What is a good expense ratio for a charity?
For charities, a good expense ratio, particularly the program expense ratio, is generally considered to be 65% or higher, with 70% or more being a strong indicator of efficient spending on the core mission.
Here’s a breakdown:
This ratio measures the percentage of expenses spent on the charity’s core mission and direct services.
- A ratio of 65% or higher is widely considered good, with 85% and above being excellent.
- Charity Navigator, a leading charity watchdog, gives full credit to organizations with a program expense ratio of 70% or more.
- Other agencies, like the Better Business Bureau’s Wise Giving Alliance, recommend a ratio of 65% or higher.
This ratio measures the effectiveness of fundraising efforts by comparing total contributions to fundraising expenses.
- A fundraising efficiency ratio greater than 1 means the charity is raising more than it spends on fundraising.
- The higher the ratio, the more efficient the fundraising programs are.
This ratio measures the percentage of a charity’s budget that goes to expenses not directly related to the mission, such as fundraising, accounting, and salaries.
- Nonprofits typically have overhead ratios around 20%.
- The Better Business Bureau uses 35% or less as a marker.
This ratio measures an organization’s ability to cover its short-term liabilities with its short-term assets.
- A current ratio above 1 indicates that your nonprofit has more current assets than liabilities, which is generally considered healthy.
This ratio measures how much unrestricted cash a nonprofit has relative to its average monthly expenses.
- A higher ratio means the organization has more cash on hand to cover unexpected expenses.
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What percentage of charity money goes to the cause?
On average, a significant portion of charitable donations, roughly 60-85%, goes directly to supporting the cause or mission of the organization. The remaining portion covers administrative costs, fundraising, and other operational expenses.
Here’s a more detailed breakdown:
Program Expenses:
Charities allocate a substantial portion of their budget to program expenses, which include direct services, grants, and other activities that directly address their mission.
Administrative Expenses:
These include salaries, office space, utilities, and other costs necessary for running the organization.
Fundraising Expenses:
Some charities spend a significant portion of their budget on fundraising activities to raise awareness and secure donations.
Factors Affecting the Percentage:
Charity Type:
The percentage of donations going to the cause can vary based on the type of charity (e.g., large national organizations vs. smaller local groups).
Organizational Size:
Larger organizations may have a higher percentage of expenses allocated to administration and fundraising due to the complexity of their operations.
Operational Efficiency:
Charities that are more efficient in their operations and fundraising efforts may be able to allocate a larger percentage of donations to their cause.
Where to Find More Information:
Charity Navigator:
This website provides ratings and information on charities, including their program and fundraising expense ratios.