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Why Administrative Costs Can't Tell You Much about a Charity

This is an excerpt from our Smart Giving e-newsletter. Smart Giving is CanadaHelps' e-newsletter series that helps donors make better decisions about their charitable giving. We look at how to choose the right charity, understanding administrative and fundraising expenses, how much to give, and more. Every 2 weeks, subscribers receive a new set of tips and information to make your giving easier and have more impact. Subscribe to Smart Giving HERE.

The statement above is a controversial one, and counter to what many think about charities. Many, including media and charity evaluation services, look to how much a charity spends on administration as that the golden standard for judging a charity's worth. Donors, perhaps you, always want to know how much of their donation "goes to the cause vs. administration." While this measure is easy to calculate, it actually doesn't reveal much about the work a charity is doing or the impact it's having.

Here's an example, adapted from Uncharitable by Dan Pallotta, to illustrate this point:

Imagine that you were deciding to give to either Soup Kitchen A or Soup Kitchen B. When looking at their numbers, you see that A spends 10% on administration, and B spends 40% on administration. Should you automatically click Donate Now on Soup Kitchen A's website?

What if you dig further and find out that Soup Kitchen B serves healthy, balanced meals in a bright and inviting space? Further, B spends more on salaries and has low staff turnover. This has led to ongoing relationships with clients and a long-term connection to other social services in the community. This month alone they helped place a struggling family into affordable housing, helped a young man with mental health issues access the care he needed, and welcomed back a former client as a volunteer. In researching Soup Kitchen A, you learn that they serve unhealthy meals in a dingy space with little contact between staff and clients.

Now where do you think your money is better spent?

We're not saying that balance sheets aren't an important part of the process of selecting a cause to give to, but "How much is spent on administration?" shouldn't be the first question you ask. Instead, ask: "How effective is this charity at accomplishing their mission?"

At CanadaHelps, we firmly believe that donors and potential donors should be looking first at impact, not administrative spending when deciding which charity to support. Ask yourself what you are trying to do with your money, what you're hoping to accomplish, and then seek out a charity that is achieving that goal.

Let us know what you think at www.facebook.org/canadahelps.

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