Nonprofit organizations are generally very aware of their percentage of program expenditures to total expenditures. This program efficiency ratio is often used as an indicator of the organization’s effectiveness in its delivery of services, resulting in an assumption that the greater the allocation to program, the better.
This logic doesn’t really work. An organization devoting an extremely high percentage of its resources to program is likely not spending an appropriate amount of time and resources on the activities necessary to keep the nonprofit sustainable. Without fundraising, how will the community and new donors learn about the organization and the work it is doing?
Administrative expenditures provide significant benefit to a nonprofit organization. A minimum level of administrative activity is necessary to keep the nonprofit running, but a healthy sustainable organization invests in its internal controls, its employees, and its future.
Nonprofits can assist donors when making contribution decisions. Describe the mission, relationships, and organizational strength of the enity and how the program efficiency ratio supports operations, growth and sustainability.