FOOL ON THE HILL
It's the Results, Stupid!

Too often we focus on numbers when evaluating charities -- specifically, what percent of the donations is spent on program work or fundraising. Instead, focus on what's being done with all of those dollars. In charitable work, as well as in investments, the ultimate results matter most.

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By Selena Maranjian (TMF Selena)
December 17, 2002

[First, let me apologize for calling you stupid in the headline. Odds are, you're not stupid at all. And if this article is successful, you'll even be a smidgeon smarter after reading it. Now, without further ado...]

I've noticed that enlightenment often comes in waves, taking you -- every now and then -- to a new level. For example, you might first learn to use a computer just to access email. Later, you discover the Internet. Then, a few months later, you learn to download MP3 music files. Alternatively, you might know nothing about investing, and then learn about blue chip stocks, followed by mutual funds, before arriving at the beauty of index funds.

It's the same in the world of charitable donations. At first, you might just give to the charities that mail you requests for money. Then, when you get too much mail, you might only give to the outfits that seem most inspiring. Later, you learn the trick of digging for a few key numbers, such as the percentage of donations spent on fundraising. We're often taught to do so, and that the lower the number, the better.

I'm here to challenge that notion, though, and to offer instead a better way of thinking about a charitable organization's effectiveness. I'm here to take you to a new level, by pointing out that what really matters is... the return on your money. The results. (It's the same with investing -- how much you make on your investment, percentage-wise, is what should count the most, not how low the share purchase price was or how long you held your shares.)

Focus on the results
Imagine that you're looking into donating to two organizations that support causes you fervently believe in: the Wigs for Pigs Project and the Hats for Cats Foundation. Let's say the two charities spend their donated dollars in the following ways:

                Projects   Fundraising   Administration
Wigs for Pigs      75%         15%            10%
Hats for Cats      85%          5%            10%

Now, looking at the data above, many people would be confident that Hats for Cats is the more efficient organization. Stop and think a little more, though. Do the numbers above really tell us what each spent dollar achieves? No.

Perhaps Wigs for Pigs generates $3 in additional donations for every dollar it spends on fundraising. If so, we shouldn't be so quick to begrudge it that spending. If your entire $100 donation went into its fundraising efforts, it would result in $300 in donations. That's kind of a good thing, isn't it?

Administrative spending is also often evaluated imperfectly. Not all organizations are the same size, and not all require the same amount of labor to operate at maximum efficiency. If a small charity has two and a quarter employees, costing it a total of $100,000 (including overhead expenses), and it takes in $1 million in donations per year, then it's spending 10% on administration and overhead. That might seem like a lot next to a charity that spends only 5%, but everything is relative. That other charity might take in $200 million per year and spend $10 million on administration and overhead. As an organization ramps up in size, it's often able to enjoy some economies of scale.

Finally, when you look at how much a charity spends on projects -- on its core mission, again look beyond the percentage of funds spent. Instead, try to figure out what is being accomplished with each dollar. If Hats for Cats spends a whopping 85% of donations on project work, that might seem terrific, but perhaps it's using that money to buy $100 hats, when $12.50 hats are available. If the organization were more efficient, it could serve eight times as many cats.

Foolanthropy returns
Since we're in the thick of our annual Foolanthropy charity drive, I thought it would be fitting to review each of our five featured charities to check out their meaningful numbers. (In addition to the information below, I invite you to spend a few more minutes learning a little more about the organizations on our main Foolanthropy page. I suspect you'll be very impressed.)

America's Second Harvest

  • Every $1 America's Second Harvest receives helps secure and distribute 28 pounds of groceries -- nearly six grocery bags -- to people in need across America.

  • Every $4.33 donated helps the organization feed a child for one month.

  • Over 200 food banks and food rescue programs make up the America's Second Harvest network across the country. They, in turn, distribute donated food through more than 50,000 charitable agencies that serve Americans facing hunger in all 50 states and Puerto Rico.

