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This simple strategy tripled charity donations

Charity, woo!
Charity, woo!

What's the best way to solicit donations for a charity? New research suggests that telling donors that none of their money will go toward overhead may be very effective at raising money. But it also comes with a few potential pitfalls.

In a study published in Science on Thursday, a team of researchers showed that giving people the opportunity to donate directly to a charity program — with a promise that the money wouldn't go to overhead — was far more effective than either matching donations or letting donors know about existing seed money.

Lead author Uri Gneezy, of the University of California San Diego, puts it this way: "I don't feel good if my donation goes to cover a CEO's salary."

Many people have started paying attention to overhead costs — such as administrative expenses, salaries, rent, and fundraising costs — when evaluating a charity. It's a big factor in evaluation tools like CharityWatch. For some, high overhead might be seen as a mark of an inefficient charity.

But in the Science study, the researchers found that this wasn't what was going on. People don't actually mind charities that have high overhead — they just don't want to pay for that personally. And that's likely because they want to have the personal feeling of having an impact and donating directly to a good cause.

The results were stunning. The researchers partnered with a real-life education charity campaign that solicited 40,000 Americans, who randomly received different letters in the mail. Some letters promised donors that none of their money would go toward overhead. These letters, it turns out, were three times as effective as a simple solicitation:

Donations by treatment

The total amount of money raised per type of donation letter received. (Gneezy et al, Science.)

What's more, the overhead-free letters got 80 to 94 percent more donors than letters promising matching donations from someone else or than letters informing people that someone else has put a large amount of seed money down. "We were surprised by the magnitude of the effect," Gneezy says.

That said, the researchers also caution that charities might want to think twice before relying too heavily on this strategy. After all, overhead costs are often extremely useful and important for charities — and there's some evidence that skimping on these costs can backfire and make a charity less effective.

Why people dislike overhead — it doesn't give them that warm, fuzzy feeling

In a separate experiment involving 449 undergrads, the researchers confirmed that people really are averse to giving to charities' overhead. Participants were offered to donate $100 to one of two real charities. When they were told that one of them had a 50 percent overhead, people were 24 percent less likely to choose it than when it had no overhead or a 5 percent overhead.

But why would this be? One possibility is that people view charities with high overhead as inefficient or corrupt. But this doesn't appear to be the case. The researchers also did the experiment where instead they told participants that the charities' overhead had already been paid by someone else. This time, people were happy to donate to the high-overhead charity. It seems that people just like the fuzzy feeling of knowing that their personal contribution had a more direct impact.

And this seems to play out in the real world — sending out solicitation letters promising that none of the donors' money will go toward overhead was three times as effective as simple pleas for money.

Of course, the paper's authors caution that this doesn't mean that every charity will get a massive boost by changing strategies. The size of the effect could vary greatly, depending on factors like what the charity does and who is being solicited. It's also possible that certain subgroups of donors might be more motivated by one strategy over another.

The researchers also caution that its unclear if this strategy would increase the total amount of donations to charities on the whole or just shift donations from one charity to another. Still, the results are undeniably intriguing.

Could this strategy backfire? Overhead isn't always bad.
Money rolling down hill

Nooooooo! (Shutterstock)

One possible takeaway from this study is that most charities should get a few big donors to cover their overhead and then get the rest of their donations via this overhead-free donation strategy. But it's also possible this strategy could backfire in the long run.

The authors are clear to state that they are not anti-overhead. "Ironically, reducing overhead spending has a negative impact on charities' ability to initiate fundraising campaigns, invest in long-term planning, and sufficiently support overall infrastructure, which ultimately undermines efforts to serve their causes effectively," they write.

And Gneezy questions the idea that leaders of non-profits shouldn't have large salaries: "Why do we think that it's fine to compensate a banker so much, but not someone who does something important for society?" he says. "If we want to have the best people doing it, we should pay them more."

After all, overhead itself is not necessarily a sign of an ineffective charity. Overhead is one measure of how a charity is functioning, but not a measure of its efficiency in actually having an impact on the world. What really makes a charity efficient is how efficiently it achieves its end goals.

So, for example, it's possible that one charity with low overhead is actually terrible at turning cash into bed nets to stop malaria overseas. Maybe they're buying more expensive bed nets from the wrong people and shipping and distributing them in a way that's more expensive than it could be. And maybe they don't have the right information and connections to get them to the people who are really most in need of them.

It's also possible that a similar charity with high overhead paying the salaries of some really smart, strategic people could end up solving these problems and getting more bed nets to more people who need them really badly. And even though the overhead is higher, they could be spending fewer dollars per case of malaria averted.

So overhead isn't the only thing that matters. But overhead-free pleas for donations could end up popularizing this notion that overhead is just plain bad. And that could make it difficult for charities to actually do their jobs. If everyone hates overhead, then who are charities going to get to pay for it?

One solution may be to split a charity into two different groups like the organization Charity: Water does. As its website clearly notes, money donated to Charity: Water "100% funds clean water projects." That's because private donors have already covered operating costs, including salaries and rent. They've basically split one charity into two different operations, so that the public face of the charity is overhead-free. This model, however, depends on having some wise donors who can understand that a donation that does nothing but cover the dreaded overhead is actually useful.

Further reading

Julia Belluz wrote a good guide on how to choose a good health-related charity

Evidence that the poor aren't going to use cash donations on drugs and alcohol

During the downturn, America's poor helped each other more. The rich pitched in less.

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