How do you know if you should donate to a nonprofit?

You want to know if your donation to a nonprofit is worth giving up your hard-earned cash. I know many people who have given, then regretted it. Since you want to donate but don’t know where to start, let’s take a closer look at what you can do to give responsibly.

Don’t buy the “overhead spending” myth

Low overhead is not necessarily the best indicator of an organization’s effectiveness or efficiency, though it is certainly the most pervasive. Many factors, including geography, services offered, and longevity, impact overhead costs, making some nonprofits more expensive to run than others. Sure, Generic Hunger Org may only have a 5% overhead but does that mean it’s the best charity out here tackling hunger issues? Unlikely. Let’s all agree to stop believing the “overhead myth” and focus on what matters. To understand a nonprofit’s impact, indicators such as transparency and impact are more important than a few extra percent being spent on better tools and better talent.

And yet, a recent study by BBB Wise Giving Alliance found that about 46% of donors “base their trust in a nonprofit on its finances”, while only 11% of donors focus on results.  [46% of donors focus on finances as a barometer of trust, while only 11% focus on results]

Do your research

Now that you aren’t solely focused on overhead costs, how do you know if a nonprofit is good? My advice: do a little digging.

  • A quick online search will tell you if a nonprofit has been the subject of controversy. The continuously controversial Susan G. Komen Foundation and the Red Cross both come to mind. You can find examples of praise just as easily.
  • Look them up on a evaluator site, but proceed with caution. Many of these sites (e.g. Charity Navigator, Guidestar, GiveWell, Charity Watch, to name a few), still rely on financial information to rate nonprofits. I won’t get into the specifics of how each one rates and reviews nonprofits,which varies quite a bit. Have a look, but with a grain of salt.
  • Find out if an independent third party has evaluated the nonprofit for effectiveness. [flesh out]
  • Ask your friends. When I worked in the public sector, I always had friends and family asking me about this or that nonprofit and I was happy to give advice. Don’t be shy!
  • Volunteer first if you can! Several years ago I volunteered for a hunger relief organization. In the following years, I kept abreast of the work they were doing and the impact they have on the community. Once I was a bit older (and had a little extra money), I started donating and now I give a monthly gift. This approach isn’t for everyone, but great if you can do it!