Comments on: Robin Hood, Smile Train and the “0% overhead” donor illusion http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/ Exploring how to get real change for your dollar. Thu, 17 May 2012 07:39:08 +0000 http://wordpress.org/?v=2.0.7 by: Holden http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-179942 Thu, 02 Dec 2010 09:17:58 +0000 http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-179942 Keith, thanks for the thoughts. I think the distinction between "average" and "marginal" is vital and usually underappreciated (we've written about it in our <a href="http://www.givewell.org/international/technical/criteria/scalability" rel="nofollow">discussions of "room for more funding"</a>). It is true that "0% of marginal dollar goes to overhead" is possible. However, I doubt it is what the marketers have in mind here. In order for "0% of marginal dollar goes to overhead" to be true, one of the following would have to be true: (a) the charity's structure is such that its overhead operations are already at "maximum size"; (b) Board members are willing to give more if *and only if* the need for overhead costs increases, i.e., they have a preference (at least behaviorally) for funding overhead over funding programs/grants. Both (a) and (b) seem fairly unlikely, and the explanation that is given for the "0% overhead" claim doesn't seem in line with either. Keith, thanks for the thoughts. I think the distinction between “average” and “marginal” is vital and usually underappreciated (we’ve written about it in our discussions of “room for more funding”).

It is true that “0% of marginal dollar goes to overhead” is possible. However, I doubt it is what the marketers have in mind here.

In order for “0% of marginal dollar goes to overhead” to be true, one of the following would have to be true: (a) the charity’s structure is such that its overhead operations are already at “maximum size”; (b) Board members are willing to give more if *and only if* the need for overhead costs increases, i.e., they have a preference (at least behaviorally) for funding overhead over funding programs/grants.

Both (a) and (b) seem fairly unlikely, and the explanation that is given for the “0% overhead” claim doesn’t seem in line with either.

]]> by: C.B.P. http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-179825 Wed, 01 Dec 2010 17:32:10 +0000 http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-179825 As a frequent donor, the "overhead" metric isn't that important to me. If I feel the program is worthwhile -- actually doing some good for ordinary people in need -- I will donate, period. That being said, though, if I find out that a non-profit pays its top executives huge salaries (I won't name any specific organizations... they know who they are) it does turn me off to giving anything at all. As a frequent donor, the “overhead” metric isn’t that important to me. If I feel the program is worthwhile — actually doing some good for ordinary people in need — I will donate, period. That being said, though, if I find out that a non-profit pays its top executives huge salaries (I won’t name any specific organizations… they know who they are) it does turn me off to giving anything at all.

]]> by: Keith http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-179472 Mon, 29 Nov 2010 22:55:01 +0000 http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-179472 I've always had a position similar to the one expressed by Holden, above. These low/zero-overhead claims are clearly misleading... there are overhead costs in the budget, so (overhead)/(total costs)>0. If you ignore the accounting gimmicks (since money is fungible, it can be seen as coming from a single pool of donated funds), an average donor is "paying" overhead costs with some non-negligible fraction of his/her donation. However there is a more interesting angle to this, as these discussion mostly ignore the difference between AVERAGE and MARGINAL costs. From the "MARGINAL donor" (the very last donor--the one who wouldn't have made the donation without the "0 overhead costs" advertisement), perhaps the overhead costs can be taken as fixed. Conditional on all past donations, the charity's overhead cost of distributing $1 more in donations is approximately zero due to economies of scale. In that case, the MARGINAL dollar may have very low overhead costs, and the advertised claim is not so misleading after all... I would bet that the advertising crew at a large charity thinks they are talking about a marginal dollar, not an average dollar. Holden is probably right, however, in pointing out that an "average" donor does pay for overhead. Cheers, - Keith P.S. I know this post is over 1 year old, but I was poking around the blog an a link brought me here... I’ve always had a position similar to the one expressed by Holden, above. These low/zero-overhead claims are clearly misleading… there are overhead costs in the budget, so (overhead)/(total costs)>0. If you ignore the accounting gimmicks (since money is fungible, it can be seen as coming from a single pool of donated funds), an average donor is “paying” overhead costs with some non-negligible fraction of his/her donation.

However there is a more interesting angle to this, as these discussion mostly ignore the difference between AVERAGE and MARGINAL costs.

