1. Donations should go directly to the cause not overhead costs

Enforcing low overhead costs (often defined by how many pence in a pound doesn’t go directly to charitable work) actually restricts charities and their ability to perform. It can prevent them from being able to monitor their work, design effective programmes, and plan for the future.

Contrary to public perception, studies have failed to find any correlation between low overhead costs and effectiveness. Higher running costs can actually lead to better performance as it enables charities to prioritise learning, thinking and planning.

We expect businesses to invest in themselves, but expect charities to do the opposite. Using overheads as a proxy for effectiveness or efficiency is also only looked at in the context of charity.

It’s important for your clients to do their due diligence on a charity. How are they tackling the issue? Do they have a strong leadership and good governance? Do they report on their achievements and failures? Is their information transparent?

Once your client truly understands how a charity is making a difference, supporting them with core funding will help them become much more nimble and effective and be able to use the donation where it’s needed most. 

2. Large or small charities are inefficient

An organisation’s size is not always a good indication of the quality of its work; the effectiveness of its programmes is a much better marker.

Bigger charities can have advantages in terms of power, recognition and economies of scale, while smaller charities can be more agile and responsive. On the other hand, many small charities working separately on the same issue can duplicate resources and effort, which is also inefficient.

Either way, researching the projects delivered by a charity can help in deciding where to donate. 

3. Impact investing is more effective than traditional philanthropy

In some cases, impact-driven investments may be more effective, but in others charitable donations could be a better fit.

There are many different types of impact investing: anything from screening out ‘sin stocks’ to social investment like CAF Venturesome. It might be helpful to start with the idea that impact investing can have three types of impact: enterprise impact, financial impact, and non-monetary impact.

• Enterprise impact is the social impact a company has; how effective they are at solving a social issue. This is not necessarily more effective than donating to a charity. For example, evidence suggests that distributing free malaria nets is far more effective than charging for them, which significantly reduces demand. So, if an individual invested in a social enterprise selling nets, they may have less impact than if they donated to a charity giving them out for free.

• Financial impact is the impact an investment has. If an impact investment opportunity gives market-rate returns, it could attract socially neutral investors who are just looking for a good investment opportunity. The company would not have an issue raising capital, and so a donation could have more impact by going to an effective charity that may not otherwise attract such investment.
• Non-monetary impact is the skills, knowledge and expertise an individual can bring to a company that another investor couldn’t. This type of impact means that they’re likely to have more impact in private markets, where these types of resources are more needed. It might also mean they can identify financially impactful investment opportunities that other investors may not have come across. 

We recommend an approach of exploring the options to identify the most impactful choice.  

4. Charities working on the ground are more effective than those working on systems change

Both approaches can be effective. The question is how your client perceives the issue they seek to address, and the change they want to see.

An organisation working directly with communities or beneficiaries can be very targeted and therefore may have a higher chance of success. It may also be easier to measure the impact of their programmes, as the link between intervention and result will be more direct.

The effectiveness of organisations working to create systemic change is harder to evidence because of the number of stakeholders involved and the difficulties in changing a system. But if successful, it can be far more impactful as it might result in a change in policy or provision of a service to a whole group of people rather than a specific community. 

5. I don’t have enough money to make a meaningful difference

The key determinant of the difference your client’s donation will make is the difference the charity they’re supporting makes.

While it’s true that the size of donation can make a bigger or smaller difference to a charity’s finances, in terms of the impact a donation can have, it all comes down to the charity they choose. Donations to a charity running really effective programmes will make more of an impact than donations to a less effective charity.

Look at research and evidence to determine the effectiveness of a charity’s programmes.