For decades if not longer, generous individuals and organizations have wanted to know which charities were worthy of their hard-earned dollars. Out of that desire to have information to help make charitable decisions grew charity rating services, which publish objective ratings and make them publicly available.
But what does it mean to be worthy?
Some of the earliest rating services, like CharityWatch and Charity Navigator, focused heavily on overhead, giving higher ratings to organizations that spent 80% or more of their budget on direct services, as well as those with a low cost per dollar raised. These are worthwhile data to consider, but they don’t tell the whole story. They penalize younger charities that need to build fundraising capacity and impose a double standard on nonprofits as opposed to for-profit enterprises when it comes to the administrative talent necessary to manage and scale their operations. If carried too far, demonizing overhead can impose a poverty mentality on an organization’s culture.
Another service called ImpactMatters was founded in 2015 to create a “market for impact” by rating charities for impact by measuring how much good an organization achieves per dollar, taking into account the average cost of providing that good – say, a meal – in that market. ImpactMatters was acquired by Charity Navigator in 2020, which now incorporates ImpactMatters’s methodology into their ratings.
Other sites, such as Candid, serve to provide a variety of useful information to donors on causes and organizations, and some like GiveWell and Great Nonprofits take ratings a step further by naming top charities and crowdsourcing fundraising for them. GiveWell is built on the philosophy of effective altruism, which we will discuss in a future blog post. (There is a lot to unpack there!) Great Nonprofits sources its information socially, building its database for each community from feedback and reviews submitted by organizations’ clients, volunteers, and donors.
All these services are helpful in making informed decisions about our philanthropy, but while they are good resources, they are not a panacea. Each of us must consider what matters to us, what we think defines impact, and where in our big world we want to have it.