What Exactly is a Charity?
Not all nonprofits are charities, but all charities are nonprofits. In both instances, no one individual in the organization benefits from donations. The difference lies primarily in who benefits. Nonprofit organizations like country clubs, for example, benefit members only, whereas charities focus on helping the general public, whether that is a specific community or worldwide.
Charities rely on public and private donors to function. Sometimes that means giving money directly to the needy; other times, that means running programs. Though wealthy donors provide significant aid to charities, small donations are also vital to nonprofits. Feeding America, for example, provides one meal for every dollar donated. Recurring donations — no matter how small — allow charities to plan expenses for the year.
It’s important to understand where nonprofits spend their money. One of the most popular online lists is charitynavigator.org, which analyzes where donation dollars actually go. It’s usually laid out in terms of how many cents per dollar go toward the charitable mission. Ideally, charities strive for a 100% pass-through rate; some are able to do so because of private donors who cover their operating costs exclusively. Charitywatch.org considers charities with a 75% pass-through rate as highly efficient. But there is no worldwide standard since charitable missions vary so widely. Though many reputable charities operate with as little overhead as possible, overhead in itself doesn’t mean the charity is bad. No company can function without it. Overhead also pays for fundraising efforts, including campaign and donor management.
Another challenge nonprofits often face is retaining talent. They need people who do the same jobs as for-profit companies, i.e., accounting, marketing, web design, legal, copywriter, etc. But, since the private sector can pay much higher salaries, nonprofits can suffer in that regard.
Professional fundraisers are one option for minimizing overhead costs. They retain a portion (30% on average) of the campaign donations and transfer the rest to the charity. Professional fundraisers generally end up being the charity’s largest donors by huge margins, so, often, the cost is worth it. Some professional fundraisers, however, do everything they can to get that overhead portion down to a bare minimum and aim for a lower pass-through rate than the average. Colossal aims to have a max 15% pass-through rate, so more money ends up going toward the actual charitable cause in the end.
