St. Louis charities spend more money to raise money than any other metropolitan area in the United States, according to a new study. It costs 50 percent more than the national average for fundraisers in St. Louis to bring in $1 for their nonprofit.
That’s a good thing. It also shows a transformation in St. Louis’ philanthropic market.
The ninth annual Charity Navigator Metro Market Study found St. Louis ranked last out of 30 markets in fundraising efficiency. The rating is calculated by dividing fundraising expenses by total contributions. The national median was $0.10 for every dollar raised; St. Louis’ was $0.15. Therefore, St. Louis charities spend 15 cents to raise a dollar compared to 10 cents nationally. New York City was rated 15th at $0.10 and Los Angeles was 10th at $0.09.
Some will say the extra nickel it costs to raise $1 should be spent on programs or services. However, a growing number of people believe increasing overhead is necessary for building relationships with donors, the general public, and communicating program successes and the vision for the future. (See Overhead Costs Post Dilemma For Charities, Chronicle of Philanthropy, May 19, 2013) The overhead in fundraising expenses is printing, postage, websites, public relations, special events, staff salaries and other costs incurred in soliciting donations.
The phrase, “You have to spend money to make money,” is often heard in the for-profit world. The same principle applies in the nonprofit sector. However, efficiency ratings are often used by charities as a marketing tactic to gain a competitive advantage. (“If our charity spends 87 cents of every dollar on clients, why would you want to give to Charity X when they devote only 85 cents of your dollar to help people?)
The problem is the lack of consistent accounting. Donors can’t make a valid comparison because every charity varies in the way it accounts for staff salaries, office space, information technology and other operational necessities in relation to fundraising.
Here’s Charity Navigator’s historical data on St. Louis’ ranking:
|Year||Fundraising Efficiency||Rank||National Fundraising Efficiency|
Charity Navigator’s database of nonprofits fluctuates from year to year. But the national fundraising efficiency number remains constant. That shows St. Louis is going through a philanthropic transition.
“It appears there is something particular to St. Louis that is making it harder for charities to bring in contributions,” said Sandra Miniutti, Vice President of Marketing and the Chief Financial Officer of Charity Navigator, the largest evaluator of charities in the United States. “If the national figure changed in line with St. Louis, then I might be inclined to believe that charities everywhere are having a harder time raising funds because of the economy. But it does look like, according to our data, that larger charities in St. Louis are having a harder time raising money than those in other parts of the country.”
St. Louis, like much of the Midwest, is a generous community. (An Indiana University study found an average of $3,375 was donated per household in Kansas City in 2007, exceeding the national average of $2,247.) But there are fewer Fortune 100 companies headquartered in St. Louis compared to 10 or 20 years ago. St. Louis is more a town of branch offices than corporate headquarters. A nonprofit’s overhead cost to solicit a $5,000 donation from a large corporation is less than soliciting 10 gifts of $500, or 100 gifts of $50.
St. Louis’ nonprofits have no choice but to spend more money to raise money. Donations will increase and the rating will change if nonprofits do a better job telling their stories. Investing in building, increasing and expanding the size of a donor base will strengthen the long-term viability and sustainability of organizations.