Ratings Aren't Just About Financial Considerations

Charity Navigator used to base its nonprofit ratings solely on financial factors. That’s no longer the case. The four-“beacon” system of Impact and Results, Accountability and Finance, Leadership and Adaptability, and Culture and Community now combine to determine a nonprofit’s Charity Navigator score.

The More Information Donors Have, The Better

Donors want as much information about charities and nonprofits as possible before giving money to those agencies. They want to know a charity’s impact and results, but all four Charity Navigator beacons are factors donors consider. The more beacons a nonprofit completes in Charity Navigator, the more likely donors are to give.

Measuring Impact Isn't an Objective Task

Since no two charities are alike, Charity Navigator assesses cost-effectiveness methodologies on a case-by-case basis. Those methodologies also take time to create, so nonprofits should take the long-game approach to this beacon. With 22 types of programs, it’s a moving target that will change over time.

Webinar Recap: Lea Prince, vice president, impact ratings, provides a close look at Impact & Results, a key component of Charity Navigator’s nonprofit rating system.

Design Lines

A significant portion of Americans are willing to support worthy causes. According to a survey from LendingTree, 56% of Americans donated to charity in 2021. 

But consumers aren’t willing to donate to just any charity. Instead, they want to support nonprofits that are trustworthy and making an impact.

Oftentimes, consumers turn to Charity Navigator to research a beloved charity or find a new one to support. Each eligible charity has a star rating – as well as additional commentary about how it’s making a difference. “We give donors confidence to support the charities they do,” said Lea Prince, vice president, impact ratings at Charity Navigator. 

A charity’s rating is based on a combination of four domains, which are referred to as beacons. Recently, Prince sat down with Jeremy Ladyga, nonprofit board consultant at OnBoard, to discuss one of those beacons: Impact & Results. 

During the masterclass, Prince and Ladyga:

  • Explored the ways Charity Navigator evaluates how nonprofits make good use of resources to address the issues they aim to solve
  • Provided a deeper understanding of the Impact & Results Beacon’s methodology and scoring criteria
  • Shared tips and best practices for effectively engaging with your Impact & Results rating

Here, we share some of the highlights from this session.

Star Ratings Go Beyond Financial Performance

For 17 years, a nonprofit’s rating on Charity Navigator was based solely on financial metrics. However, that’s no longer the case.

“A few years ago, largely in response to donor demand for more information about nonprofits, we developed the Encompass Rating System, which provides a comprehensive analysis of charity performance across four key domains, which we call Beacons,” explained Prince. 

Today, each eligible charity receives a zero- to four-star rating, which is determined by the weighted sum of the organization’s individual Beacon scores. Those Beacons are: 

  • Impact & Results
  • Accountability & Finance
  • Leadership & Adaptability
  • Culture & Community

Collectively, these beacons tell a story of a nonprofit’s effectiveness. “You can give with confidence to these three and four star organizations,” said Prince.  

Donors Crave Information About the Charities They Support

These days, people do plenty of research before making a donation. “Donors in 2023 are savvy. They want to know about impact,” explained Prince. “Donors want transparency about how well nonprofits are meeting their mission. Donors that are coming to our website want to see this full story.”

A Charity Navigator analysis found that the most savvy donors prefer charities with more beacons. Those donors are particularly interested in the Impact & Results Beacon.

Prince shared the following statistics from Charity Navigator’s research:

  • 80% of surveyed donors will choose a four-beacon charity with a 93% score over a charity with a 97% score and only one beacon. 
  • Just the presence of Impact & Results influenced donor selection. A majority (57%) would donate to a three-star charity if it had a high Impact & Results score. 

In fact, Impact & Results data has become increasingly important to donors. One survey respondent noted that “Impact and positive results toward the charity’s goals seem like the biggest challenge to rating, but they are becoming the higher metric for me.”

Charity Navigator takes this feedback seriously. “We’ve really taken these types of surveys and evidence to heart when developing our Encompass Rating System,” said Prince. 

Measuring Impact is Complex – But Powerful

The Impact & Results Beacon measures how much an organization achieves relative to the cost required. Charity Navigator develops cost-effectiveness assessment methodologies program by program. “This means we create bespoke evaluation tools for individual program types,” explained Prince.

Each program-specific methodology requires significant analyst time to create. As such, this beacon is slower to scale than Charity Navigator’s other beacons. “Unfortunately, this means all organizations are not currently eligible to receive this evaluation,” said Prince. 

Currently, Charity Navigator has methodologies to evaluate 22 different types of programs – with more in the works. “We’re always working on new methodologies,” explained Prince. “The ultimate goal is to offer this Beacon more universally.” 

If your nonprofit offers one of these 22 types of programs, you are eligible to complete the Impact & Results Beacon. Currently ratings are based on an evaluation of one program only, and that program must comprise at least 15% of your total program budget. In addition, some organizations are rated due to ratings or data partnerships with other organizations. 

“Our goal is to start evaluating multiple programs in the 2024 calendar year,” said Prince. 

If you have an eligible program, be sure to complete this beacon. According to Prince, earning this beacon has the potential to “dramatically affect points to your overall score.” 

If You’re Not Yet Eligible for an Impact Rating, You Can Still Take Action

If you’re not eligible for an Impact & Results rating yet, there’s no need to worry. There’s no deduction to the Encompass Rating System score.

In addition, Charity Navigator is constantly creating new methodologies. So Prince advised attendees to check back often. “We really have a supply and demand problem,” she explained. “The demand is greater than the supply of methodologies.”

However, Charity Navigator understands the importance of conveying impact and results and is developing another tool that’ll allow charities to tell this part of their story. 

“We’ve created a new assessment called the Capacity for Measuring Impact,” Prince explained. “It’s designed to give credit to organizations that have monitoring and evaluation programs in place.

The assessment will measure eight to 15 metrics, depending on the organization’s annual revenue. Those metrics are related to:

  • Planning and Design
  • Program Formation
  • Data Collection and Analysis
  • Reporting and Distribution
  • Use of Results

The assessment will be available to all charities. It’s currently in testing, with plans to launch in the spring of 2024.

It’s Time to Take Action

Donors want to understand the impact and results of your nonprofit. It’s time to take action to tell your story. 

Prince shared 3 actions nonprofits can take right away:

  1. Visit the Nonprofit Portal and sign up if you don’t already have an account in order to facilitate your data submissions.
  2. Determine if an assessment methodology has been developed for at least one program that your organization is currently running. If so, complete the Impact & Results questionnaire on the Nonprofit Portal. This data will be used to update your organization’s Impact & Results score before the next release. 
  3. Help Charity Navigator launch the Capacity for Measuring Impact assessment by completing the test version in the nonprofit portal, which is now live. 

“As a nonprofit, being able to identify and measure your outcomes is truly the foundation for measuring impact,” said Prince.

Ready to take a closer look at the other Beacons that make up your nonprofit’s Charity Navigator rating? There’s a masterclass focused on each beacon, and the entire series is now available to watch on demand

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