Donations: Putting Your Money to Work

Many large nonprofit humanitarian organizations are fortunate enough to receive donations that cover their costs as well as pay employee salaries. While this is great for the organization, it isn’t necessarily ideal for donors because a major portion of your gift is paying for prime Manhattan office space or the CEOs salary.

One common metric used to evaluate nonprofits is called the program ratio, which is the percentage of an organization’s total expenditures that is devoted to programs and services. If as an organization you spend $80 to buy food for resettled refugees, and then pay people $20 to to hand it out – your program service ratio is 80% ($80 / ($80 + $20)). While not a perfect measuring stick, the program ratio is a decent gauge for the efficiency of a charity or non-profit.
Smaller organizations tend to have higher program ratios than larger organizations because larger nonprofits require a greater level of organization and administration. Let’s take a look at some examples of how some donations were used:

American Red Cross

In 2009, the American Red Cross took in about $3.3 billion. That year they spent a total of $3.4 billion in all: $1.7 billion (50%) on salaries and compensation, $600 million (12%) on “other expenses,” and the other $1.1 billion (33%) directly on programs. If you count salaries of employees as program expenses then their ratio was a very handsome 91%, but if you don’t, the ratio drops to about 33%. (Form 990)

MSF

MSF Financials

Medecins sans Frontiers, or Doctors without Borders, is an apolitical organization that seeks solely to provide medical care to those in dire need, not only those who are in need on the news. Although they are a smaller organization, their finances are more focused on the end beneficiary rather than the middle man. They took in $143 million in 2009, spent a total of $145 million: $112 million on programs (77%), $13 million on salaries and compensation (9%), $18 million on fundraising (13%), and $2.2 million on management and general (1.5%). Any way you look at it, at least 77% of the donations go directly to those in need. (Form 990)

Ascovime USA

Ascovime is small and entirely composed of volunteers so we have no administrative costs or salaries to pay out. In fact, Dr. Bwelle spends most of his salary to keep Ascovime going. 97% of donations go directly to program costs and Paypal gets their 3% cut, so ideally send a check to cut out that middle man. (Donate here) 

I’m not advocating for or against making a charitable donation, but merely trying to present what happens to the impact of your donation as the receiving organization increases with size.  Next time you consider making a donation to any organization, think about giving to smaller, local organizations because they will use more of your money to directly help the cause, whatever it may be.

Further reading

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