There’s a fundamental tension in the way we do philanthropy. It lurks in the background, hoping not to be noticed. It’s that dreaded word: overhead.
There’s a tension between donors, who want as much of their money as possible to go to the cause, and the overhead that’s necessary to grow the organization and raise more money.
But, see, we’ve been coming at it all wrong. Low overhead isn’t a matter of getting rid of the coffee machine in the office and firing half your staff. That’s a surface solution to a much deeper problem. We need to get to the source.
On the one hand, it’s reasonable for people who are giving their hard earned money to a cause to expect that it will go towards helping people. There’s plenty of worthy places those dollars could end up, and paying for your office’s toilet paper isn’t at the top of their list.
On the other hand, there’s a lot to be said for the return on investment (ROI) that comes with spending some overhead. Proponents of this view, like Dan Pallotta, argue that spending money to attract top talent, run extensive marketing campaigns, and spread awareness, are all worthwhile investments. Businesses understand that reinvesting profits intelligently provides greater returns. Pallotta argues that charities should do the same.
But the donors and those running the charity want the same thing, don’t they? Everyone is in this to help the cause, right? So why can’t they just get along?
But where does my money go?
It’s a fundamental tension in philanthropy: When you give to charity, you are trading your money for the knowledge that you’ve made a direct impact on the world.
Donations aren’t profits to be reinvested. They aren’t unconditional money. They’re dollars with a specific purpose. A charity campaign stating, “We’re raising money to help us raise more money to cure cancer”, probably wouldn’t appeal to most people.
Take the following example: If I give $100 to a charity and they reinvest the entire sum to convince my neighbour to donate $107, is that a good thing? There’s been a net drain on society of $207, yet the charity only has $107 to show for it. I could have walked over there and convinced him to donate myself. I don’t feel like that was money well spent.
Compare that to the business world. If I purchase $100 worth of product from a company and they reinvest all the profits into marketing to sell $107 of product to my neighbour, is that a good thing? This time, it seems that it is. My neighbour got something he values at over $107 (otherwise, he wouldn’t have bought it) and the company make additional revenues.
Two approaches to overhead costs
I’ve seen two innovative strategies to deal with this problem. The first allows 100% of donations to be put to good use. The second creates a giving situation where the donor doesn’t mind overhead.
The first is a technique pioneered by charity:water. They pull no overhead from public donations; instead they raise funds for overhead completely separately from their main campaigns. With two completely separate bank accounts, overhead costs are covered by foundations and established donors, while the general public is assured that 100% of their donated funds go directly to creating change and saving lives.
The second strategy is to create mutually beneficial deals so that donors aren’t bothered by overhead. As discussed earlier, most charitable giving is the exchange of money for change. But, in certain situations, charities can create an offer where the donor is benefiting enough personally that the philanthropy is just the icing on the cake. I participated in a charity baseball tournament last year that was so much fun, it justified the $100 entrance fee. If the bulk of that sum went towards administrative and advertising costs, I’d be disappointed, but it wouldn’t stop me from playing again this year. The transaction was mutually beneficial. The charitable giving was a bonus.
The latter is our approach at GiveGetWin. We run charity deals where an established company or expert donates their product or service. We then sell that product to someone who would find it desirable at a discounted price, with all the proceeds going to charity. The provider gets a chance to be put before a new fan base and the buyers get great value. Above and beyond helping change the world, all the involved parties benefit tremendously.
These aren’t bulletproof solutions, because they require a lot of additional effort and work. It means either getting great incentives and experiences over and above the charity aspect (which is time-consuming) or managing effectively two very different fundraising initiatives, and the accounting and details that come with it.
Is the extra work worth it? Well, think for yourself. Your donors support you out of strong empathy for your cause. How empathetic are you being towards their needs?
Zach Obront is the head of recruitment at GiveGetWin, a growing non-profit dedicated to funding developmental initiatives in Mongolia while bringing rational solutions to philanthropy’s biggest problems. He also runs a blog where he rambles about entrepreneurship, psychology and history. He likes Stoicism and good mexican food.