ImpactMatters has been acquired by Charity Navigator.

Learn more on charitynavigator.org

ImpactMatters has been acquired by Charity Navigator.

Learn more on charitynavigator.org See an example of the new impact rating

Blog

Tips and information on effective giving

Tips for Researching Nonprofits

There are over a million nonprofits in the United States. Even if you have a specific cause in mind (for example, food banks), a Google search can bring up thousands of nonprofits. How do you choose one that will use your donation effectively? In this post, we provide some tips for finding a nonprofit you can feel confident giving to.

These tips are suitable for donors at any stage of their giving:

For more best practices, check out the complete Effective Giving Guide. The present post is an expansion of step four of the Effective Giving Guide: choosing a nonprofit to donate to.

Choose a Cause

Finding the right nonprofit starts with finding an issue area, or “cause,” that resonates with you. For some, the right cause comes quickly to mind. Perhaps you care most about ending homelessness because you see people experiencing it every day on your commute. Or a family member’s battle with cancer sparked a desire to help others going through it too. If that’s you, go for it. You’ll likely feel best giving to a cause you’re passionate about.

But if you’re open to discovering new causes, we suggest checking out the Open Philanthropy Project. The team at Open Phil has carefully combed through a variety of causes to select those where philanthropists can make a major impact. They also prioritize causes that receive less attention from most donors. Examples include: improving farm animal welfare, mitigating risks from advanced artificial intelligence, and promoting health in developing countries.

Looking for inspiration beyond Open Phil’s top picks? Take a look at the 17 Sustainable Development Goals (S.D.G.s), which all United Nations Member States have adopted to collectively build a better world by 2030. Here’s a sampling: End poverty. Achieve gender equality. Promote peaceful and inclusive societies.

Identify Nonprofits Making an Impact

With a cause in mind, you’ve narrowed the field considerably. But there can still be thousands of nonprofits working within a single cause. We strongly recommend doing the due diligence to find one that spends your money wisely — we promise it’s well worth the effort. It could be the difference between saving one life or a whole family.

ImpactMatters’ Top Lists are an easy way to start. They are organized by cause, so you can quickly find nonprofits that are having a real impact in the U.S. and around the world on hunger, poverty, climate change and more. Each list is made up of the most cost-effective nonprofits we’ve rated — that is, the ones that have the greatest effect on beneficiary outcomes per dollar of cost. And each nonprofit has gone through our process of public data review, cost-effectiveness analysis and benchmarking, and financial health checks.

For donors looking to make an impact abroad, GiveWell is one of our favorite sources for international nonprofit recommendations backed by evidence.

Try Your Own Impact Calculation

If you already have a nonprofit in mind, check if we’ve already rated it. Our site provides detailed information on the cost-effectiveness of all rated nonprofits working within a given cause, location and target population. If we haven’t issued a rating for a nonprofit yet, you can actually get a rough estimate of its impact yourself. All it takes is a bit of detective work.

Step 1: Identify the mission

First, identify the nonprofit’s mission. This is pretty easy to find on the nonprofit’s website or GuideStar profile. Note the key difference between a cause and a mission. A mission is the specific change the nonprofit seeks to achieve for a target population. Multiple missions could work toward the same cause. Take the cause “poverty,” for instance. A nonprofit’s mission could be to boost the incomes of women entrepreneurs in developing countries. Another nonprofit might help low-income students in the U.S. go to college and raise their earning potential. Either mission reduces poverty, but seeks to change slightly different outcomes (the thing you want to change) for different target populations (the people you want to help).

Step 2: Locate outcomes

The mission is all-important because it dictates what to search for next: data on outcomes changed for beneficiaries. Be careful to look beyond anecdotes of beneficiaries’ success or plight; instead, poke around the nonprofit’s annual report and website for facts and figures. Look out for keywords like “impact,” “results,” “metrics,” and “by the numbers.” Then look for outcomes, defined as meaningful changes in the lives of beneficiaries. For instance, if the nonprofit prevents high school dropout, how many students did it help graduate?

In general, be careful to avoid outputs, which only describe activities or processes rather than meaningful changes. Example: number of students receiving mentorship. Also beware of mistaking demographic statistics for outcomes; the racial composition of beneficiaries can be an important indicator of targeting effectiveness, but aren’t a substitute for information on how students fared because of the program.

