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Non-profit ratings are used to grade non profit organizations based on a broad range of measurements, including financial data, transparency, and effectiveness. To interpret the ratings, it is important to understand how each of these factors is weighted and to assess which ones are most important to you personally. The ratings can be used to choose where to donate based on which organizations meet your standards rather than those of an arbitrary rating agency.
Historically, non-profit ratings were based on simplistic financial ratios such as cost of fundraising, percentage of funds used for programming, and administrative expenses. These are important considerations, as the less is spent on fundraising and administrative support, the more can be spent on the front lines actually helping people. Experts agree that for most non-profits, the annual fundraising budget should be less than 25% of the funds raised, and at least 60% of the organization's total expenses should be spent on its charitable programs. However, just because a non-profit organization's finances are highly rated does not mean it is a good or effective charity.
Transparency is an important part of non-profit ratings because it allows for independent verification. Accounting for non-profits varies from one organization to the next. Not every charity uses the same criteria to determine what qualifies as a fundraising expense versus an administrative expense. By making their budgets, tax returns, and other key documents publicly available, non-profits give rating agencies, grant makers, and individual donors the opportunity to see the numbers and do the math themselves. If the organization's figures agree with an outside audit, that's a good sign that the financial ratings are accurate and deserved.
Grading a non-profit organization on its financial standing alone may create an incomplete picture. That's why charity watchdogs and other rating organizations have begun to include more subtle measurements that can indicate how well a non-profit is doing its job. This means not only efficiently stewarding its financial resources and willingly sharing information about its business practices and financial status, but providing services in accordance with its mission in a timely and effective way. Weighing these factors can level the playing field so organizations that must spend more money on overhead can still earn competitive ratings by being excellent at what they do.
The most robust non-profit ratings take into account a charity's growth and expansion, which typically are signs of success. They also weigh its ability to set and attain reasonable goals and to provide concrete measures of its accomplishments. To get the clearest picture of a non-profit's value, look for ratings that give you this level of detail. Remember, though, that no rating can be wholly objective or complete. If you notice discrepancies, don't be afraid to contact the non-profit organization directly to ask questions.