Although still important to donors, the expense ratio (what a
charity spends on administrative, overhead and fundraising costs
vs. program costs) is now sharing the spotlight with other
measurements as a way to judge an organization's
effectiveness.
The traditional appeal of expense ratios is obvious. They are
easy to calculate using data from financial statements or Form 990s
and provide a standard metric with which to compare all
not-for-profits.
Watchdog groups vary somewhat in the expense ratios they
advocate, but most agree that "effective" not-for-profits
spend at least 65% to 75% of their budgets on program costs.
Many in the not-for-profit community question the benefit of
expense rations. Clearly, they do not tell the whole story. In
addition, because watchdog groups, donors, foundations and
government regulators have placed such a strong emphasis on this
single metric, many not-for-profits felt pressure to under-track
and under-report actual
