Variations in Overhead and Fundraising Efficiency Measures

Abstract

The desire of individual donors and institutional funders to know how their money is spent, along with the increasing availability of financial information on nonprofit organizations has increased the use and abuse of financial measures of nonprofit efficiency. We focus on two measures: the proportion of budget spent on non-program expenses and the ratio of fundraising expenses to contributions. We hypothesize variations in these measures by organizational size, age, and subsector, and we test these hypothesis with data reported by the organizations to the Internal Revenue Service. We conclude that the ratio measures vary by organizational characteristics, a factor both widely cited by watchdog groups and overlooked by agents that attempt to apply the measures to nonprofit organizations without regard for systematic variation. We also conclude that other basic factors besides size, age, and subsector are important in explaining the relative efficiencies of nonprofit organizations.