Good News for Nonprofit Board Members & CEOs—Frameing A Donation & Covering Overhead Costs
By Eugene Fram
Behavioral economics, finance and marketing apparently are making significant strides in helping nonprofits to understand how to maximize their development efforts. Following are two studies that appear to have significant nonprofit interest.
- Deborah Small talked about how framing a donation as an investment opportunity rather than a charitable donation moves people away from choosing with their “heart” towards thinking with their head. People seem to care more about the “impact” their donation has when framed as an investment opportunity than as a charitable donation, even when the actual cause is exactly the same.
I was unable to find the source of this research, but the emphasis on impact and this and in the following item demonstrates the increasing importance funders are placing on it in recent years. Findings from major studies, like the one of the Zuckerberg grant to the Newark, NJ schools, have shown there can be a wide gap between program outcomes and student impacts. * For more discussion on how nonprofit can develop behavioral measures and assess impacts, see: http://amzn.to/1OUV8J9
- Elizabeth Keenan discussed her findings showing that you can reduce ‘overhead aversion’ (the tendency to judge charities by the amount they spend on overheads, rather than their actual impact) by telling people the overhead has already been covered by someone else. This further supports the idea that charitable giving is an emotional and personal decision – what’s important is where my donation goes, not the impact of the charity as a whole.
Donors tend to avoid charities that dedicate a high percentage of expenses to administrative and fundraising costs, limiting the ability of nonprofits to be effective. We propose a solution to this problem: Use donations from major philanthropists to cover overhead expenses and offer potential donors an overhead-free donation opportunity. A laboratory experiment testing this solution confirms that donations decrease when overhead increases, but only when donors pay for overhead themselves. In a field experiment with 40,000 potential donors, we compared the overhead-free solution with other common uses of initial donations. Consistent with prior research, informing donors that seed money has already been raised increases donations, as does a $1:$1 matching campaign. Our main result, however, clearly shows that informing potential donors that overhead costs are covered by an initial donation significantly increases the donation rate by 80% (or 94%) and total donations by 75% (or 89%) compared with the seed (or matching) approach.
The research behind this last set of comments can be found in “Science” Vol. 346, Issue 6209, dated October 31, 2014. I know of one local organization that took resources from its reserves to pay for overhead, but I don’t know if there was any formal evaluation of the effect of the move.