits, how should we craft a simple charity rating?”
Oops. When I suggested that “we have to replace it,” my intent wasn’t to suggest an equally simplistic alternative. The idea of a universal measure is tempting, though. If only we had a standard Return on Investment (ROI) measure, or a “cost of outcomes” calculation to compare, right?
Since many of the arguments for the nonprofit sector to develop standard measures for comparison come from the “nonprofits should be more like business” advocates, I thought I’d test this. I posed this question to a few people who work in the investment field, “I have some money to invest. What is a simple measure for me to know if something is a good investment?”
Each of them responded with pesky questions, like, “what is your goal?,” and “how much risk do you want to take?.” To each, I replied that I didn’t want to answer their questions. “I just want the simple measure to use for any investment.” To that, I got the same response, “But there is no simple measure. There’s nothing simple about it. It all depends.”
I shared the simplest answer I have for getting past the overhead ratio in this Question and Answer in the business section of the Star Tribune:
Q: What should individual donors consider when they assess where their charitable dollars go?
A: For me it boils down to three questions: Do you care about the cause or the mission that the nonprofit is addressing; does the information you have give you confidence that the nonprofit is effective in their work; and do you believe that the people leading the nonprofit are capable and trustworthy?
As I wrote in the earlier post, it’s our responsibility to take the lead by communicating differently and better, and how we do that depends on what’s important to each organization and its stakeholders. How would your supporters answer the question about how to assess where their charitable dollars go?