ImpactMatters is a new nonprofit rating agency that helps donors find high-impact nonprofits.

Our objective is to help donors find nonprofits that spend their dollars wisely. To make smart decisions, donors need to know the impact of the nonprofits they are asked to support. Little information readily exists. We are filling this information gap with a rating system that takes explicit account of how much good the nonprofit achieves per dollar of cost.

To assign impact ratings, we use publicly available information to estimate the actual impact the nonprofit’s program has on people’s lives. We then compare those impact estimates to benchmarks to determine if the nonprofit is cost-effective. Our ratings provide a clear signal of impact for donors.

ImpactMatters helps donors find nonprofits that spend their dollars wisely. To do so, we quantitatively estimate the impact of nonprofits and then issue ratings. We have two principal aims:

• Boost giving to high impact nonprofits
• Help nonprofits better communicate their impact

With our metrics, donors and nonprofits get to know the real impact of a donation.

Impact is the change in outcomes — e.g., lives saved or income earned — caused by a social program compared to the costs to achieve those outcomes. An example: the impact of Feeding America is one meal served for every $2 spent. Cost-effectiveness is a determination as to whether the benefits outweigh the costs. To determine cost-effectiveness, impact is compared to a benchmark. For example, the cost of a meal delivered by the nonprofit can be compared to the cost to buy a meal in the same area. If the nonprofit delivers for substantially less than the cost to buy a meal, we would conclude it is highly cost-effective. ImpactMatters bases its choice of benchmarks on market prices or established norms whenever possible. Cost-effectiveness is viewed by some as anathema to the nonprofit sector. We see it as the opposite. Take a simple thought exercise: A program has a limited budget of$100,000 to improve literacy in a community. It can choose between two approaches to do so: one that can boost literacy by a grade level for 100 students and a second that can also boost literacy by a grade level but for 200 students. All else equal, a sensible program administrator would choose the second, as of course it helps twice as many students. This is a cost-effectiveness decision. We have limited resources and unlimited need. Cost-effectiveness is a decision tool that makes those resources go further — helping more people in more ways.

ImpactMatters’ ratings go beyond conventional measures of nonprofit success — such as the ratio of administrative costs to total costs — to focus on what matters: how the nonprofit changes people’s lives.

Our process involves five steps:

1. First, we identify a type of program — such as tree planting — and develop a methodology for analyzing the impact of those programs.
• The methodology relies on low cost, low burden data from the nonprofit, such as the number of trees planted.
• We combine numbers from the nonprofit with social science research to build an equation that estimates impact.
2. We then identify nonprofits that implement that type of program and search for the numbers we need. Data comes from tax forms, called Form 990s, annual reports, financial statements, government datasets and nonprofit websites.
3. With the numbers in hand, we calculate impact. Our methodology (coming soon) describes how.
4. We compare impact to a benchmark to assign stars. For example, we use the social cost of carbon to analyze the cost-effectiveness of tree planting programs.
5. Finally, we ask nonprofits to review and correct our work before we publish.
• 1 star: The nonprofit has serious indications of mismanagement.
• 2 stars: The nonprofit has not reported the data necessary to estimate impact. We are not yet issuing 2-star ratings.
• 3 stars: The nonprofit’s program is not cost-effective.
• 4 stars: The nonprofit’s program is cost-effective.
• 5 stars: The nonprofit’s program is highly cost-effective.

To understand the impact of a program, we must ask the counterfactual question: What would have happened to beneficiaries if the program had not, counter to fact, been there to serve them? We then measure the difference between what actually happened and what we think would have happened if the program had not been around. That difference is the impact of the program. Just looking at what actually happened is not sufficient for understanding impact because many factors besides the program could affect how beneficiaries fare over time. For example, an economic boom affects both beneficiaries of a job training program and non-beneficiaries. An observed increase in employment among beneficiaries is insufficient evidence to conclude that the program — and not the economic boom or other factors — caused an increase in employment.

Most communication about impact today inadvertently ignores the counterfactual. But ignoring the counterfactual, in effect, assumes the counterfactual to be zero. In other words, it assumes that in the absence of a program, the outcomes of beneficiaries would not have changed at all. This may well be the case for some programs in certain settings. But for many others, it would be extreme and erroneous to assume, for instance, that without a program, no children would have graduated from high school. We incorporate the counterfactual into our analysis to provide an accurate estimate of nonprofit impact.

We do not compare nonprofits between causes, only within the same cause. We think donors should choose a cause with their heart — we can then help them find a nonprofit that is effectively advancing that cause.

Overhead is a flawed metric to judge nonprofits by. Fixating on overhead might punish great groups that are spending money to achieve their mission. Instead, we look at a nonprofit’s actual results — lives saved, income generated, so on.

There is such a thing as too much overhead. Our governance checks identify nonprofits that have clear signs of improprieties. The vast majority of rated nonprofits — 99 percent — pass these checks. Look for details in the governance report on any rated nonprofit.

##### Who we rate

We rate “service delivery” nonprofits, i.e., nonprofits that deliver a program directly to people to achieve a specific health, anti-poverty, education or similar outcome.

Nonprofits can get funding from individual contributions, foundation and government grants, investment income and other sources. Because the audience for our ratings is donors, we only rate nonprofits that receive at least some funding from individuals or foundations. A nonprofit that is less reliant on donor dollars is neither worse nor better; just less relevant to donors seeking guidance and confidence when giving.

##### Who we do not rate

We do not rate two types of nonprofits: (1) advocacy and research nonprofits; and (2) “donor use” nonprofits.

Advocacy and research nonprofits. Nonprofits that seek systems change through advocacy, research or similar activities may be highly effective, but they are much harder to measure. The link between the nonprofit’s work and the final outcome is longer, and often there are alternate explanations for why that particular piece of legislation passed or those minds changed. We do not (yet) have a good method for consistently estimating the impact of these programs, and so we do not issue ratings for them. We hope to add these in the future.

"Donor use" nonprofits. For some nonprofits, the donor herself is a user of the nonprofit, e.g., religious organizations, community associations and most arts and culture institutions like museums. We neither encourage nor discourage donating to such nonprofits; we just do not rate them. With these “donor use” nonprofits, the donor’s decision to donate is largely driven by her personal experience with the nonprofit. As such, we do not see the same value-added from applying our methods to such organizations.

We only rate nonprofits that publically share the data needed to calculate impact. Many nonprofits do not or are not able to publish this data, which is why a nonprofit you’re searching for may not be rated. You can always request a rating by searching for a nonprofit and clicking “Request a Rating”. We also encourage you to reach out directly to the nonprofit for impact information before donating. Establishing a relationship and conveying the importance of impact measurement will help you understand if they feel the same way!

We do not currently accept donations through ImpactMatters. We encourage you to donate to 4- and 5-star nonprofits. By clicking Donate Now, you will go directly to the nonprofit to make a donation. If you encounter any discrepancy or error in doing so, please let us know.

No, ImpactMatters acts as an independent nonprofit rater, highlighting nonprofits that are highly impactful. We then encourage direct donations to the nonprofits themselves. We do not collect any funds directly.