KNOWLEDGE: ‘Overhead-free’ appeals encourage more people to donate

Because they want to maximise the personal impact of their donation, more people will donate to charity if they are told that all their donation will go to the cause because a major donor has already paid the overhead costs associated with the appeal.

Summary of paper, Avoiding overhead aversion in charity, published in Science, 31 October, 2014.

Authors

Uri Gneezy, professor of economics and strategy, Rady Business School, University of Califonia San Diego.

Elizabeth Keenan, PhD student, Rady Business School, University of Califonia San Diego.

Ayelet Gneezy, Associate Professor of Behavioral Sciences and Marketing, Rady Business School, University of Califonia San Diego.

A) Main findings and conclusions

People are more likely to donate to a charity if they have been told that all their donation will be spent on programme work because a major donor has already covered the costs of the overheads associated with an appeal.

A study by behavioural scientists at Rady Business School at the University of California San Diego tested the proposition in a controlled lab experitment using students and a live field trial of a mailing to 40,000 potential donors of an unnamed educational foundation.

The researchers concluded that telling potential donors that all overheads have already been covered significantly increased the number and amount of donations.

They also concluded that this uplift was due to a desire on the part of donors to maximise ‘personal impact’ through their philanthropy, and was not related to or influenced by considerations of the efficiency of a charity, as previous researchers have suggested.

Lab experiment

In the first experiment, 449 students were assigned to five treatment groups about the conditions surrounding a putative $100 dollar donation they could choose to make to one of two American charities – Kids Korp USA or charity:water. Participants were told that the researchers would select one participant at random and make his/her chosen donation on his/her behalf – so there was a real world consequence to their participation

Under all five treatments, there were no overheads associated with the Kids Korp donation. However, researchers varied the overhead levels for charity:water:

1) No overheads – charity:water would be sent $100 by researchers

2) Five per cent overheads – charity:water would be sent $95

3) 50 per cent overheads – charity:water would be sent $50

In each case, the researchers would have deducted the ‘overhead’ costs before passing on the donation to charity:water, if randomly selected – this therefore differs from most real life donation scenarios where overheads are generally not deducted from a donation after it is made but before it is passed to the charity.

In the first, no-overheads treatment, 73 per cent chose to give to charity:water, but this proportion dropped to 67 per cent in the treatment 2 (five per cent overhead) and 49 per cent in treatment 3 (50 per cent overhead). Participants in the 50 per cent overhead groups were 24 per cent less likely to choose charity:water over Kids Korps USA.

The researchers say this represents the first experimental evidence of the “overhead aversion” and posit two possible reasons:

High overheads might imply organisational inefficiency

Donors feel they have made a personally greater impact with their philanthropy if they believe all their money is spent on programme work rather than overheads.

The researchers tested this with treatments 4 and 5:

4) Five per cent overheads – donors were told a major philanthropist had covered the overhead costs, “so for every $1 you donate the entire dollar will go to charity:water”

5) 50 per cent overheads ­– donors were told a major philanthropist had covered the overhead cost, “so for every $1 you donate the entire dollar will go to charity:water”

If participants were using efficiency as a guide, then the results from these two groups should have been similar to the results from groups two and three. But in this experiment, 71 per cent of people in the 50 per cent group chose to donate to charity:water (compared to 49 per cent in the similar treatment 3 group) – a result which was not significantly different from the first treatment where there were no overheads at all. The researchers interpret this as a rejection of the efficiency hypothesis and confirmation that donors want to maximise their personal impact.

Field experiment

The researchers then carried out a mailing to 40,000 people who were asked to make a donation (options were $20, $50 and $100) to an unnamed educational charity. Respondents were divided evenly into four groups (i.e. 10,000 in each group):

Their donation would be matched by money provided by another donor

Their donation would be added to a ‘seed fund’ provided by another donor

‘Overhead-free’ – donors were told that all overhead costs associated with the appeal had been paid for by a major donor

Control group – no information provided about overheads, seeding or matching.

