What Percentage of My Donation Goes to Funding Operating Expenses of the Charitable Organization?

Recently, one of my friends and I were talking about several issues related to charitable donations. At one point during the conversation, she mentioned that every time she donates money, she always wonders what percent of her donations go to fund operating and fundraising expenses that charitable organizations incur.

It then dawned on me that in my previous post about donating money to charity (see link below), I discussed many topics related to donations such as the reasons/benefits, how to find worthwhile causes, and recommended donation quantities. However, I accidentally excluded the operating expense aspect of charitable donations. This topic will be the subject of today’s post.

My Money Blog – Donating Money

To begin, let’s review the basics.

What are charitable organization operating expenses? What do they include?


Essentially, operating expenses are any expenditure that the charitable organization pays for that does not directly relate to funding programs in support of the principle operating purpose of the organization. This also includes expenses relating to raising additional funds (aka fundraising).

For example, the following expenses would be operating expenses for the National MS Society (I am planning to do the MS150 bike event in Virginia this year):

  • Expenses for running the annual MS 150 bike events held throughout the country. This is fundraising.
  • Salaries for employees.
  • Administrative expenses – electricity bills for their office buildings, cars for the Society, travel expenses, printing paper, computers, etc.
The following expenses would not be considered operating expenses for the MS Society:
  • Running clinical trials for a new compound aimed at preventing the myelia degradation that causes multiple sclerosis.
  • Patient support programs.

What percent of funds typically goes to supporting operating expenses within these organizations?


By doing a quick Google.com search, I found the article at the link below about charity operating expenses. In the article, it states that many organizations now use approximately 50% of their funds for operating expenses. This is quite high! Furthermore, it states that the best quality organizations use 20% or less of their funds for these non-program related expenses.

Charitable Organization Operating Expenses

Armed with this guideline of the top-notch charities using 20% or less of funds received for operating expenses, we can then apply this in an attempt to evaluate the organizations to which we donate.

How to find out the percent of your money going to operating expenses in the organization you have chosen?

While knowing these general % levels is good, what really matters to us are the specifics of the organizations we have selected to donate money to. Luckily, there is a very good resource to use for finding out how much your selected organization spends on operating expenses.

The resource is Charity Navigator, and it can be found at the link below. After clicking on the link, type in the name of your organization in the search bar near the top of the page, and you can access all of the operating details of the organization in the blink of an eye.

Charity Navigator

As an example, let’s see how several of the organizations to which I have recently donated measure up. To determine the total % of funds committed to operating expenses, just add up the “fundraising expenses” and “administrative expenses” percentages listed under the “Organizational Efficiency” header. You can also view the percent of funds that go towards the charity’s intended programs.

The total operating expenses % for each of my recent charities are shown in the table below:

As we can see in the table, the way funds are used varies pretty significantly between organizations. However, all of them (with the exception of Goodwill) are under 30%, meaning that they are run responsibly, but not in a stellar manner, judging by the 20% criterion from above.

Use this same sort of approach to evaluate the charities that you support. I would suggest that if they commit more than 40% of your funds to operating expenses, you probably want to look for another organization.

Remember, there are MANY great causes out there!

Keep on learning!

Jacob

To receive updates on topics such as this one as soon as they are published, click on the link below to subscribe to My Money Blog:

Subscribe to My Money Blog via Email

Comments

  1. Goodwill is an interesting example to add in to the mix, seeing that their operating costs are part of their charity (giving jobs and job training to some who normally wouldn’t be able to work)

  2. agreed! they have a different sort of operating model!

  3. Alan Hostetler says:

    It’s important to note too that you really want to see an organization that is fiscally responsible, and having too little administrative cost can be a bad thing as well. For example, if not enough time and money are spent on oversight of the financial process, it could lead to errors or fraud in the organization. So if you’re considering making large donations to an organization, it may also be a good idea to request a copy of the audited financial statements, which would give you a more complete picture of the organization’s finances and where your money is going. Often, these financial statements as well as the form 990 are available online at Guidestar.org, or you can always request them from the organization directly.

  4. Anonymous says:

    awesome advice! Thanks Alan!

Speak Your Mind

*

CommentLuv badge