theoryLooking at the annual reports from big “nonprofit” organizations, such as the Catholic Church, Emergency, Wikimedia Foundation, I see that a non-marginal percentage of raised funds are spent for fundraising and general management, in some kind of autoimmune way. Is this something which can’t be avoided? Are there more efficient models which can be implemented to reduce this drag?
It's a useful question and up there with others like, why don't nonprofits conduct mergers and acquisitions to gain scale and improve productivity?
A great deal of the inefficiency in non-governmental and non-profit organisations (NGOs/NPOs) comes from their indirect nature of business. The people who pay for the product or service (the donors) are not the people who receive the product/service. This makes it difficult to assess how much it "should" cost to deliver these things. Moral hazard comes into play as well; if no-one can tell then there is little incentive to improve and, often, an opportunity to be a bit "wasteful".
A project I ran in South Africa looked at rating individual NPOs relative to each other for a fixed basket of services. One of the ones we selected was the care of AIDS orphans. The variance in cost per child was large and, as you've mentioned in your question, much of the difference was down to administration and the cost of fundraising.
Comparisons and ratings do help to create transparency, but the pressure to improve efficiency will only follow if donors choose to give their money only to well-rated agencies.
In the US Charity Navigator rates charities. Guidestar rates in the UK and a few other countries. There are others, but be aware that many "ratings" agencies are actually fund-raisers in disguise and contribute to those high above-the-line costs.
These are all voluntary ratings. It would be helpful if NPOs looking to raise funds were rated independently much as bond-sellers are required to do.
Until then, the inefficiency is exactly as one would expect in such a market.
Take a look at this transcript of Tyler Cowen's interview with philosopher Peter Singer. There's also a video version. The section on zero-overhead giving has some neat ideas and discussions of issues like the trade-off between overhead and evaluation. The cost of the fundraising dinner might look like a giant waste, but if it generates a stream of continuing donations over time, it might be a reasonable one to bear. Without evaluation, which is itself expensive overhead, we will never know.
Here's a couple of other data points from an experiment done by John List and his co-authors. The found that lotteries were the most productive type of fundraising (both in terms of what fraction of approached people contributed and how much they contributed), compared to voluntary contributions with and without seed money. Lotteries have higher overhead since you have to give out prize money. They also found that the attractiveness of the female solicitor improved the success of fundraising, at least among the male donors (in participation decision). If you believe Daniel Hamermesh's results, attractive people earn more, so they would also cost more to hire.
The other issue is that it takes a lot of human capital to run an organization capably. NPOs compete with the FPOs for this talent. Obviously someone might be willing to accept a smaller salary in order to spend their time helping people and there are non-pecuniary lifestyle considerations as well, but NPOs have to absorb some of that opportunity cost to stay competitive.
In the end, I guess this is really an empirical issue. It it better to raise 100K with 80K in overhead or is it better to raise 10k with 1K overhead?
All content is licensed under CC BY-SA 3.0.