Incentive Pay

Q. I am new to the development field and would like to calculate how much of every dollar given to our charity goes toward the needs for which the donors’ gifts are intended. How do I factor this value?

A. It’s important information to have, and brace yourself if you hate mathematics, because what you’ve got, essentially, is a math problem. Here’s the simplified answer: If you want to figure out how much money your charity is spending on programs generally, you need to look at how much you’re spending directly on program costs — and how much you’re spending on everything else, such as salaries, fund-raising costs, and office overhead, says Sally A. Zinno, a Warwick, R.I., management consultant who specializes in nonprofit organizations. If 60 percent of your operating budget goes to program costs, you’re spending 60 cents of every dollar on programs, she says.

You can go through the same exercise for individual programs within your charity, but it gets more complicated, says Christine Graham, president of CPG Enterprises, a nonprofit consulting firm in South Burlington, Vt. For example, if you have a staff member who works on multiple programs, you have to prorate that person’s salary to accurately calculate the cost to the program in question. You also have to decide whether you’re going to include all of your charity’s revenue in the calculation, or whether you’re only going to count funds raised from donors — excluding, for example, government-grant money or fee-for-service income. In the end, the exact methodology you need depends on your charity’s circumstances. The Association of Fundraising Professionals offers more information on evaluating fund-raising costs.

Consider picking up Fund Raising Cost Effectiveness: A Self-Assessment Workbook, by James M. Greenfield, which includes an IBM-compatible floppy disc with worksheets and checklists (AFP/Wiley Fund Development series, 1996, $65.95 if ordered through the Association of Fundraising Professionals Web site).

By the way, several watchdog organizations have established standards for how funds should be allocated. The Better Business Bureau, for example, says that at least 50 percent of public donations should be spent on programs and activities described in your charity’s solicitation, that fund-raising costs shouldn’t exceed 35 percent of related contributions, and that total fund-raising and administrative costs shouldn’t exceed 50 percent of an organization’s total income. You can get advice on how to meet the Better Business Bureau’s standards by contacting its Wise Giving Alliance at (703) 276-0100, or 4200 Wilson Boulevard, Suite 800, Arlington, Va., 22203.