I know, I know… Dan Pallota thinks charities need a defense council to inform the public that administrative costs are a necessary part of a nonprofit structure. He wants supporters to accept that fact and understand that they must pay for their favorite charity's administrative costs.
If you don't know Dan, he gave us all a jolt in his famous TedTalk in which he discussed the need to defend the nonprofit sector. Throughout his presentation, he basically said supporters need to recognize that a nonprofit's administrative costs should be paid for by donors and donors should accept that fact.
I was very excited when I first saw that video. But then I started feeling a nagging discomfort about it. I couldn’t put my finger on it for a while. But now I’m convinced that Dan's call for a defense of administrative costs simply won't work. Donors won't accept the concept. They just won’t.
And, finally, I believe some smart folks at the University of California, San Diego (Uri Gneezy, Elizabeth Keenan, and Ayelet Gneezy) might have support for my discomfort.
They sent 4 appeals to a rented list of 40,000 people. Here are the results:
Appeal #1 – Described the project
Appeal #2 – Described the project and mentioned that a donor already gave seed money ($10,000) to support it
Appeal #3 – Same as #2 but offered a 1-to-1 match up to $10,000
Appeal #4 – Said a donor already gave “a grant in the amount of $10,000 to cover all the overhead costs associated with raising the needed donations.”
Even though #2, #3 and #4 are basically the same, which appeal won? #4!
And, not only did it win, but it crushed the others garnering a response rate that was nearly 3 times better than the control with gift amounts almost 17% higher. And, compared with #2 and #3, although there was no sizable increase in gift amounts, the response rate for #4 (the grant appeal) were almost double compared with both of the others.
What does this mean?
I'm reading between the lines thinking that supporters don't want to pay for administrative costs. They do, however, like when others pay for them entirely.
In other words, they don’t really want to see the sausages get made and they don’t want to pay for the costs of making them. They just want to eat it and they just want the sausages to taste good!
I like what Dan is saying but I don't think we will ever be able to convince donors that they need to understand all of this stuff. You just can’t push it on them. Most of them just don't want their donations to pay for overhead. They don't want to be bothered with our drama. They just want to give and see results from their gifts.
A bit frustrating, right? So what should we do?
Here's an idea:
- Take unrestricted gifts. Put them in an endowment. Manage the endowment well. Use the revenue from the growth/interest to fund administrative costs.
- Get more money to grow the endowment and your nonprofit's administrative costs. Tell supporters what you are doing. Invite some to help further the funding of administrative costs.
- Maybe even change your donation form to suggest a "tip" (the same way we tip waiters at restaurants). The suggested contribution to overhead costs is 15% but give the donor the choice to select from the following:
- 100% supports administrative costs
- 50% supports administrative costs
- 25% supports administrative costs
- 20% supports administrative costs
- 15% supports administrative costs
- 10% supports administrative costs
- 5% supports administrative costs
- Other %______
- No contribution to administrative costs
Crazy or creative?
