We all know about how funders want to make sure that the check they write you isn't the last check you ever receive. We've also seen the question about duplicated clients. It seems as though over the years measuring the impact of a contribution is becoming more and more important. Nonprofits know how to measure impact from a single dollar, but how do funders know that they will get more bang for their buck at your nonprofit?
A new rating system, ImpactMatters, is trying to help donors to just that. It rates similar nonprofit groups across an array of service areas focusing on the potential impact of your dollar. The first wide-scale batch of 1,078 ratings were released just a week or so ago, ahead of the holiday giving season and Giving Tuesday. Executive Director of ImpactMatters Elijah Goldberg said that donors want to know "which nonprofit is spending their money wisely? We wanted to understand the impact in a quantitative, rigorous way. We went out to solve this problem.”
But how does it work?
ImpactMatters looks at how much good an organization achieves per dollar. For example, a group that provides a meal for $2 when the cost in the area is $4 will get a higher rating than a similar group that provides a meal in that area for $5. There are so many charity rating sites likes GuideStar and Charity Navigator, but what makes ImpactMatters different (according to their founder) is that they worked with Dean Karlan, a Northwestern University economics professor who taught Mr. Goldberg at Yale, to specifically measure impact with the donor’s dollar - something other sites do not do.
They are trying to highlight an apples-to-apples comparison of organizations who serve similar people in similar ways - like food insecurity or health care. It contends that its approach will direct more money to the charities that have the most impact in their fields while pushing laggards to step things up. Finding a simple way to rate charities that are dealing with complex problems is challenging. ImpactMatters said it had abandoned a more involved framework and replaced it with a five-star rating system.
Mr. Goldberg said the goal was to help donors at least find the top nonprofit groups in eight areas where impact could be measured: veterans, clean water, homelessness, health, poverty, hunger, education and climate change.
“What we did was introduce a benchmark for each outcome,” he said. “In some ways, our estimates are better because we do 300 food banks and soup kitchens at once.”
In the first batch, 59 percent received five stars, 28 percent four stars, 13 percent three stars and just one a single star, for reporting improprieties. (Two-star ratings, which will appear in future releases as ImpactMatters rates more charities, are reserved for groups that haven’t reported enough information.)
The number of high marks raises the issue of inflated ratings. Are the ratings worth the effort if most nonprofits score a five? “It’s reflective of the fact that these groups are doing good,” Mr. Goldberg said.
Cue the panic.
I can already hear my phone ringing with concerned clients about their ratings and how their individual donors will be impacted. Take a breath, because this site is not the end all be all of donor giving.
ImpactMatters still has tens of thousands of charities to rate.
There are more than 1.5 million nonprofits in the United States. And those nonprofits fall into more categories than the 8 categories ImpactMatters covers - and as Mr. Goldberg mentioned above, they have tens of thousands more to rate who do fall into those categories.
For now, I think we can all rest assured that individual donations will not plummet over night. Although ImpactMatters is the first of its kind, given the trends of philanthropy I anticipate that even more rating/ranking sites will emerge.
So what can we do in the meantime? Nonprofits are amazing at stretching their dollars to serve as many people as possible. With this increased focus on impact, I think that the best thing a nonprofit can do is keep diligent track of their outputs and outcomes and continue to find dynamic ways to make the world a better place. (And if you're not keeping meticulous documentation of your outputs and outcomes, I sincerely hope you consider that for your New Year's Resolution.)