I found a number that tells you everything you need to know

Hi there. I’m the Straw Man, and the purpose of my life is to say things that Holden disagrees with, in exaggerated ways so that Holden can tear me apart. It might not be the most glamorous job, but I’ve come to terms with myself.

So, guess what? I’m really into intelligent giving. It isn’t enough to be generous with your money–you have to make sure it’s accomplishing good. I’m a philanthrocapitalist. I believe in accountability. I like charities that are run like a business. Cool, huh?

Even cooler: I have solved the problem of how to do intelligent giving easily! I have devised a single number–breathtaking in its information content, stunning in its simplicity–that totally tells you what you need to know about a charity, and you can calculate it off data that’s publicly available for every charity in the U.S. Awesome? Are you ready to hear my secret formula? Here it is:

Take the money a charity spent on “program expenses” (designated on its required IRS form 990). Now, divide that number by the charity’s total expenses for the same year. Pow! Now you know how much of your dollar they will actually spend accomplishing good! What a number! I will call it the Straw Ratio.

A couple examples will demonstrate the frightening power of the straw ratio.

1. AmeriCares is a gigantic charity that takes donated medical supplies and delivers them to local organizations. Last year it spent over $1 billion, less than$7 million of which was on overhead, for a near-perfect Straw Ratio of 99.4. Good luck finding a better charity than that!

2. Interplast seeks to provide corrective surgery to people with deformities, through a combination of missions (sending surgeons overseas) and measures to build local capacity, including training and operating local centers. Last year it spent $3.6 million total–but$350,000 of this was on administrative overhead, and another \$500,000 was fundraising. The Straw Ratio tells us that for every dollar you give, only about 77c are going to charity. Pretty fishy if you ask me.

This is an awesome number, so it’s no wonder that independent charity evaluators focus on it, from Charity Navigator (the biggest of all) to American Institute of Philanthropy (whose criteria are strikingly similar to Charity Navigator’s, hmm, actually, they seem identical) to the BBB Wise Giving Alliance. And no wonder that charities with high Straw Ratios love to put this info front and center, and those with truly innovative minds–here and here–even manage to achieve PERFECT STRAW RATIOS! Roll that around in your brain for a second. I guess these organizations neither fundraise nor administrate . . . and that means every penny is good!

There couldn’t possibly be any objections to this, right?

• The GiveWell Blog - Exploring how to get real change for your dollar. » Philanthropy strikes back on July 10, 2007 at 10:36 pm said:

[…] Philanthropy strikes back By Holden There are a lot of possible objections to my last post; to voice them, I’m bringing back our old friend, the Straw Man, for an exclusive interview. […]

• What’s Different About Non-Profit? « Non-Profit CFO on September 18, 2007 at 4:34 pm said:

[…] The GiveWell Blog has an excellent take on efficiency ratios:  https://blog.givewell.org/?p=15 . […]

• Awesome! In addition to the numbers, we also want to make sure the charity lines up with what we want to achieve as well. For example, when giving water to those who need fresh clean drinking water, it is very important to us to present the Gospel as well.

• Delellis on February 1, 2009 at 6:33 am said:

Excellent list of charities you have here , And I agree completely it’s not just the act of giving money to charities that is important , it’s giving it to the right ones that can do the most good.

-Dino Delellis