From the “MARGINAL donor” (the very last donor–the one who wouldn’t have made the donation without the “0 overhead costs” advertisement), perhaps the overhead costs can be taken as fixed. Conditional on all past donations, the charity’s overhead cost of distributing $1 more in donations is approximately zero due to economies of scale. In that case, the MARGINAL dollar may have very low overhead costs, and the advertised claim is not so misleading after all…

I would bet that the advertising crew at a large charity thinks they are talking about a marginal dollar, not an average dollar. Holden is probably right, however, in pointing out that an “average” donor does pay for overhead.

Cheers,
- Keith

P.S. I know this post is over 1 year old, but I was poking around the blog an a link brought me here…

]]> by: Holden http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-92080 Tue, 15 Dec 2009 01:26:49 +0000 http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-92080 Jeff, you're describing the goal from the charity's perspective, whereas we're focused on the meaning from the donor's perspective. We agree with your take on why Robin Hood makes this claim - because it results in more funds raised. But we don't believe in an equivalency between "funds raised" and "good accomplished." We see value in donors' having real and meaningful information and using it to hold charities accountable. We think it's wrong to promote a metric donors care about when <a href="http://blog.givewell.org/?p=473" rel="nofollow">the metric doesn't tell them what they think it does</a>. Jeff, you’re describing the goal from the charity’s perspective, whereas we’re focused on the meaning from the donor’s perspective.

We agree with your take on why Robin Hood makes this claim - because it results in more funds raised. But we don’t believe in an equivalency between “funds raised” and “good accomplished.” We see value in donors’ having real and meaningful information and using it to hold charities accountable.

We think it’s wrong to promote a metric donors care about when the metric doesn’t tell them what they think it does.

]]> by: Jeff Brooks http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-92075 Tue, 15 Dec 2009 00:54:33 +0000 http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-92075 The goal of telling donors you have "0% overhead" isn't to reduce overhead. It's to increase revenue. And it works. Why is it wrong to promote a metric people care about? The goal of telling donors you have “0% overhead” isn’t to reduce overhead. It’s to increase revenue. And it works. Why is it wrong to promote a metric people care about?

]]> by: Holden http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-91371 Thu, 10 Dec 2009 15:40:47 +0000 http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-91371 Tim, I thought our post accurately stated what Robin Hood's claim does and doesn't mean and why it isn't ultimately helpful to a donor interested in minimizing overhead. Can you clarify your statement? Tim, I thought our post accurately stated what Robin Hood’s claim does and doesn’t mean and why it isn’t ultimately helpful to a donor interested in minimizing overhead. Can you clarify your statement?

]]> by: TIm Johnson http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-91005 Wed, 09 Dec 2009 01:13:07 +0000 http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-91005 You clearly didn't do any research for this. There is no claim of 0% overhead, it is 0% TO overhead. You clearly didn’t do any research for this. There is no claim of 0% overhead, it is 0% TO overhead.

]]> by: James Edward Dillard http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-90876 Tue, 08 Dec 2009 05:27:35 +0000 http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-90876 Can't fault the non-profit here. Overhead is a silly, silly metric which begs to be taken advantage of by anyone with a brain. Can’t fault the non-profit here. Overhead is a silly, silly metric which begs to be taken advantage of by anyone with a brain.

]]> by: Ian Turner http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-90853 Mon, 07 Dec 2009 23:42:02 +0000 http://blog.givewell.org/2009/12/07/robin-hood-smile-train-and-the-0-overhead-donor-illusion/#comment-90853 Why do charities, even impactful charities, use gimmicks like this? Because it works. Claiming 0% administrative expenses is a perfectly reasonable response to donors who are looking for a good Straw ratio -- You can offer a perfect score. And there are plenty such donors out there, whether we like it or not. Another gimmick often seen out there is the "matching gift", which is often implicitly guaranteed: Sometimes there is no question about whether the match will be met, so it's just a question of whose money is matched. Other times, the matching donor can promise (verbally or sotto voce) to give the full amount even if the matching threshold is not reached. Of course, you'll have a hard time making a strong indictment for this sort of gimmick. Cheers, --Ian Why do charities, even impactful charities, use gimmicks like this? Because it works. Claiming 0% administrative expenses is a perfectly reasonable response to donors who are looking for a good Straw ratio — You can offer a perfect score. And there are plenty such donors out there, whether we like it or not.

Another gimmick often seen out there is the “matching gift”, which is often implicitly guaranteed: Sometimes there is no question about whether the match will be met, so it’s just a question of whose money is matched. Other times, the matching donor can promise (verbally or sotto voce) to give the full amount even if the matching threshold is not reached. Of course, you’ll have a hard time making a strong indictment for this sort of gimmick.

Cheers,

–Ian

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