Step 3: Adjust for the counterfactual

Simply looking at before-versus-after change ignores what’s known as the counterfactual: the change in beneficiary outcomes that would have occurred regardless of the nonprofit’s intervention. Ignoring counterfactual change would wrongly credit (or blame) the nonprofit for something it’s not responsible for, like high school students who would have graduated anyway. Use keywords like “evaluation” and “research” to search for studies where the nonprofit has tracked some kind of comparison group to approximate the counterfactual. However, nonprofits are rarely able to run studies, so be prepared to make an educated guess as to what the counterfactual might be.

Step 4: Identify costs

Next, find costs that match up with (counterfactual-corrected) outcomes. For instance, how much did the nonprofit spend on its mentorship program for high school students? If this is not clear from the nonprofit’s annual report, check its audited financials or Form 990, a tax form that U.S.-based nonprofits of a certain size must file. If referring to the 990, scroll down to the Statement of Program Service Accomplishments on page 2.

Step 5: Estimate impact

Finally, do a simple division of costs by outcomes. This will yield, for instance, the average cost to graduate an additional high school student who otherwise would have dropped out. Does that number seem high to you, or is it a fair cost to pay for that outcome?

If you just can’t find enough information on outcomes and costs, you can always reach out to the nonprofit yourself. Nonprofit websites often have contact pages, and by reaching out, you express that results matter to you. With enough donors doing the same, we can encourage nonprofits to be more transparent about their impact going forward. You can also Request a Rating by sending us a message for any unrated nonprofit.

Checking For Waste and Fraud

Despite high-profile news stories, the fact is that most charities are well run. Still, checking for signs of waste and fraud is a necessary step in donating responsibly. For all of our nonprofits, ImpactMatters performs checks for warning signs and indications of improprieties. To perform your own checks, review a nonprofit’s 990, which can be found on GuideStar or ProPublica’s Nonprofit Explorer. Here’s what to look for: 

Warning signs

  • Administrative and fundraising costs. Data show that overhead rates are a poor proxy for impact. ImpactMatters ratings therefore aren’t based on rates of overhead spending, but rather the progress made toward a nonprofit’s mission. However, administrative and fundraising spending can be excessive, which could both waste money and call into question the nonprofit’s reporting on its programmatic effectiveness. On the 990, check if the sum of amounts reported in Part IX, line 25, columns (C) and (D) are more than 35 percent of the amount on line 25, column (A). If so, that’s a warning sign. A nonprofit with two warning signs receives 1 out of 5 stars in our rating scheme. But below 35 percent, overhead ratios don’t factor into our ratings at all.

  • Audited financials. A nonprofit with revenue greater than $2 million should have an independent auditor review its finances; if not, we consider this a warning sign. The 990 has three different places for this: Part IV Line 12a; Part IV Line 12b; and Part XII Line 2b. We waive this check for smaller nonprofits.

  • Paid directors. For smaller nonprofits filing Form 990-EZ, we check whether the nonprofit has paid directors. We do not think that a nonprofit of that size should compensate directors unless they serve as staff. Check columns (C) through (E) of 990-EZ Part IV; if people listed as "Board of Directors" (or similar) are compensated while contributing fewer than five hours a week, we treat this as a warning sign.

Indications of improprieties

  • Charity Navigator advisory. Charity Navigator, another nonprofit rating agency, issues donor advisories if a nonprofit has been in the news for alleged or confirmed illegal activity or ethical breaches.

  • Excess benefit transactions. Did the nonprofit provide excess benefits (above and beyond payment for services) to any disqualified individuals? Disqualified people include anyone who has the ability to exercise a large amount of influence over an organization, and their family members. Check for this in Form 990, Part IV, Line 25a.

  • Material diversion of assets. Did the organization use any assets for activities different from the organization’s mission? This can be found in Part VI, Line 5.

Next Steps

Whether you’re discovering new causes or ready to crunch numbers first-hand, we hope these tips will help you find a nonprofit that will make effective use of your gift. Once you do, you can learn about setting a donation amount and tracking the impact of your gift in our Effective Giving Guide.