How charities survive tough times

Just like for-profit firms, philanthopies push for efficiency. Volunteers help, too.

By , Correspondent

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    Inside the Metropolitan Museum of Art.
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    Earthquake survivors carry boxes of food aid distributed by an Air Police helicopter in Koto Dalam, West Sumatra, Indonesia, Oct. 5.
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America's charities have faced a tough 2009. By most accounts, 2010 will be worse. Donations are down and other sources of funding are drying up. Cultural institutions are among the hardest hit.

New York City's Metropolitan Museum of Art, whose fundraising efforts once focused on major gifts for new exhibitions and additional space, now appeals to donors merely to support operations. As donations fall, the load on service charities is rising. Despite a 6 percent decline in contributions this year, the Salvation Army is juggling a fivefold increase in demand for services.

Out of all this trouble, one positive trend has emerged: Charities are focused as never before on efficiency, cutting costs while maintaining services and finding new ways to survive.

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"Nonprofits are certainly adapting and getting creative," says Kim Klein, author of the book "Reliable Fundraising in Unreliable Times." "I really defy any for-profit corporation to be as efficient and creative as a nonprofit."

Nonprofits have no choice. Donations are down 9 percent this year at the nation's top charities, according to The Chronicle of Philanthropy, an industry publication. Some 77 percent of charities let fundraisers go or cut fundraising spending.

"There's an enormous amount of attention being placed on efficiencies and measurement," says Ken Berger, president of Charity Navigator. "Most nonprofits are focusing on that right now."

Next year will be worse, predicts Robert Ottenhoff, chief executive officer of GuideStar, a firm that provides financial data on nonprofits. "Foundations, who contribute significantly to nonprofit efforts, were willing to go deeper [into endowments to keep up giving] in 2008. But with endowments down, foundations aren't likely to repeat [that]." Add to that a dramatic decline in state government grants and corporate giving, and it becomes clear that nonprofits' streams of funding are drying up. Particularly worrisome for nonprofits and their clients are states like Florida and California, where unemployment is high and state budgets are especially tight.

To keep operating, many nonprofits are starting with the basics – better targeting of donors and cleaning up accounting programs to pinpoint savings, says Ms. Klein. She points to Amnesty International, which uses advanced technology to analyze giving patterns in order to maximize donations while reducing the overall frequency of fundraising campaigns throughout the year.

Some charities are aggressively deploying new technologies' social networking to extend their fundraising efforts. Doctors Without Borders, which typically relies on direct appeals, recently launched a tool modeled after a sports event where donors are asked to raise money from their friends and family. The hoped-for result: an army of donors.

"There's a lot experimenting going on right now with social media," says Stacy Palmer, editor of The Chronicle of Philanthropy. "But it's way too early to say whether it's working or not."

Another survival tactic: cooperating with rivals. "We're starting to see a number of nonprofits with similar missions sharing administrative functions," says Daniel Borochoff, president of the American Institute of Philanthropy, a charity watchdog. "That's something most thought would never have occurred."

The Center for Nonprofit Advancement, a Washington-based group that helps local nonprofits, created a program called "Back Office in a Box," which pools nonprofits, enabling them to share financial management and accounting resources. In San Francisco, meal providers Project Open Hand, St. Anthony's, Glide Memorial, and the San Francisco Food Bank have joined forces to share kitchen space. Some donors are pushing for those consolidations. The San Francisco Foundation recently recommended that the city reduce the nearly $500-million a year it spends on outside social-service organizations by helping some of the 7,000 local nonprofits cut costs, merge, or close.

To make up for the cuts in staff, some charities are also using more volunteers. "With unemployment high, many nonprofits are relying on volunteers to stay afloat," says Klein. According to the Corporation for National & Community Service, more than 61.8 million Americans volunteered this year – an increase of about 1 million from last year (see chart). Ironically, the increase has many potential volunteers struggling to get called back, or being placed in jobs that don't match their skills.

But the strategic use of volunteers remains a boon for many organizations. One San Francisco nonprofit, the Jewish Voice for Peace, enlisted 14 volunteers to help with fundraising. "The team … ended up raising $40,000 more than last year," says Klein, who advises the organization. "That's more than what the existing staff would have been able to do."

Even with the greater attention on efficiencies, many nonprofits won't survive, watchdogs say. There are simply too many, says Mr. Ottenhoff. "This is the time that we'll see a lot of consolidation."

But Klein hopes that nonprofits will remain optimistic. "With so much attention focused on deliverables and outcomes, I just hope that [nonprofits] will continue to experiment. It's crucial for everyone."

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Also:

Holiday giving: How to choose a charity

The 50 largest US charities ranked by total income (PDF)

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