The Charity Navigator Methodology

Modern-Day Nonprofits Face Big Challenges

From a trust deficit to increased competition in the donation world, it’s as tough to be a nonprofit now as it’s ever been. It’s important for nonprofits to figure out a way to stand out among their peers and work to build and maintain trust among their donors and communities.

Nonprofits Need to Show Impact and Build Trust

Charity Navigator assesses nonprofits based a criteria score that includes four “beacons,” which helps potential donors find organizations that align best with their passions and values. The higher a nonprofit’s score, the more likely it will be to land more donors.

Good News: Nonprofits Can Easily Win Back Trust

The steps nonprofits can take to win over (or in some cases, win back) donors are simple. From clearly promoting their mission to focusing on feedback, the concepts that work best aren’t complicated. It’s just a matter of taking the necessary steps to demonstrate nonprofits’ impact.

Webinar Recap: Michael Thatcher, CEO at Charity Navigator, explores how to leverage trust indicators to attract and retain donors.

Nonprofit organizations depend on donations to achieve their goals. To secure these donations, nonprofits must first work to earn potential donors’ trust.

But what exactly can organizations do to foster trust to engage and retain more donors?

Recently, Jeremy Ladyga, nonprofit board consultant at OnBoard, sat down with Michael Thatcher, CEO at Charity Navigator, to discuss how nonprofits can bolster trust to attract and retain donors. Their conversation explored a number of topics, including:

The current state of giving and industry trends
How and why Charity Navigator evaluates nonprofits
Practical steps 501(c)(3)s can take to effectively demonstrate impact to build trust within the nonprofit sector

In this blog we will cover the key takeaways from this session.

Nonprofits Face Some Major Challenges

The session kicked off by exploring trust and giving trends. One thing quickly became clear: It’s a tough time to be a nonprofit.

There are 3 primary challenges nonprofits face today.

Organization trust is low

Consumers’ trust in organizations of all types is on the decline. According to research from the Lilly Family School of Philanthropy, only 5.8% of consumers indicate they “completely or very much” trust large corporations.

The nonprofit sector is ahead of other sectors in terms of trust; 39% of consumers trust nonprofit organizations. However, Thatcher reminded attendees that “39% still isn’t a great number.”

Individual giving has been on a 20-year decline

In 2020, 66% of U.S. households made charitable gifts. Today, less than half do. That means about 20 million households have stopped giving. Notably, religious institutions are experiencing a larger decline in donors.

“There isn’t a decline in generosity, but a decline in giving to nonprofits,” said Thatcher. He went on to explain that there’s been an increase in donations to crowd-sourced initiatives – like those organized via GoFundMe.

The number of charitable organizations is at an all-time high

As safety nets of society continue to be stretched thin, more nonprofits are appearing. Today, there are nearly 1.5 million charitable organizations in the U.S.

“It’s fairly easy to create a nonprofit. I honestly believe that’s a good thing,” explained Thatcher. “But I also think it creates a fair amount of pressure right now on how all these nonprofits are going to stay funded.”

Nonprofits face an unfavorable trifecta

It’s not an easy time to be a nonprofit organization. “We’ve got a trifecta that’s not in our favor,” Thatcher said.

“One of the key things I’d be thinking about as a nonprofit leader or board member is, ‘How do I combine resources with my counterparts to take on an issue collectively and pool resources?’ or, ‘How do I really differentiate myself from those that are like me so I can be known and recognized by my donor community?’” Thatcher added.

In either case, organizations must work to foster trust.

Charity Navigator Helps Nonprofits Demonstrate Impact and Build Trust

Charity Navigator assesses nonprofit organizations to help donors identify organizations that align with their passions and values. As Thatcher put it, “Charity Navigator is trying to democratize charitable giving. We’re making it easy for you to give.”

Charitable organizations receive a star rating between one and four. This rating system is nothing new for Charity Navigator. “We have always maintained zero- to four-star ratings,” explained Thatcher. “But what goes into those ratings has changed. We’re taking an approach that’s much less static than before.”

Today, ratings consist of the four components – which Charity Navigator refers to as “beacons.” “We use a weighted average of beacon scores to create the overall numeric score,” explained Thatcher.

Beacon No. 1: Impact and results

This beacon looks at 2 things:

Is the nonprofit achieving its mission?
Is it doing so in a way that’s cost-effective?

This information helps donors understand the difference their contributions can make on a cause they care about.

Beacon No. 2: Accountability & Finance

This information comes directly from the IRS Form 990. It lets donors know your organization has best practices in place to ensure you follow fiduciary and governance best practices and that you use donations wisely.

Beacon No. 3: Leadership & Adaptability

This beacon leverages reported information to examine a nonprofit’s reason for being. It examines whether an organization has a concise mission and vision and whether it has a carefully formed strategy to execute that mission.

Thatcher reminded viewers that, “adaptability matters. This is an opportunity to tell your story.”

Beacon No. 4: Culture & Community

This beacon is focused on feedback signals to understand how an organization listens. It examines the organization’s feedback practices to determine how it listens to constituents – and then uses that feedback to improve or adapt its programs.

This beacon also looks at the nonprofit’s equity practices. “It looks at how you are being equitable with the people who are working within your organization,” Thatcher explained.

Charity Navigator uses a weighted average of these four beacon scores to create the organization’s overall score. Nonprofits that earn more beacons provide donors with a better overview of their overall effectiveness.

“Together, these four beacons tell a story of trustworthiness, sustainability, impact, mission-orientation, and beneficiary focus,” said Thatcher.

Over the next few weeks, OnBoard and Charity Navigator are hosting a four-part masterclass – with each session zeroing in on one of the beacons outlined above. Learn more about the masterclass and save your spot here.

Nonprofits Can Take Simple Steps to Bolster Trust

Building trust among potential donors can seem like an overwhelming task. However, there are simple steps nonprofits can do to start growing trust. Here are a few Thatcher shared during the webinar.

Complete your Charity Navigator beacons.

According to a survey of Charity Navigator donors, 80% preferred to donate to a four-star charity with all four beacons – compared to one with one beacon. That’s likely because completing all four beacons conveys transparency, impact, and trust.

Be sure to tell your complete impact story by completing all your beacons on Charity Navigator. This will help potential donors understand where their donations will go and what those donations will help achieve.

Put mission and impact front-and-center.

Be sure your mission and impact are front-and-center in all communications from your nonprofit. In your solicitations, lead with outcomes rather than overhead.

Focus on feedback.

Feedback is key to continuous improvement. Collecting and implementing feedback is also an important way to grow trust. Be sure to gather feedback from beneficiaries and supporters on a regular basis and make optimizations based on that feedback.

Earn and improve nonprofit ratings.

These are trust indicators that donors examine when making philanthropic decisions. Be sure to keep your information current with all third-party intermediaries, including the IRS, Charity Navigator, Candid, and others.

Leverage trust indicators.

Look for opportunities to showcase your ratings on your homepage, online donation form, direct mail, and other places. “If you have a good rating, flaunt it,” Thatcher said.

Ready to dive deeper into the four beacons of Charity Navigator’s rating system – and learn how your nonprofit can leverage those beacons to drive trust? Sign up for our four-part Charity Masterclass series today.

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