Can Transparency Increase Non-Profit Donations?
The Nonprofit Finance Fund reports in their 2015 Survey that 52% of nonprofits couldn’t meet the demand for their services. According to the same survey, 53% of nonprofits only have three months or less of cash on hand. The top three challenges for nonprofits are: achieving long-term stability, the ability to offer competitive pay and/or retain staff, and raising enough funding to cover their costs. The biggest problem that nonprofits have in achieving their mission is funding.
This problem is exacerbated due to cuts in nonprofit funding from the national, state, and local governments which have long been a major source of financing for nonprofit organizations. Seventy two percent of organizations report that government funding/contracts have either stayed the same, or decreased, as a percentage of their total revenue. This has forced nonprofits to increase their reliance on individual donations.
The recent Cancer Fund of America scandal, in which a cancer charity fundraiser misused $187 million in donations on items such as luxury cars, vacations, concert tickets, etc., has only made the public more skeptical of nonprofit organizations. People increasingly fear that their donations will not be used in an organization’s mission, but instead to make an executive richer. All of this means that nonprofit organizations have to be smarter when it comes to raising funds and soliciting donations.
To identify how charities can increase donations, the authors created three different messages requesting donations. The first was modeled after current approaches, a generic plea letter which asked people to donate to an organization. A second message which was constructed by modifying the first, explained how money spent on administration is important to fulfilling an organization’s mission. A third message was similarly created by modifying the first which asked individuals to donate to a specific program, rather than an organization as a whole. The modifications reflected the concerns of consumers expressed in pre-testing which asked about motivations and considerations when donating to charity.
To assess the effectiveness of the three messages, the researchers created a survey that first asked individuals to rank five real nonprofits (Goodwill, United Way, Salvation Army, YMCA, and St. Jude Children’s Research Hospital) from their favorite to their least favorite. The individuals were then randomly presented with one of the messages (generic, administration focused, or program focused) from the organization they ranked third. Individuals read the message and then reported how much money they would donate to the organization. Participants also answered a number of questions about their past donations to charities and provided demographic information.
The results revealed that consumers who at least sometimes donate to charities were likely to donate more when presented with a message that included information about how administration costs are essential to the charity accomplishing its mission, or when presented with a message about how donations would be given to one specific program, compared to the standard charitable messaging request currently used.
IMPLICATIONS & CONCLUSIONS
This result shows that by being more transparent, nonprofit groups may be able to generate trust from the public and increase the amount of donations they receive from regular donors. Given the decrease in government support for nonprofits, regular donors are more important than ever to a nonprofit organization being able to fund and fulfill its mission and so this result could potentially be very helpful to nonprofit organizations. Specifically, the authors suspect that individuals donated more money when presented with the program specific plea because they were more confident that their money was being used for a specific purpose and not being misused by an executive. A plea that explained the administration’s cost likely generated an increase in donations because individuals were more likely to trust an organization that was transparent with where the donated money was doing, and reassuring to the donators that their money was not going to be misused.
The fact that the mean for the administration’s explanation plea is higher than the program mean is particularly interesting and useful. One of the problems with program specific pleas is that the money donated is what is known as “restricted funds,” which means that it can’t be used for any other purpose. This creates problems for nonprofits both with increased accounting fees, and doesn’t allow them to shift these funds to where they may be needed should the problem the organization is attempting to solve change. The funds from the administrative plea are “unrestricted,” which means the organization can spend them in ways they think are best, and are thus more useful to the organization. That is what makes the administrative result so interesting because anything that can increase unrestricted funding is particularly valuable to a nonprofit organization.
The authors suggest that nonprofits can further this experiment by testing further methods of being transparent with the public. For example, a nonprofit organization has to fi le a yearly 990 form with the IRS that reports, among other things, the salaries of the organization’s top executives. While this information can be found, nonprofits don’t typically post these fi ling on their website or make the information easy to discover. What if a nonprofit included this information in its donation requests along with information explaining and justifying it? Further study along these lines may reveal more ways to efficiently raise money in the future.