Resource Development: Breaking Down a Donated Dollar

Nonprofit Business Expenses Donations Allocations

Fueled by their ambitious visions, many nonprofits seek to make the most of their time, resources, and efforts. Resource development, a process-oriented plan, can greatly help nonprofits optimize their efforts.

Resource development is a nonprofit's organized, ongoing plan to allocate resources to cover expenses, begin fundraising, and cover any additional expenses.Responsible resource development represents a nonprofit's ongoing commitment and initiative to serve.

"True resource development planning transcends the fiscal health and stability of your program," insightfully says. "The hard question is not, 'how do we sustain our program and agency?'" Rather, according to the writers of the guide, the better question to ask is, how do we best serve those in need?

It is becoming increasingly imperative for nonprofits to be smart, accountable, and transparent when they allocate resources. According to GuideStar, donors care the most about the following five aspects of a charity organization's spending: transparency, governance, leadership, results, and finances. Websites such as CharityNavigator, SeriousGivers, and CharityWatch exist to help donors make informed decisions about the proceeds of their donations.

IRS form 990, the annual reporting form that all nonprofits and charity organizations must submit to the government, requires organizations to report their expenses by three categories: program expenses, administrative expenses, and fundraising expenses. The breakdown of each expense, for an average nonprofit organization, is illustrated below:

Nonprofit Average Expense Breakdown

  • Program Expenses (70%): Program expenses represent the largest portion of nonprofits' expenses. Program expenses arise because nonprofits almost always provide some form of assistance to a community, such as teaching courses or helping people find jobs.

  • Administrative Expenses (10%): Administrative expenses are the overhead costs required to keep the building open and the lights on, and pay any full-time employees.

    Charity Navigator assigns charities a number from 1 - 10 depending on how much money they spend on administrative costs while factoring in how large the organization is. A score of 10 means that this organization spends 10-15% of their money on overhead costs; a score of 0 means that this organization spends 30% or more of their money on these costs. CharityWatch assigns an "A" grade to a nonprofit that spends 25% or less on operating expenses.

    However, donors must remember that the amount of money spent on administrative expenses alone does not accurately describe a charity's reputation and work. If more awareness and funds are generated from slightly larger overhead costs, then administrative expenses can be justified. More about this "Overhead Myth" is described here on a website created by charity websites.

  • Fundraising Expenses (20%): Fundraising expenses are the costs necessary to raise money for a good cause.

    If twenty cents of a dollar went to fundraising expenses, a nickel might go towards managing donor lists, and then a dime and a few more cents would be used to print posters, write letters, and organize volunteers.

LoveToKnow lists the dollar amount specific charities donate directly towards their cause. In the meantime, donors can rest assured knowing that a responsible dollar donated to their favorite cause contributes to the change they want to see.