“Misconception No. 4: Low administrative costs are a good indicator of the quality of the organization.”
So begins a post by Saundra Schimmelpfennig about misconceptions created by charity websites. Maybe you have noticed this phenomenon. Many organizations tout only 1% administrative and fundraising costs on their donation pages. One of the reasons for this is that charity rating websites like GuideStar and Charity Navigator highly value bare minimum “administrative expenses”. (SIA is not eligible to be reviewed by Charity Navigator because they only review organizations that raise at least $500,000 in public support per year.)
Clearly low administrative costs are attractive to donors. But, a 2009 report from several charity watchdog organizations has these words of warning: “In short, picking a charity based on the lowest overhead ratio is like buying the cheapest car that money can buy. You might spend less in the short run but it’s inevitably going to let you down.”
For one thing, looking only at administrative costs means that donors are not looking at the impact of the organization’s programs.
Think of it this way: If a soup kitchen has low administrative costs but lets its food sit and rot, have they used their money effectively? Paying someone to oversee the volunteer chefs may be a much better use of donor funds than just buying food!
Schimmelpfennig’s blog post calls on nonprofits to do something new: “Instead of focusing on low administrative costs, share information on the importance of those costs.”
Let’s consider the administrative costs at Spirit in Action. Our annual budget is about $45,000 and my salary (as the sole employee, hired part-time) was just under $22,000 last year. We spent about $1,250 on printing and photocopying costs.
But what does that get you? Quite a lot of “bang for your buck” as they say in Minnesota!
- About 65% of my day is spent on purely programmatic activities. Those administrative hours go to writing letters to international partners, reviewing grant applications, following up on previous grants, and working with the grassroots organizations to refine their local programs. Without administrative costs, who would be in charge of building these relationships and refining grant proposals for the SIA Board?
- The semi-annual SIA Newsletter accounts for almost 100% of the printing costs. From the feedback I get from you, this is a very important part of keeping our supporters informed. Without the newsletter how would you hear about our progress and learn about new projects?
- Spending money on things like a website and updating office software means that we are investing in the long-term effectiveness of Spirit in Action. An old laptop might be cheaper but if I waste hours waiting for websites to load, is that effective?
- Our international SIA Small Business Fund coordinators are all volunteers in their countries. An important part of my job is to make sure they have the information and support they need to effectively train the new business leaders who receive our small business grants.
In summary, we take our work very seriously. We reduce overhead costs when we can (like not paying for an office space, for example) but SIA has also recognized the value of having a paid administrator. I am so blessed to feel appreciated and supported by the SIA Board as I work on behalf of them and you to strengthen our worldwide network and continue to evaluate how we can best empower people around the world through thoughtful assistance.
Do you buy my evaluation? Does this bring up more questions for you? I’d love to hear what you think about charities and administrative costs – post your comments below!