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Low overhead does not mean that a charity is more effective

“The very first precondition for being an effective giver is giving to effective organizations or organizations on the pathway to effectiveness,” says Lowell Weiss, president of Cascade Philanthropy Advisors. Unfortunately, one of the most common measures of nonprofit effectiveness is nearly meaningless. See how he suggests finding great nonprofits instead.

The most common mistake in evaluating a nonprofit

We are often giving to organizations that have very little basis for knowing whether they are making a real difference in the world beyond basic anecdotal levels. Better tools for evaluating effectiveness are starting to be developed, and I’m quite optimistic that 10 years from now, 15 years from now, we will have good ones. But today, people look at proxies. They assume that an overhead ratio is a proxy for effectiveness. It is not.

How should we define effectiveness?

The definition I use is one put forward by the Leap Ambassadors Community, a learning community of nonprofit thought leaders and practitioners: the ability to deliver over a prolonged period of time meaningful, measurable, and financially sustainable results for the people or causes the organization is in existence to serve.

Why that definition means higher overhead can be a good thing

If I know that an organization has 20% overhead, that tells me absolutely nothing about how effective that organization is [in achieving its mission]. Some missions require a greater overhead, a greater percentage of their resources going into overhead. Overhead is important for developing great leaders and managers as well as the systems I look for when I’m doing due diligence on prospective grantees for my clients. I would be so excited to find that they have good information and systems to know whether they’re really making a difference and to keep getting better over time. Leadership development and those information systems are overhead. They cost money. I don’t want to count those investments against them; I want to count that for them.

What makes the great nonprofits easier to find: focusing and going deep

Most donors are trying to give across more areas than the Gates family. If you’re giving in a scattershot way across many different issue areas, you’re really not going to have much of a basis for knowing who the really effective organizations in those areas are. It’s just inherently unsatisfying. What are the strategies that seem to be the most promising? You don’t know whether you’re making a good decision or not. That’s just not a good psychological feeling. I think it’s very, very important for people to do some learning, to be engaged at some level in those gifts. The more exposure you can get to both the issue areas you care about and the organizations you want to support, the better. [That] is also a recipe not only for effective giving, but it’s also a recipe for joyful experience in giving. Just writing a check doesn’t produce the brain chemicals that equate with joy. You need to see your gift in action and see how that organization uses those resources to improve the lives of its beneficiaries to have a chance to get joy, meaning, and purpose from giving.

Using not only your treasure, but also your time and talent

The people who get the most joy out of their giving are people who really have the benefit of seeing that their efforts are making a difference. And it’s eye-opening for people to see that who they are and what they know can be every bit as important as, and maybe more so than, how much money they have to give. It opens the world up for donors when they realize there are ways in which their rolodex, networks, business relationships, social relationships, political connections, and more can be enormously helpful in leveraging the gifts that they give. When you can use all three—time, talent, and treasure—that really opens up some great possibilities.