Ratios are Ridiculous!

Picture this.  You’re sitting around with your colleagues in the conference room and the “boss” tells everyone that they have to figure out what percentage of the newsletter or the latest appeal can be “counted” as education because your fundraising ratios are too high.

So you all sit around arguing about this and that until someone in the room finally feels good about the outcome…3 hours later.

I’ve been in those kinds of meetings…and I would say they are about as close to hell as it comes.

And why do these meetings take place every day in non-profits around our country?  Because somebody, or some group of people, somewhere at some time decided that a low overhead/fundraising ratio meant that you had the greatest non-profit ever.

We all know this is a bunch of crap.  And, like we really believe it when some organization states that 99% of donations go directly to program.  Yeah, right.  Talk about creative accounting.  It’s time to put an end to this game we’ve all been playing and get real.

I’m sensing in our profession that ratios are starting to lose steam.  I mean, last week I think I read five or six tweets or blogs that talked about how donors now care about results and outcomes.  “Donors want to see results!”  “Donors are hungry to see outcomes.”  These are the types of headlines I’m reading almost every week.

The Hewlett Foundation wrote a massive white paper on donors wanting to see outcomes and impact a couple of years ago.

Even watchdog groups are starting to move beyond overhead costs.  Amazing!

And it’s true.  The donors I talk to, especially major donors, want to know what the impact their gift has had and how it has made a difference.

But here is what I’m concerned about.

While the “talk” is moving in the right direction, I still haven’t seen the action.  When I talk to groups about moving from ratios to results, I see a lot of nodding heads and mouthing of “yes” in the audience, but I wonder if they really understand what they are saying yes to.

I can imagine the cheering to get rid of ratios, but a complete non-awareness of what “reporting on results” actually will mean for their non-profit.

My brother-in-law is the president of a software company that helps non-profits measure impact.  (Yeah, it’s weird.  My whole family works with non-profits.)  He’s been at it for years.  In the beginning they started by trying to sell directly to non-profits, but sales were tanking.

They finally realized that they needed to sell directly to foundations and major donors who would stipulate that whoever received a grant from them had to use the software to measure the impact…and their sales started to take off.

Now, that’s great for him and his company…but I think it’s embarrassing for our industry.

See what’s happening?  Only when DONORS “forced” non-profits to use the outcome-based reporting software, did the non-profit actually use it.

I’ll let you in on a secret.  If you can get your non-profit to be PROACTIVE and start measuring outcomes, results and impact, you will be positioned to attract major donors who are starting to demand it with their investments.  YOU will have a competitive advantage if you ACT now and start getting serious about changing your culture of RATIOS.

Don’t wait for your donors to demand it from you.

You need to realize though, that this will come at a cost.  It takes personnel, time and energy to start evaluating the impact of the work you do.  But that’s the way it should be.  And really, shouldn’t you WANT to know what the impact is?

Be ahead of your competition.  Start measuring and reporting on the impact of the work you do and communicate it to your donors.  You’ll be way ahead of others in our industry.

At the very least, you’ve got to stop those stupid three-hour meetings about which article in your newsletter should be attributed to education…please.

Jeff Schreifels

Hey, follow me on Twitter  @jschreifels

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About Jeff Schreifels and Richard Perry

Jeff Schreifels and Richard Perry have over 55 years of experience fundraising for non-profits. Richard Perry was co-owner of Domain Group until 2005. Jeff Schreifels was a Senior Strategist for Domain Group for 12 years. They came together a few years ago to start Veritus Group, a full-service major gift fundraising agency. Veritus Group has a unique, data-driven approach unlike any agency focused on major gifts. Jeff and Richard are passionate about their work, passionate about life and hopes this blog will provide you with insights and tangible benefits for you and your work. Thank you for reading!
This entry was posted in Development Directors, Donor-Centered, Impact, Major Gift Officers, Major Gifts, Mission, Non-Profits, Philanthopy and tagged , , , , , , , , , . Bookmark the permalink.

4 Responses to Ratios are Ridiculous!

  1. The nonprofit world is so mixed, your case here needs to be refined. In-kind charities use the ratio marketing ploy to great effect (when 99%of “revenue” is in-kind, one can spend 100% of cash raised on overhead and still have an “overhead” of less than 1%). Other variables that mess with the ratios are government vs. private funding, social service vs. the arts, and so on.The charities that especially get the screws applied on overhead are the social service providers, those without the luxury of having all-in natural constituencies who give for the joy of the tribe (higher education, hospitals). In the end, outcomes do matter, but the major gifts mostly happen because of relationships and donor commitment. Look at the admission recently by Bill Gates that his $5 billion devoted to curbing the high school dropout rate was a complete waste — no results. Hardly even any editorial response. And we all keep going somehow.

  2. James, you make my point even more. Those ratios of 99% going to program are bogus and doesn’t mean a thing. And, major donors understand that. Yes, it’s about relationships and donor commitment, however if you don’t have results to back up the relationships, donors will flee. Results plus relationships = success.

    I know, the Gates thing is a learning moment for us all in the non-profit world. Gates was right to fund the project. He took a risk. Love that. Businesses do it all the time and most of their R and D results in failure. So, this failed because results were bad. Fine, he doesn’t continue funding it. Then he learns from it and moves on to something that will eventually work. If you don’t get good results, you won’t get funded…even if Bill is your best friend. But the great donors are those that understand that and don’t punish the non-profit world for trying new things.

    Jeff

  3. Agreed. Thanks. It is a privilege to interact here. You do know your domain, for sure.

    I am asking, you are not promoting — what IS the name of your brother-in-law’s outcomes measurement software company? I’ve been looking at a few, but they seem too big/expensive for small charities.

  4. James it’s called Newdea. http://www.newdea.com And, their pricing model is extremely attractive for small non-profits.

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