Barbara O’Reilly, CFRE, Founder and Principal, Windmill Hill Consulting
“Public trust is the currency of the nonprofit sector” so states Independent Sector’s reports on Trust in Civil Society. Tracking trends in giving and donor retention is one thing. But what drives giving? Trust in the sector and, more importantly, in organizations. That said, it’s not that simple to correlate. Giving in the U.S. has continued to climb each year yet donor trust levels have remained stagnant or slightly declined.
What are we seeing?
At a macro level, the 2022 Edeleman Trust Barometer showed that trust in NGOs rose in sixteen of twenty-seven countries from 2021-2022. Many surveyed saw the nonprofit sector as the solution to filling gaps governments can’t fill. Nonprofits were often ranked higher in trustworthiness than governments and businesses. Although some might argue that’s a pretty low bar.
Independent Sector’s 2022 Trust is Civil Society report showed that trust levels declined from 59% in 2020 to 56% in 2022. Not a huge number but statistically significant and a trend to watch. Communicating clear organizational mission and impact remain the key conditions to improve trust levels.
Even the recently released BBB Wise Giving Alliance’s Donor Trust Report showed that over the last five years, donor trust has remained relatively steady. And, interestingly, the importance of trusting a charity before making a gift has been slowly declining but is still is a strong factor for donors in higher giving brackets, older generations (Boomers and Matures), and who are white. Donor trust was directly tied to how well donors think an organization is using their gifts. In fact, the top reason for mistrust cited in the BBB WGA report was charity finances—clarity how the money is being used and that dreaded “O” word—overhead.
Somehow, we just can’t shake the Overhead Myth.
There’s been quite a bit written and discussed about the Overhead Myth. The unintended consequence is that the measure of nonprofit performance still too often gets stuck on financials which we know is only one part of the story of an organization’s effectiveness.
It’s a vicious cycle of charities’ fear of disapproval pressuring them to cater to public prejudices (like lowering overhead, keeping salaries down, low investment in fundraising and marketing expenditures). The more the charities lower these costs, the less able they are to educate the public about the good work they are actually doing; hire and retain the number and quality of staff; ensure operational infrastructure to support their programs. The nonprofit won’t likely have cash reserves to protect against risks, or to respond to opportunities in a strategic way that moves their mission forward.
Despite this constant focus on administrative expenses, a study found that while donors “feel” that nonprofits spend far too much on administrative costs. When pressed further, they don’t actually know what “too much” means. In this study, participants believed 19% was an acceptable “overhead.” But the organizations they cited as ones they support all had administrative costs higher than the 19% benchmark they found acceptable. Yes, a nonprofit’s financial management is important. But donors don’t really know how much is the right amount.
The irony is that when the full cost of a nonprofit’s program is not met—communities pay the price because it leads to compromised or interrupted effectiveness which is the exact opposite of the main driver of donor intention. Then donor expectations might not be met leading to broken trust and so the cycle continues.
Donors want their gifts to matter and help fuel important work. But too often they don’t know how their gifts are making a difference. If declining donor retention rates are showing, nonprofits have more room to improve their donor communications so that donors better understand their mission, programs, challenges, and the role philanthropy plays in their vision.
Here’s where giving and trust overlap. Many studies show that donor trust is strongest when donors know the mission and impact of an organization. If donors feel satisfied that their gift has made a difference, they will trust the nonprofit more and chances are they will continue giving. Better communication can lead to increased trust and probably increased donor retention at a minimum.
How can your nonprofit build, maintain, or restore their donors’ confidence?
- Look internally to ensure that you are positioned for social sector excellence. High performance results when an organization focuses on effective leadership, operational results, regular performance monitoring and making course corrections when necessary. In fact, part of Charity Navigator’s rating formula evaluates these very aspects of fiscal management, operational excellence and good governance. Understand how these areas are measured and reported on your 990. Lean on the twenty BBB Standards for Charity Accountability which serve as a useful framework for all aspects of organizational effectiveness.
- Change the conversation. Share your vision and plans for the future. Celebrate successes and be honest about challenges and how you are addressing them. Quantify results and impact both in numbers and stories. Report back to your donors often and clearly through stories and impact updates. Your donors are wondering not only if you received their gift, but, more importantly, if it was helpful to your work. If donors see visible results, then their question moves from “How much does your overhead cost?” to “How much do good outcomes cost?”
Donor trust should never be assumed. It’s earned. While you may not be able to shift your donors from restricting their gifts to specific programs, you can inspire greater investment by positioning everything you need to continue to do your work well—from vision to staff to resources.