Whether you realize it or not, your expense ratios tell a story.

It’s shown time and time again that individuals are more likely to donate to charitable causes if they know how their donations are being used. Fortunately, sharing data with your supporters benefits you, too. If you go about it the right way, you can use data to communicate your mission, goals, and so much more.

Why are expense ratios so important?

According to a survey by Fidelity Charitable, 75% of respondents would donate more money to charity if they knew the impact of their donations. Charity Navigator, CharityWatch, and other organizations that evaluate and rate nonprofits know this — which is why they prominently display program expense ratios when reviewing charities. If you visit one of these third-party websites to get information about a charitable organization, you’ll likely see a breakdown of expenses that looks like this:

At a glance, investors can see roughly where their donations are going. If you want donors to know even more about where their money is going, you can provide that information, either on your website or disclosed in your annual reports. But before we talk about how you can use data to build an effective narrative, let’s review the three main expense categories so we know our starting points.

What types of expenses do nonprofits have?

Most charitable organizations break down their costs into three categories:

Operational Expenses

Sometimes known as General and Administrative (G&A) expenses, your operational budget is essentially your overhead. It includes costs like rent, utilities, insurance, legal fees, computer software, certain office supplies, and salaries of the staff covering G&A functions.

Program Expenses

Program expenses are the direct costs of providing services that fulfill your nonprofit’s mission. The costs allocated to this category depend on the type of program you’re offering, but it includes the salaries and wages of workers performing program duties, plus program-specific costs like materials and supplies used in the endeavor, and travel for program-related activities.

Fundraising Expenses

Fundraising costs are kept separate because they don’t directly support the G&A functions or program functions. These costs include event costs for a fundraising event, marketing and advertising, technology tools used to collect or solicit donations, and thank-you gifts to donors.

How can we use expense ratios to tell a story?

Giving is intrinsically rewarding, but few donors have the funds to support every single cause that’s important to them.[1] This means that most are cautious when choosing which organizations they want to support.

So how do you compete for the donation dollars of potential supporters?

Data can be an effective way to stand out from the crowd. If you give potential supporters information about what you do and how you go about it, you might be able to convince them to support your cause.

When thinking about the financial data to show potential donors, here are a few things to think about.

More information is often better

Information must be easy to understand

Work with your team to get information that’s relevant to donors, into a format that’s easy for them to understand. Graphs, charts, and pleasing graphics can provide clarity to complex data sets. Your ERP system dashboard can summarize some financial information for you, but it might be wise to consider investing in additional data analytics. You can work with a data analytics team to build dashboards that summarize key financial data that’s helpful not only for making internal decisions around revenue streams and expenses, but also for creating visuals to show potential donors. The dashboards our Meaden & Moore team creates are visually pleasing and interactive so that you can filter information as needed to produce the exact report you want to see and are custom dashboards tailored to the specific key performance indicators that matter most in your sector. 

Shrinking overhead costs can help

Across the board, supporters want to see that their dollars are going toward programs. While donors understand that operational costs are necessary, they support you for your programs and the impact those programs have in the community. If you can limit overhead costs, you’ll boost your expense ratios in favor of program expenses, and donors will be more likely to consider your program.

Communicate the impact of your programs

• Statistics
• Survey samples
• Reports with eye-catching graphics
• Colorful or interactive maps
• Fundraising counters
• Logos of partnering organizations

Communicate that donations are vital to support operations:

You cannot advance your mission without incurring overhead costs. You know this, but do your donors? Do your donors understand that costs like rent, administrative salaries, and professional services create a strong operating environment that allow your programs to thrive? We encourage you to get their buy-in to the importance of supporting overhead costs. You can do this in a number of ways, but a great way is through storytelling. Use visuals, statistics, and first-hand accounts to show the connection between G&A costs and continued program success.

What do you want your story to say?

Operational costs, program expenses, and fundraising costs together tell your story. If you can figure out how to tell that financial story with compelling visuals, your supporters will trust that your organization serves its purpose and meets its long- and short-term goals.

Contact us today to learn more about funding, operations, program, and fundraising expenses.

[1] https://www.fidelitycharitable.org/content/dam/fc-public/docs/insights/overcoming-barriers-to-giving.pdf

[2] https://www.fidelitycharitable.org/content/dam/fc-public/docs/insights/overcoming-barriers-to-giving.pdf