June 12, 2019

Where Does My Donation Go?

How much money goes to charity when you donate? It’s an important question to ask, and an even more important one for charities to answer. 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. So, how much of your money actually goes to the charitable cause when you donate?  

How much of my pound goes to charity?

We’re a very generous bunch here in the UK, and our generosity is increasing. In 2017, £10.3 billion was donated to charities, in comparison to £9.7 billion in 2016. However, despite the rise in donations, some 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 resource, 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 the day to day operations of the organisation.

The long and short of it

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. 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. It’s not rocket science that as a general rule of thumb, the larger the business, the more administrative support and resources they’ll need to run smoothly – 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 who 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.

But there are also variations in spending between charities of similar sizes. For example, 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, who 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. Two different charities, with different causes, running costs and funding. 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, de-bunking the myth that inflated charity salaries are sucking the sector dry.

Nonetheless, with trust in charities at an all time low, organisations must play an active role in myth-busting. For charities to rekindle public trust, they need to evidence that their beneficiaries are at the heart of all of their operations. Charities and non-profits should seek to 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. We keep our eyes and ears open to feedback from both charities and donors, through roundtables, surveys and ongoing research, thereby ensuring that all of our products are guided by user-led insights.

To find out more about how our digital fundraising platform and contactless donation technology are helping charities, head over to our Case Studies, or follow us on Twitter, Facebook and Instagram for the latest updates on our work.

whois: Andy White Freelance WordPress Developer London