Nonprofits need watchdogs to make sure they remain as honest and hardworking as they promise in their campaigns.
Websites like Charity Navigator safeguard the wallets of donors against unsavory organizations, but also provide unique insights into beneficial organizations. This new emphasis on transparency is good news for those latter organizations, since good ratings mean good press for nonprofits.
Charity Navigator rates nonprofits based on their internal accountability, their fundraising effectiveness (which is boosted by the use of nonprofit software), and their financial prowess. This practice has opened the eyes of many potential donors as well as boosted the PR campaigns of helpful and honest organizations.
For instance, Wounded Warriors Project was once lowly rated by Charity Navigator in 2009 with two stars, but after considerable reconstruction and work with the watchdog, WWP has seen a significant increase in watchdog ratings.
In order to reap the benefits of Charity Navigator, your nonprofit must be on the website and rated first.
What criteria do you have to meet to be rated by Charity Navigator?
If Charity Navigator has yet to rate your nonprofit, you may be missing key criteria.
Charity Navigator bases their admissions system off of seven specific criteria in order to be rated be the website:
- Tax Status: Register your nonprofit as a 501(c)(3) nonprofit organization and file an annual Form 990 (the tax form which details the financials of a tax-exempt organization).
- Revenue: Generate one million dollars each year for two consecutive years to qualify for a rating.
- Length of Operations: Your organization must’ve existed for at least seven years. This requirement helps maintain a fair standard for judging nonprofits. Older nonprofits are more stable and predictable than newer organizations. For example, young charities are prone to varying income levels each year due to the lack of an established donor base.
- Location: Nonprofit must be based within the United States in order to maintain an equal standard regarding tax and legal standards for organizations. Organizations with international operations are rated so long as their headquarters resides within the United States.
- Public Support: Charity Navigator rates nonprofits which benefit more from public support rather than government support. Your organization must earn at least $500,000 in public support (gifts, grants, contributions, and memberships from businesses, individual donors, and foundations) and must account for at least 40% of total revenue for two consecutive years.
- Fundraising Expenses: Charity Navigator requires that nonprofit organizations dedicate at least 1% of expenses towards fundraising initiatives for three consecutive years. Charity Navigator evaluates the fundraising practices of nonprofits when assigning a rating.
- Administrative Expenses: Finally, Charity Navigator requires that organizations dedicate at least 1% of expenses towards administrative spending (such as salaries, overhead, and management) for three consecutive years.
Tips for Maintaining an Outstanding Charity Navigator Rating
Now that you know exactly what it takes to make the cut for a Charity Navigator rating, here are a few tips on how to maintain a stellar rating with the most popular nonprofit watchdog.
1. Remain open about your finances and operations
Charity Navigator stresses openness and transparency.
They assume that nonprofits willing to open up about their operations and expenses are far more likely to act with integrity than those who hide their financial details. Donors often feel more comfortable giving their money to organizations that are open with what they do with outside contributions.
But what does all of that really mean and how do you open up your organization?
The first step to transparency is to file an annual 990 tax form to the IRS.
While these tax forms seem like an obvious obligation for nonprofits, many nonprofits face heavy late penalties (up to $50,000 for nonprofits with revenues over $1 million) and, in some cases, lose their tax-exempt status.
When Charity Navigator evaluates all they will address your 990.
Second, adopt a conflict of interest policy.
Charity Navigator explicitly implies that they look favorably on organizations that make every effort to avoid any appearance of conflicts of interest. This demonstrates a dedication on the part of a nonprofit to adhere to their stated mission.
For a solid example of a conflict of interest policy, read through the policy drafted by the Montana Nonprofit Association. Theirs is thorough, organized, and easy to follow.
Finally, include a regularly updated section on your nonprofit website that breaks down where finances are allocated for your organization.
Your breakdown should include projects, staff, and other overhead costs.
Not only does providing this information to the public help your Charity Navigator rating, but it also inspires confidence in potential donors wanting insight into where their money is going.
