Just My Type: A case for a different way of defining what charities are

Conversations about charity expenditure often lack the nuance and detail required to make fair assessments about the performances of different charities. How can we change this?
This week's blog is one from the nfpSynergy archives. In 2017, we conducted an analysis of the finances of charities whose incomes were over £5m at the time, and came up with six distinct types of charity based on their differing incomes and expenditures. We were inspired to re-release this research by a recent blog from ThirdSector highlighting how charities have been attacked 'for being 'too like businesses''. We agree that this isn't necessarily a fair criticism! Read on to find out why.
Cian Murphy
 
 

In the charity sector we are forever rolling our eyes and tutting when people unfamiliar with our world start talking about ROIs and proportions spent on the cause. This is with good reason – despite the fact that we all know impact is the correct way to measure the effectiveness of a charity, comparing charities on these figures is a fruitless task. This is because different kinds of charities will have different returns on investment and different proportions of money available to spend on charitable activities, simply because of their different income structures. A charity that makes most of its income from a large but low margin chain of charity shops will obviously have higher fundraising costs than one which receives all of its money from government grants.

Our free report Just My Type – an archetype analysis of charity finances tries to formalise these differences by using an analytical technique called archetype analysis, which looks at the most distinctive cases in a dataset and compares other cases to them. We looked at all charities with over £5m income in their most recent year and came up with six types. You can read more about the specific types in the report itself, but here are four things that we learned while carrying out this analysis and discussing it with people in the sector:

  • The sector is maybe even more diverse than we had imagined. Six very clear and distinct models came out for how charities raise and spend their money, and this is only looking among the largest organisations. While we are used to dividing the sector by size and area of work (animals, children, overseas, etc), we feel that this is another useful way to define charities.
     
  • Among large charities, those who make most of their income from contracted work or paid-for services are by far the biggest proportion. Of the 2,061 charities we looked at, 1,113 scored highest for the “Contractors and Service Providers” archetype. This includes household names such as Oxfam and Mencap. In contrast, just 74 came out as “Fundraisers” and another 41 as “Legacy Fundraisers”. While the public at large likely think that most charity income is fundraised, the reality is very different (for large organisations at least).
     
  • Fundraising and trading are expensive ways to bring in money for a charity. The average organisation in our “Fundraiser” archetype had a return on investment of 2.93:1. For “Traders” this fell to just 1.91:1. This reflects not a weakness on behalf of these charities but simply that these are difficult ways to raise money on the whole. As the sector faces continuing criticism for how it raises money, it is important to find ways of communicating this reality to the media and to the public.
     
  • We started this research with larger charities (over £5m income). This was for a number of reasons – they are the ones often targeted for media criticism, they are the charities most often in the public eye, and they make up most of our clients as well! However, it was also because a classification that fits big charities might not suit small charities with very different structures and funding models. We would love to look into categorising smaller charities separately in the future, depending on time and data - less detailed reporting requirements for small charity accounts means we may not be able to be as detailed as with larger ones.

We hope that this report is a useful start to a conversation about understanding the sector we all work in a little bit better. We also hope that it can be a small contribution to communicating how charities work to the media and to the broader public.

If you have any feedback about how we can develop this analysis further, we would love to hear it! Scroll down to leave a comment, or email us at insights@nfpsynergy.net

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