June 12, 2019

How much money goes to charity when you donate?

We’re a very generous bunch here in the UK despite recent circumstances. While the last year has certainly been challenging, many people have expressed their support. In the first six months of 2020, the public donated over £5.4bn to charity, over £800m more compared to the same period in 2019.

COVID-19 has led to many people experiencing financial hardship, so the decision to donate to charity is not taken lightly. Furthermore, some members of the public remain sceptical of how charities spend their money and how much of their donations go towards their chosen cause.

Of course, charities cannot work for free – the vital services that are provided by charities across the UK demand human resources, marketing and fundraising costs, along with electricity to keep the lights on! This means that no matter their cause or size, charities have to be careful to balance their fundraising and ensure some income goes towards keeping things running smoothly.

That being said, when you give to causes you believe in, you’ll want to know that your money is going to help those in need as opposed to being absorbed into administrative costs. In this article, we’ll be providing some much-needed clarity on how much money goes towards your chosen cause when you donate to charity.

What percentage of charity donations go towards administration costs?

On average, the most well-known and largest charities in the UK will spend between 26-87% of their annual income on charitable activities – i.e. fulfilling the charitable services the charity exists to provide. The remaining income is usually divided across administrative and operational costs, which are crucial to ensuring that charities are successful in their cause.

We appreciate that 26-87% is quite a range, so let’s try to narrow it down. A study by FactCheck calculates that this is more likely between 60-70%. Broken down, this study showed that small organisations are more likely to spend more of their yearly income on charitable activities, while ‘super-major’ charities (those with annual incomes of £100 million or more) were found to be spending relatively little on their charitable activities.

However, these variances in spending are not necessarily evidence of some underhand money management behind the scenes. As a general rule of thumb, the larger the business, the more administrative support and resources they’ll need – the same goes for charities. The biggest and more complex charities will need to allocate more of their income towards the general running of their organisations and full-time employees than smaller charities that are more reliant on an active volunteer base. In fact, 91% of all registered charities have no paid staff at all and are run entirely by volunteers.

So how much of my pound goes to charity?

The breakdown of exactly how donations are allocated can vary based on the specific charity. Fortunately, many of the UK’s foremost charities are invested in transparency as seen in the following examples:

According to Oxfam’s 2019/20 Annual Report, for every pound spent 43p goes towards emergency response, rescue and rebuilding efforts, 39p is spent on helping people in developing nations beat poverty, 15p goes towards support, operations and fundraising costs and 2p is spent on campaigning and advocacy.

The Teenage Cancer Trust, who trialled our contactless giving technology at their concert in 2017, spends 60.2p for every £1 donated on charitable activities, while 19.0p is spent on fundraising and 20.8p is spent on generating income.

The British Red Cross, which used our GBx Core to raise funds during Red Cross Week, spends 80.0p for every £1 spent on charitable activities, 10.6p on fundraising and 9.4p on generating income.

Clearly, there is no exact figure for how much a charity should be giving directly to their cause, but that does not mean that there isn’t more that charities can do to reassure donors that their money is being well spent.

Transparency is the best policy

The whole question of how much money goes to charity when you donate is one that has proliferated in recent years as rumours of “fat-cat salaries” have haunted many larger charities. In fact, fewer than 1% of charities employ a member of staff earning £60,000 or more, debunking the myth that inflated charity salaries are sucking the sector dry.

Nonetheless, organisations must play an active role in myth-busting. For charities to rekindle public trust, they need to show evidence that their beneficiaries are at the heart of all of their operations. Charities and nonprofits should lay their cards on the table, and make their spending as obvious and as accessible as possible. In doing so, it is predicted donations could increase by up to 50%.

In the US, watchdog websites such as Charity Navigator have gone a long way in addressing public concerns. The site assesses charities and nonprofits based on their finances, transparency, and accountability, giving them a 1-4 star rating. Donors can use these ratings to find the most responsible organisations to give money to, helping them to be confident that their donations will be well used.

However, without an equivalent here in the UK, how can charities – both small and large – look to become more transparent?

The role of technology

From donor-controlled apps to blockchain, charities are responding to an increased demand for transparency with new technologies.

You might have heard the term thrown around in the news – most of us have. At its core, blockchain is simply a decentralised record keeping system. The fact that it’s decentralised means that it’s entirely transparent and tamper-proof, with all transactions being openly available to review without disclosing personal information. From a donor’s point of view, this would allow them to see exactly where their donation goes.

Blockchain lets charities track payments (mostly for digital currencies) from donors to the beneficiaries, allowing supporters to see how their money is being put to good use. The homeless charity St. Mungo’s used blockchain technology to allow their supporters to track the impact of their donations, allowing them to request a refund if they felt that their money was not being put to good use. Other big names in the charity world, such as the Irish Red Cross and Save the Children, have also jumped on the blockchain bandwagon, leading the way towards a new relationship between donors and charities. It won’t be long before smaller charities follow suit.  

At GoodBox we are energised by changes in the sector, and how technology can provide an answer for persistent problems. This was a founding principle behind the creation of our contactless charity collection boxes.

Since starting in 2016, our contactless payment technology has raised over £7m in donations for charities in the UK and internationally. With a peak average donation size of £11.90, contactless is proven to increase average amounts when compared to cash donations.

To get the most out of digital technology for your fundraising efforts, contact the GoodBox team or download a product brochure today!