100% Fundraising Expenses

Some what apropos of my post on mandatory salary caps for executives of non-profits is a post by Dan Pallotta on the Harvard Business Review blog in which he makes suggestions that would likely see government entities really start screaming.

Palotta advocates for salaries of non-profit staffs on par with those of for profit businesses. But the bulk of the post is spent on the premise that low fund raising expenditures are actually inhibiting charities from doing the most good. His argument is that instead of touting 10%-15% expenditures on fund raising and remaining too small to make a big impact on a problem, charities should be spending 50%-100% on fund raising.

“The less an organization invests in fundraising the less it can grow. The less it can grow the more human suffering persists. We have institutionalized a mechanism for insuring the persistence of human suffering and called it “charity.”


“If we are serious about the value of human life, then we have to start thinking about 50 to 100% fundraising rates for the organizations chartered to save human lives. Those organizations should take no pride in telling donors or anyone else how low their fundraising costs are. Quite the opposite. I want to support the organization that’s going for scale, not the one that’s stuck where it is. Why would I support a cancer organization promoting its low fundraising investment while cancer remains uncured? We have the whole reward system backwards.

(Qualification: I’m not sanctioning inefficiency. That’s a completely different conversation. Everything I’m advocating assumes maximum efficiency.)

What we are doing is not working. A world in which 10 to 15% fundraising ratios are the norm is a world in which our charities are woefully too small to confront social problems on any meaningful scale. It’s a world where growth occurs – if it occurs at all – at the pace of molasses — the pace of death — and where human suffering continues on an unimaginable scale with no end in sight.”

If you are like me and you are thinking if an organization is spending 100% of the money it raises on raising more money then no one is getting cured, then you are absolutely correct. That is exactly what he is proposing. Presumably, you would use all that money to find a new way to convince people to donate since you wouldn’t have any examples of those whom you have helped.

If you read down into the comments section where Pallotta responds to some of the questions, you get a little more detail. Addressing the idea that the fund raiser never gets around to doing anything, Pallota says,

“Think of it this way. Humanitarian organizations regularly engage in certain activities – a direct-mail campaign – designed to acquire new donors. Sometimes those campaigns can go for several years running 100% costs. But then comes the pay-off – huge fundraising databases with no new expense associated with them You turn that engine on and then you start producing revenues for programs and for the cause at volumes many, many times larger than you could have if you never made the investment and never tolerated the 100% cost ratios for a certain period of time. Understand? “

In response to the question posed by a commenter named Shaun, who asks “who wants to be the person who gives money just to solicit more money?” Pollota answers, “Think of it this way: if I told you your dollar could go directly to the needy, or that it could go to an ad campaign that would generate ten dollars for the needy, which would you choose?” To which another commenter, RachelAC, replies, “I might prefer that my $1 go to the needy now, rather than $10 going to the needy in five years.”

I think RachelAC’s response expresses the crux of the matter for me. In an ideal situation, Pallota’s approach works. But my concern is that the fund raising entity gets so enthralled by their success in raising money, that they never stop and fund the solution. As RachelAC implies, in many situations the dollar today can make a difference where the $10 comes too late. Though granted, whenever a solution to a massive problem comes, it arrives just moments too late for some.

My even bigger concern is that the officers will embezzle the money and run off as they have with so many charities in the past. The fact they are apparently not making as much as they could be according to Pallota only means the incentive to do so increases. I would prefer to know the thieves only absconded with the little I gave rather than what they parlayed it in to.

Big problems can require audacious approaches to solve them. I can see where the piecemeal approach isn’t getting people closer to a solution any faster. But will people continue to give if a theft on the same grand scale were to occur? I think the faith you lose in a charity when it betrays your trust cuts a lot deeper than when a company or person you have invested with misappropriates your money. You enter a relationship with the latter knowing there is a chance you will lose your money. With investments, we are told to diversify. Does it make sense to do the same with our philanthropy or are we just short changing an already under capitalized effort?

About Joe Patti

I have been writing Butts in the Seats (BitS) on topics of arts and cultural administration since 2004 (yikes!). Given the ever evolving concerns facing the sector, I have yet to exhaust the available subject matter. In addition to BitS, I am a founding contributor to the ArtsHacker (artshacker.com) website where I focus on topics related to boards, law, governance, policy and practice.

I am also an evangelist for the effort to Build Public Will For Arts and Culture being helmed by Arts Midwest and the Metropolitan Group. (http://www.creatingconnection.org/about/)

My most recent role was as Executive Director of the Grand Opera House in Macon, GA.

Among the things I am most proud are having produced an opera in the Hawaiian language and a dance drama about Hawaii's snow goddess Poli'ahu while working as a Theater Manager in Hawaii. Though there are many more highlights than there is space here to list.


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