2. Work on fundraising efficiency
Charity Navigator doesn’t just look into your financials and fundraising. They are also interested in what it took to get those funds.
If too many resources are diverted into fundraising with little to show for it, they will dock points from your rating.
Here are three practices you should adopt to improve your fundraising efforts’ return on investment.
1. Embrace mobile fundraising
Mobile internet traffic surpassed desktop traffic back in 2014 and has continued to rise since. Furthermore, the average American spends roughly 87 hours per month browsing the internet on smartphones as of August of 2016.
Your nonprofit can no longer afford to ignore mobile internet traffic without suffering significant consequences. Not only should you be focusing your energies on optimizing your fundraising websites for mobile browsing, but you should also be exploring options such as mobile fundraising for events. Ignoring these trends means lost potential donations.
Some top mobile fundraising apps:
2. Social media fundraising
According to MGive, social media fundraising produces better results at a lower cost than traditional offline fundraising tactics such as cold calling, events, direct mail, and TV ads.
Social media allows you to reach millions of people from the comfort of your office, without hiring dozens of cold callers or marketing associates. Entire social marketing campaigns are easily managed by small teams with the use of social media management tools.
Some social media management tools that are popular among nonprofits:
3. Encourage monthly giving
Rather than ask for one-time donations for specific campaigns (which also has its time and place), it is better for fundraising stability to acquire as many monthly givers as possible. It is easier on your budget to lose a few smaller monthly givers than losing one large one-time donor. Classy offers tips to encourage monthly giving:
- Name your program: Naming your monthly giving program gives your donors a sense of belonging as well as establishes a relationship with your givers. I would recommend putting together a focus group to find the best name possible.
- Show member benefits: Offer incentives for giving. Several nonprofits I give to offer special giveaways to monthly donors, as well as preferential status to events. One easy benefit is to give recognition to monthly givers through social media posts, project dedications, and awards for their contributions. Who doesn’t want a little praise or a thank you for their deeds?
- Match recurring gifts with impact: If donors agree to give a monthly contribution, it’s best to explain to them what it is their money will go towards. Each contribution tier ought to have a description of the impact that amount will do for your cause.
These and other tips will help you improve the efficiency of your fundraising increase your Charity Navigator rating.
3. Eliminate any diversion of assets
“Diversion of assets” describes unsavory practices such as embezzlement and fraud—something that Charity Navigator frowns upon.
Not only does Charity Navigator punish the ratings of organizations caught in the midst of such scandals, but they also knock those who do little to protect against them or even the appearance of fraud.
After the Washington Post conducted an investigation into the issue, they unveiled that over 1,000 nonprofits reported a “significant diversion of assets between 2008 and 2012.” These types of fraud included issues such as misuse of corporate credit cards to forged checks.
In order to protect against fraud, Law360, a legal advice resource, compiled a guide to preventing fraudulent practices. First, Law360 suggests that traditional audits of nonprofit finances are not sufficient to weed out these issues. Instead they recommend that your organization go under annual reviews by experienced outside counsel.
Second, nonprofits have to communicate the need for adequate funding in order to implement the kinds of necessary financial controls (such as internal audits and expense tracking software) and staff for weeding out fraud.
Finally, the board of directors must monitor and approve all major spending projects in order to ensure accountability. This demonstrates dedication of integrity on the part of those managing the organization to Charity Navigator.
These precautions help show a dedication to integrity to Charity Navigator and help prevent future compromises in asset direction.
Other tips to improve your nonprofit organization’s Charity Navigator rating?
Our Capterra nonprofit technology blog dedicates itself to bettering nonprofit organizations. We provide you with tools to succeed in common nonprofit management challenges, such as:
- How to Maximize Nonprofit Income While Maintaining Your 501c3 Tax-Exempt Status
- 6 Harmful Fundraising Mistakes You Don’t Want to Make
- The Top 5 Nonprofit Management Myths That Need to Die
Have you had any interesting experiences with Charity Navigator? Do you know any other tips we could use to maintain and/or improve a rating? Be sure to let me know in the comments section below!
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