Environmental, Social & Governance Briefs

Why We Need Better Ways to Help Donors Understand the Cost of Solving Big Problems

October 07, 2020

This blog was originally published as an op-ed in The Chronicle of Philanthropy. 

I noticed a recent Tweet by a company boasting that their $2 million donation to antihunger groups was going to feed at least 20 million Americans. While this claim seems impressive, it means that 20 million hungry people are going to get a 10-cent meal!

Albeit with the best of intentions and without our current understanding of the value of nutrition over volume, companies and organizations of all kinds have been making similar claims about their social impact for decades, but the accuracy of the claims could not be verified. In other words, we don’t know the actual cost of what it takes to make a significant difference in a person’s life.

But we’re getting closer thanks to the recently released Price of Impact Index. The index tracks the average cost for a non-profit to achieve any of 132 positive social outcomes such as hunger relief, academic achievement, arts appreciation, job placement, better mental health, and youth development. It was developed by the Impact Genome Project, which I co-founded to standardize outcomes data, with grants from the Bill & Melinda Gates Foundation and leading corporate philanthropies. Think about the index like a rate card for social impact.

Why do we need this index? Because for too long the world of social impact has largely measured the success of programs by how much money is going in (inputs) and how many people are being reached (outputs). While these figures quantify donors’ efforts, they don’t demonstrate impact in terms of how many lives are actually being positively changed. With better metrics, philanthropy and government alike can increase their efficiency, improve decision-making, and evidence the good they are doing.

What It Takes

Touting a number of meals provided overstates impact; one meal is not even a day’s worth of food. This form of reporting also makes it easier to raise money as donors feel good when they hear how much good their dollars achieve. This strategy, however, leads the public and donors into thinking that they are contributing to a solution to a problem when they are really providing a short-term fix.

The first thing we can do to address this issue is to collect self-reported data from frontline non-profits to determine the actual cost of achieving an outcome. As it turns out, the cost of feeding someone a nutritious meal, according to the non-profits that deliver those meals, is $8 on average, not 10 cents.

While providing a meal is a nice thing to do, it’s doubtful that a person suffering from hunger will be changed in any meaningful way by receiving a single meal. In order to make an impact on the hunger problem, we’re going to have to aim higher. According to data reported by non-profits in the Price of Impact Index, the cost of providing ongoing access to healthy, nutritious food for at least a month is $542. Think about that figure in the context of a $2 million donation; it would alleviate hunger for 3,690 people for a month. That’s beneficial but a - very - far cry from 20 million.

The Ripple Effect

First, by reporting data that has little bearing on the actual impact of the work they do, non-profits lose an opportunity to educate donors about the true cost of solving a problem. As a result, many non-profits are chronically underfunded, thus often cannot fully carry out their mission.

Second, donors get lulled into a false sense of accomplishment; meanwhile they’ve put but a small dent in the problem they are trying to help solve. As companies increasingly lean on purpose in their marketing, another problem arises: they unwittingly make claims about how much good they do based on data that doesn’t fully support their claims. In doing so, they damage company and industry reputations by perpetuating the argument that social investments are corporate social washing. And perhaps most problematically, companies’ belief in their claims can leave the very nonprofits they’re trying to support without the resources they need to achieve their goals if they are unable to make up the difference.

The Price of Impact Index is designed to solve these problems. It provides donors with a benchmark price for outcomes so that the expected impact of donations can be gauged realistically. These benchmarks can also help non-profits more advantageously participate in fundraising conversations by establishing the true cost of what it takes to do their work. With such price transparency, a marketplace for impact can be established with companies (the buyers) and non-profits (the sellers) on more equal footing.

Optimizing Impact

How can companies make truly impactful donations to important causes? 

• Ask non-profit partners to report their cost per outcome so the performance of the programs they support can be benchmarked. This data can be easily self-reported using the standards defined by the Price of Impact Index.
• Fund outcomes, not outputs. Base the amount of donations on the cost of the actual impact expected to be achieved; and
• Communicate impact stories, not donation amounts. Big numbers sound great but customers, the public, and the media will be more impressed by the accomplishments they enabled in peoples’ life.

As the COVID-19 pandemic and recession put more pressure than ever on donors and nonprofits, it’s urgent that we talk realistically about what it takes to solve society’s problems. It’s time we use both our hearts and our heads in making decisions about philanthropic giving.