The paper does not say whether there was an actual major donor who was matching donations, providing a seed fund, or covering overheads.

Key results are:

Responses to the overhead-free offering were significantly higher than all other groups (in the region of double and close to three times the control group).

In the overhead-free group, $20 dollar donations (7.26 per cent of the entire 10,000 mailing) and $50 donations (0.86 per cent) were significantly greater (in the region of double) than those in the other three groups

While the proportion of $20 and $50 donors in the seed and matched groups were not significantly different from each other, they were significantly higher than the control.

The pattern was similar for $100 donations – 43 (0.43 per cent) in the overhead-free group and 27 each (0.27 per cent) in seed and match groups. But there were just three (0.03 per cent response rate) donations of $100 from the control group.

Overall, the campaign raised significantly more money from the overhead-free group – the total of $23,000 in this group was 75 per cent higher than the seed group, 89 per cent higher than the matched group and 188 per cent higher than the control.

However, the average amounts donated per donor in the seed, matched and overhead-free groups (between $27-28) were not statistically different from each other (thought they were significantly more than the control group’s $24 average gift). So the difference in total donations between the seed/matched groups and the over-free groups was due to the increased number of donors in the overhead-free group, not the increased amount each one gave.

B) How can this be applied to fundraising practice?

Based on the study’s findings, the paper’s authors propose a way to “bypass individuals’ reluctance to donate due to overhead-related concerns”. Rather than use an initial donation to match further donations or establish a seed fund – which many charities do and the effectiveness of which has been shown by previous research and reconfirmed by this paper – they suggest using a major gift to cover the cost of overheads associated with an appeal.

They call this ‘overhead-free donations’. The paper presents charity:water as an example of this. This non-profit is split into two separate organisations – ‘The Well’, which fundraises for charity:water and has its costs paid for entirely by philanthropists; and charity:water itself, which accepts donations that are spent entirely on programme costs.

However the authors sound several notes of caution, including the acknowledgement that their proposed solution could exacerbate the unpopularity of overhead costs among donors and encourage a “race to the bottom” among charities.

While they note that charities have been trying to persuade the public to place less weight on admin and fundraising costs, they say they “believe such efforts entail a prolonged uphill struggle that may ultimately prove futile”. Their proposed solution, they argue, simultaneously addresses people’s concerns about overheads while increasing giving.

Rogare recommends charities exercise extreme caution when deciding whether and how to make use of the findings of this paper, as the so-called ‘overhead-free’ solution has been used many times before and raises questions regarding the ethics of such practices and charities’ responsibilities to the reputation of the entire professional practice of fundraising. We explore these issues further in a related Critical Fundraising blog.

However, these findings provide a useful reconfirmation of the effectiveness of using major gifts in seed funds or to match further donations, by focusing on the desire to increase the donor’s personal impact. And this research could be used to engage philanthropists on the need for overhead costs as a kind of counterfactual:

‘If we asked you to cover our overhead costs so we could give the impression we don’t have any, this research shows you the great results we could achieve. However, we can’t go down that route without damaging the reputation of the sector as a whole and possibly inhibiting other charities’ chances of securing donations. So let’s talk instead about how we can help you to maximise your personal impact with us through your gift, how you can help us encourage giving in other ways, and how you might use your influence to change the way people think about charity overheads.’

Source:

Gneezy, Uri, Elizabeth A. Keenan, and Ayelet Gneezy. ‘Avoiding overhead aversion in charity.’ Science 346.6209 (2014): 632-635.

Further information:

Summaries of the study are available on the Science and Phys.org websites.

CAVEAT:

This summary is presented for information only and its publication on the Rogare website implies neither endorsement nor criticism by the Centre for Sustainable Philanthropy or Plymouth University of this research, which has been previously published in a peer-reviewed journal or released by an academic institution.

For a full understanding of the research and its implications, interested parties are advised to consult the original research.

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