Charities selling the costs of administration

To charities I say this, when it comes to selling the public on the costs of administration it is all in the way you sell the message and the openness in which you report on it.

Following on from a previous blog on ‘Donations to charities spent on administration‘ in response to the Courier Mail article on ‘New website set to expose charities spending upwards of 60 percent of donations on administrative costs‘. I have been asked, how should charities sell the costs of administration This is something worth particular consideration given the establishment of the Australian Charities and Not-For-Profits Commission.  An editorial appearing today on the Courier Mail website supports the greater transparency this Commission will bring.

I think you have to take the emotion from the debate  in order to find the answer.  If you look at a business it is accountable to its shareholders / investors.  For a charity those shareholders / investors are those that have donated money, be they government, corporates or individuals.  Be upfront on reporting the costs of doing business and show the returns.  Where the business investors care mostly about the cash don’t necessarily have a tie to the product or service, in the case of a charity you can harness that emotion to show the great work being done.

If I were operating a charity who was not generating anything like the revenue being achieved via donations by those shown on the list in the Courier Mail article – I would be concerned.  The more relevant story to the thousands of other charities not mentioned is, you ate not spending enough on administration (that includes communications and marketing) to generate the returns.  I know any number of charities who are lucky to generate 2-3% of their revenue from fundraising.  They rely heavily on government and seek to cut administration costs and put every dollar into services.  The problem here is that there is no money being set aside to guarantee their long term future.  There is no marketing to generate funds from other sources.  Any business which relies on its income from one source is permanently on shaky ground.  If you are in the disability sector where a national disability insurance scheme is to be brought in and funding given to people with disabilities to choose where to spend it, then you are on even shakier ground without alternative revenue streams aside from government.

Marketing can often be a dirty word – it is one of the administration costs of fundraising.  Some organisations may try to classify it differently because marketing has a much broader reach than being just to generate dollars.  But nevertheless there is some cost in this area.  There is nothing wrong with this.

For means of a comparison let’s have a look at large iconic Australian brand that everyone understands.  Qantas, according to their most recent annual report spend $626 million on ‘marketing and selling’  I am not sure whether this includes staff costs.  That is from a total expenditure of $14 458 million they spend 4.3% on marketing (many charities would be lucky to spend 0.5% on marketing – making it hard for people to find them all the charities and donate).  Now when you add in the other areas which could be classified as administration costs for the organisation, you find another $4652 million spent by Qantas.  In total 37% of expenditure by Qantas is on ‘administration’.  Give it the context of Qantas consistently spending this kind of money for many many years and particularly for newer charities or organisations which are dispersed because of the territory they cover, you can see that you might have to spend a greater percentage to ensure reasonable returns.

My point is that if Qantas spends 37% on administration, is it unreasonable for some charities to have to spend almost double to ensure their existence?  If they are still generating a return and spending the money to bolster administration to assure a viable long term future, do you not have to think as an investor that this makes sense.

Let me give this debate on spending v return one more bit of context.  If you as a donor think of  a donation as an investment in the future of a charity and its ability to continue to provide services, you start thinking about the impact of your dollar in a different light.  So for example, 60% of your donation / investment is in supporting the infrastructure to not just provide services now, but to help ensure a future by amongst other things, encouraging more donations.  From a charities perspective, the article suggests spending $6 to generate an additional $4 is an outrage.  While I have already given you the Qantas example, try this one for something even closer to home.  You put your $6 in a savings account and in 12 months you might have made an additional $0.42.  I would say the guaranteed additional $4 is looking pretty good – not to say it can’t be better, but hardly worth being upset one.

Part of the problem here is what gets classified as administration.  It is always hard to be concrete about what is and out not to mention that this will vary from one organisation to the next because of different setups / services / circumstances etc.  If the organisation is transparent about what it is including then this should not be an issue.

My tips for charities are:
  1. Put the cause first – be clear about what you do and who benefits
  2. Provide a clear and transparent annual report breaking down figures as much as possible
  3. Be open about promoting administrative costs, but give it commentary and therefore context (if you were names in the list it should be easy for you stand up and say that information is on our website and we explain our costs).  Think of it as infrastructure that encourages more donations as well providing the support for the organisation to continue to grow.
  4. While the act of giving to a charity is often emotional, you must convey that in order for your charity to survive it must operate to some extent like a business
  5. Invest in professional communications and marketing expertise to guide you so that your messages are being delivered to key audiences with understanding and consistency.
CommTogether is here to assist and many of our clients are in the not-for-profiit / NGO / charity sector.  We understand the issues and we can help.

Finally on this debate, can I suggest that people are not comparing charities.  You give to a cause because you have a reason to do so that is usually personal.  Charity X is usually not competing with charity Y for your dollar – you know who you want to give to and me telling you how good another charity is will not evoke the same emotional response.  The sooner charities understand this and become more transparent the better off they will be.  Charities might even be able to work together and share some administration costs and make that story about costs even better to tell.

CommTogether is a communications and marketing consultancy striving to help charities / NGO / nonprofit / not-for-profit organisations and businesses be more competitive through quality communications.  We believe we can make a difference.  If you have a charity or business for that matter who you are concerned is not sending clear messages out to their public, please ask them to contact us or drop us a line with your story.