What Do Those Ratings Mean? Comparing Charity Evaluation Websites

Comparing Charity Evaluation Websites: What Do Those Ratings Mean?

The majority of people who donate money don’t research or compare charitable organizations. Only 1 in 3 research before giving, according to one of the biggest charity ratings websites, Charity Navigator. Giving 2.0 author Laura Arrillaga-Andreessen says only about 3% compare charitable organizations.

These numbers were both surprising and not surprising to me. I have done most of my donating with no more than a cursory search before hitting that donate button. In contrast, I recently bought a handheld vacuum and took several days to research it—comparing brands, watching videos, reading tons of reviews. I don’t think I’m alone in this.

People who do research before they donate commonly turn to charity evaluation websites. These can have incredibly helpful information, but they also have significant limitations, particularly if you don’t understand what they are actually evaluating. 

One of the questions I often get about evaluating charities is how to ensure organizations are not wasteful with their money or spending too much on overhead and salaries. I believe that question is top of mind for many because of the way organizations are often measured on charity evaluation websites, where easily available and reportable information (about finances) have evolved into a proxy for effectiveness. Evaluating actual impact is much more complicated.

 According to Charity Navigator:

“At the extremes, the overhead ratio can offer insight: It can be a valid data point for rooting out fraud and poor financial management. In most cases, however, focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance does more damage than good. Relying solely on expense ratios when making decisions is not an accurate way to measure charity performance and effectiveness."

I believe that while we certainly do not want our donated dollars to go to waste, overhead and salaries are not the most important indicators for evaluating an organization. 

More important would be these considerations: What is their mission and how do they expect to accomplish it? Who are they serving and who is driving the action? What are the measurements they use to show progress toward their goals? What kind of impact are they making?

Here I list a few of the most important and commonly used charity evaluation websites, with an explanation of what they are measuring, how they are helpful, and what you should be aware of when looking at their ratings. 

1. Givewell.org
2. Charity Navigator
3. Guidestar

For a more complete guide, including evaluations of international organizations and advocacy groups (501c4), you can download my PDF with a full comparison including Charity Watch, Giving Compass, Impact Matters, Give.org, Great Nonprofits, and CAF.

Givewell.org

This website might be lesser known, but I believe it's one of the best examples of evidence-based giving and evaluating. Their data-driven evaluations are rigorous, often with the benefit of randomized controlled trials (RCTs), which physicians can appreciate as an important factor when assessing the effects of a certain intervention.

Givewell.org is aligned with the Effective Altruism movement, which identifies the most cost-effective organizations addressing health and other problems among vulnerable populations. Aside from their data and evidence-based rigor, I also particularly appreciate their cultural awareness and sensitivity, their straightforward recommendations about the ability to absorb more funding, and transparency with their mistakes. (We all make them—they actually have a tab on their website, Our Mistakes, to show theirs, which everyone can learn from.) To me, that is true transparency.

They make specific recommendations for a very small number of organizations, currently a total of 9 Top Charities, that give you the most impact per donated dollar. These are organizations that work in global health and development, as a dollar can go much farther overseas.

Charity Navigator

This is one of the most well-known and commonly used charity evaluation websites. It does have useful information, but their rating system can be misleading if you don’t know what information it’s giving you.  

Charity Navigator’s ratings focus on financial health, accountability, and transparency and are based primarily on information provided on an organization’s Form 990 (this is the form a nonprofit has to file with the IRS) and website. Organizations are not evaluated by this website on their impact or effectiveness. As mentioned above, and even pointed out on their website:

“Relying solely on expense ratios when making decisions is not an accurate way to measure charity performance and effectiveness.” 

Important points to know about Charity Navigator:

• Provides data on more than 1.6 million nonprofits in the U.S.
• Rates only organizations registered as 501(c)(3)
• It rates more than 160,000 U.S.-based nonprofits. The ones it rates are big—those that have revenues over $1 million for two consecutive years and have been in existence for at least seven years.

Guidestar.org

Guidestar is an even more comprehensive of a database, aggregating information about the 2+ million nonprofits registered as 501(c)(3) organizations in the United States. In addition to publishing their Form 990 tax returns, it categorizes organizations into levels from bronze to platinum on the basis of the amount of information they self-report.

Self-reported information on this site digs deeper and can give you a better understanding of the organizations mission and goals, as well as their strategies, metrics, capabilities and impact. This platform is geared toward people within the philanthropy sector and is often the go-to platform for foundations to check nonprofits. So for anyone with a nonprofit or considering starting one, it’s an important database to be on.

When trying to make an impact in a complex system, evaluating and rating is also complex. There are many ways to approach and learn about charitable organizations.

For a more complete reference of Charity Evaluation Websites, download the free guide here.

References:

https://www.ftc.gov/system/files/documents/public_events/982093/charitynavigator_informationdonorsseekbeforedonating.pdf

https://www.givewell.org/

https://www.charitynavigator.org/

https://www.guidestar.org/