Ashoka

  • Investing a total of approximately $11,000 over three years, Ashoka enabled Jeroo Billimoria to launch Childline, India's first 24-hour emergency telephone hotline for street children. They also receive follow-up support services, such as police assistance and health care. Launched in Mumbai (Bombay), Childline has answered more than 2 million calls and directly provided assistance to more than 26,000 children over the past four years. Ashoka's investment amounts to a mere $0.42 per child. The model has spread to 38 cities nationally. Within 10 years, Jeroo plans to replicate it in 158 cities in India and Asia.

  • For about $50,000, Ashoka helped Rodrigo Baggio accelerate the growth of his Committee to Democratize Information Technology (CDI), a network of 480 self-managed computer schools in the urban slums of 19 states throughout Brazil. He has trained more than 90,000 students (who might have otherwise turned to drug trafficking and violence). CDI has opened 39 computer training schools in Angola, Argentina, Chile, Colombia, Guatemala, Honduras, Japan, Mexico, South Africa, and Uruguay with partners such as Microsoft, Starmedia, the InterAmerican Development Bank, UNESCO, and UNICEF. Ashoka's investment amounts to $0.55 per student!

  • Investing about $30,000, Ashoka helped Mary Allegretti save more than 9 million acres of the Amazon Rain Forest in Brazil -- that's less than a penny per acre. She developed the first system of extractive reserves by setting aside areas for jungle dwellers whose livelihood depends on the forest. By encouraging sustainable use of the tropical forest, the plan has also benefited more than 70,000 rubber tappers and 200,000 native inhabitants in the rain forest.

Grameen Foundation USA

  • For every $1 spent on fundraising in 2001, Grameen Foundation USA raised more than $15.

  • In developing countries, loans average $100 and are recirculated every six months. This means that for every $1,000 of new financing Grameen Foundation USA provides in a poor nation, 20 women and their families receive loans each year -- as many as 200 families over a 10-year period. This is a highly leveraged philanthropic investment!

Heifer International

  • It costs Heifer $700 in animals and training to make a family of five or six people self-reliant for food and income. This is a worldwide average -- in the U.S., it would cost much more, and in many places, such as Burkina Faso, much less.

  • For every dollar spent on fundraising, Heifer conservatively estimates a return of $4.

  • Heirfer recipients commit to "pass on" their gift to others in need, thus spreading self-reliance even farther. (For example, recipients of an ox will give away its first female offspring.) On average, there are six pass-ons after each original gift animal, an amazing ripple effect that potentially lifts around 30 to 36 more people out of poverty.

Lifewater International

  • Five dollars will provide a person in the rural developing world with a lifetime of safe, clean drinking water. Twenty five dollars provides a family of five with fresh, clean drinking water for life. With a pledge of $25 a month for a year (that's a total of $300, or $0.82 a day, or $5.77 a week), you can provide a lifetime of clean water to 12 families (60 men, women, and children).

  • Offering water from your toilet bowl would be a cleaner alternative than what 1.1 billion people must drink daily. Clean water dramatically reverses the death rate of children in a community, since nearly 80% of all diseases that kill children are caused by a lack of safe drinking water, not by a lack of food or medicine.

  • A person in the U.S. can expect to pay about $500 to obtain a 20-year supply of water (not counting the effects of inflation). The United Nations estimates that providing water for one village in a developing country costs $50 per person for a lifetime. However, Lifewater surpasses the U.N.'s estimates, accomplishing this same goal for one-tenth the cost: $5 per person.

Not bad, eh?
Impressed? I thought so. Even considering the numbers above, though, remember that few measures are easy to interpret. For example, if a charity does most of its work in developing countries, a dollar will go much farther there than it will for a charity operating mainly in America. Also, definitions may vary when different organizations present numbers indicating the effectiveness of their fundraising spending.

Please take a little time to learn more about these organizations and to consider donating a little something (or a lot!) to them via our Foolanthropy drive. Together, we've raised several million and have saved many lives in the past. From now on, whenever you're checking out a charity, don't just look at what percent it spends on this or that -- instead, try to determine what's being achieved with that money. Some of the best charitable organizations will likely be happy to answer your questions.

Happy holidays, everyone!

At Selena Maranjian's potluck dinners, guests have had to order pizza. For more about her, view her profile. You might also be interested in books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools