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Good News, Bad News on Donor Perceptions of Fundraising Costs

The average American believes that it’s reasonable for charities to spend 23 cents out of every dollar raised on fundraising and administrative costs. Unfortunately, the average American also believes that charities actually spend 37 cents out of every dollar raised on such costs.

That 14-cent difference is just one of the curious results from a new study, Where’d My Money Go, conducted by Grey Matter Research about how Americans perceive the amount of money spent by charities on overhead costs versus programs and services. The study asked participants to answer two questions: what do you think is reasonable for charities to spend on overhead costs, and what do you think they actually spend on overhead costs.

Some of the results from the study are quite positive. The 23-cent figure is a higher number that is often given in media stories and is realistically comparable with some charities’ actual costs. “Often, we read about donors and others expecting overhead costs of five percent or lower,” said Andrew Watt, FInstF, president and CEO of AFP. “While many still believe that, it’s clear that overall expectations about fundraising costs are much more varied than is often portrayed.”

According to the survey, while 18 percent of donors believe that overhead costs of more than nine cents on the dollar is too much , an equal percentage believe that overhead costs of 40 cents on the dollar is reasonable as well.

The National Center for Charitable Statistics and the Center on Philanthropy at Indiana University, as part of the Nonprofit Overhead Cost Project, found that average fundraising and administrative costs for most organizations, grouped into subsectors, tend to fall in the 20 – 28 percent range.

Reasonable vs. Expectations

On the other hand, while respondents seem to have diverse opinions on what is reasonable in terms of overhead costs, their perceptions on what charities actually spends is much more pessimistic.

More than a third of respondents believe that charities spend more than half of their funds raised on fundraising and administrative costs. In addition, when comparing respondents’ two questions, the survey found that 62 believe that what charities spend on fundraising and administrative costs is unreasonable.

In comparison, 25 percent feel that the average charity spends what is reasonable, and 13 percent believe that charities actually spend less than what is reasonable.

“Many donors still believe that charities don’t do a good job at containing costs, and this study is a reminder that we have much work to do in terms of educating the public about costs and what fundraising and administrative expenses help us do,” said Watt.

What do the Figures Mean?

While the figures show a varied and complex picture of donor attitudes towards charity overhead costs, it’s not clear if the results indicate any trends in donor behavior. Ironically, those respondents who gave more to charities were more likely to believe charities spend more than what they think is reasonable on overhead expenses.

Ron Sellers, president of Grey Matter Research, likens this finding to the feeling that some people have about politicians.  “Consumer behavior is rarely straightforward,” Sellers said in a press release about the findings.  “It’s entirely possible that someone could have concerns about overspending by non-profits, but find a few organizations about which they don’t have that concern.  It would be much like someone who thinks most politicians are crooks finding a candidate they feel is honest – the contrast could make their support of that candidate especially enthusiastic.”

That type of behavior—and general negative perception of the sector and how it handles costs—doesn’t bode well for the charitable sector overall, and Watt stresses the importance charities need to place on educating donors and the public about fundraising and administrative costs. “Donors are becoming more sophisticated about costs, and there is growing research that investments in technology, resources and what we typically refer to as ‘overhead’ help charities in the long run and make them more effective and efficient. We can’t be afraid to address these issues head-on, and I believe donors will appreciate understanding more clearly what part of their money goes to fund.”

About the Study

The study was conducted by Grey Matter Research, a research and consumer insights company located in Phoenix, Ariz. The sample of 1,011 adults is accurate to within ±3.1 percentage points at the 95 percent confidence level with a 50 percent response distribution.

The study was conducted in all 50 states.  Respondents’ age, education, household income, geography, racial/ethnic background, and gender were carefully tracked and weighted to ensure appropriate representation and accuracy.

The full report examines these comparisons by a variety of demographic, religious, and political groups, as well as comparing the findings to the 2008 study.  Where’d My Money Go? is available by request from Grey Matter Research by emailing ron@greymatterresearch.com



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