How to Calculate a Charity Program Spending Percentage
Divide the amount the charity spent on programs by the total amount it spent, and multiply the result by 100.
For example: If an organization reports spending $750,000 on programs while spending a total of $1,000,000, dividing $750,000 by $1,000,000 produces the decimal number 0.75, and multiplying that by 100 produces the result of 75% (its program spending percentage).
Why Calculate the Percentage?
We believe the spending on programs percentage is an indicator of the focus and management approach of an organization.
Caveats: Program spending percentages should not be used standing alone. They are part of an overall evaluation of a charity and its performance. A charity spending an apparently suitable percentage on programs, where the programs themselves accomplish little, is by no means an effective charity.
What are Appropriate Percentages?
In our view,
- a percentage between 60% and 80% is appropriate (green zone),
- a percentage above 80% or below 60% (but not below 50%) might be reasonable in an organization’s specific circumstances, but should be discussed directly with and satisfactorily explained by the organization’s management before a donation is made (yellow zone), and
- a percentage below 50% (red zone) means the organization failed to meet our screening standard.
Program Spending Above 80%?
At times we’re asked why a program spending percentage above 80% should be discussed with the organization. If an organization reports spending more than 80% on programs, that means it is spending less than 20% on administration and fundraising. While an organization might be proud of minimizing administrative and fundraising costs, we believe that well-run organizations must spend meaningful resources on administration and fundraising. So, we suggest donors investigate further to make sure that the organization is not (i) having administrative or fundraising costs paid from an outside source, (ii) underspending on important parts of its operations or (iii) mis-categorizing administration or fundraising costs as program costs.