December 15, 2011

Donors Want More Information on Impact

Guest blogger Greg Ulrich, director at Hope Consulting and lead researcher for the recently released “Money for Good II” writes about the gap in impact and effectiveness information for donors and what nonprofits can do get donors the information they need to make results-driven decisions.

By: Matthew Forti

This week, Matt Forti is excited to welcome Greg Ulrich, director at Hope Consulting and lead researcher for the recently released “Money for Good II” report. In this guest post, Greg writes about the gap in impact and effectiveness information for donors and what nonprofits can do to get donors the information they need to make results-driven decisions.

We all know that measuring nonprofit performance yields many benefits. Society can better understand the most effective approaches to address key issues. Top-performing organizations are brought into the spotlight. And nonprofits are better equipped to continually improve, based on what they measure and learn.

Yet according to research that I did in 2010 (entitled "Money for Good"), only about one third of all donations are researched. Most individual donors base their giving on emotion, rather than on objective assessment. What’s more, when donors do research potential grantees, they look at performance information less than half the time. (More often, they consider factors such as the organization’s mission or overhead ratio.)

However, our current research, conducted in partnership with Guidestar, indicates that donors do want more information on impact. In 2011, we surveyed more than 5,000 individual donors and found that information on impact and effectiveness is:

One of the most desired types of information. Despite their tendency to focus today on incomplete measures such as overhead rates, donors do desire information that will allow them to understand how the organization is performing.

Their biggest under-met need. We looked not only at what kinds of information people want, but also at how well their information needs are being met. For instance, donors want basic information on nonprofits (e.g., their mission, a basic description of their programs), and they can get that information easily. However, information on impact and effectiveness is the one area where individual donors both care about information and are not satisfied with what exists today.

Not well understood. Donors don’t have strong preconceived notions of what impact information they need; they just know they want to hear that their funds are being used productively. Current performance data, information on past performance, or reviews from experts and beneficiaries were all seen to be valuable.

Strongly preferred by a subset of donors. We find that 20 percent of donors regularly research, and are looking for, performance information twice as often as the other 80 percent.

The research also looked at 800-plus philanthropic advisors and 700-plus foundation grant makers. This group proved to be relatively high-volume "consumers" of performance information, and they (especially foundation grant makers) are more sophisticated in terms of where to look for performance measurement data, what they wanted to see, and how to apply what they learned to their decision making. Nonetheless, their number one unmet need was still information on nonprofit effectiveness.

So the question is: How can nonprofits help donors get the right kind of measurement information?

Overwhelmingly, the donors we surveyed indicated that they would embrace initiatives, such as Charting Impact, where nonprofits provide answers to five simple questions about strategy, measurement, and progress in a consistent format. All nonprofits should complete a Charting Impact Report, and then actively share it with their donors, prospects, staff, and other stakeholders. Filling out this kind of report will also jumpstart what should be an ongoing internal conversation about where to focus, how best to measure performance, and how best to communicate and learn from your results.

Every organization should also try to begin collecting and reporting data on results. We know that this is not only desired and an unmet need, but also that donors often seek this data from nonprofits themselves. So, nonprofits should be pushing that data out through every communication channel available, and not stressing too much about getting the measures exactly ‘right’. Again, donors don’t always know what exactly they are looking for, and it is more important to just get started, share the data you have, open a channel of communication, and build your measurement expertise over time.

Finally, nonprofit leaders should make every effort to focus their conversations with donors on outcomes. While many donors have been conditioned to care only about measures such as overhead ratios, we know from our research that they are actually interested in a fuller picture of a nonprofit’s performance. Move the emphasis from overhead to impact by showing donors how you are achieving your mission. Paint the picture—with hard data and with vivid storytelling—of the change you are making in the world.

Charitable giving is certainly a more emotional than ‘analytical’ process for the vast majority of individual donors. But that doesn’t mean that the issue is quite that black and white. If we can get better information on nonprofit effectiveness into the conversation, more donors will begin to use it, and slowly, we can start to create a system where the highest-performing nonprofits receive more support.

Greg Ulrich is a director at Hope Consulting, a boutique strategy consulting firm with a focus on the social sector. Greg has led the firm's "Money for Good" research series, which focuses on donor behavior, motivations, and preferences for charitable giving and impact investing.

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