mal-book-designConventional wisdom holds that the best way to measure a nonprofit's efficiency is to look at the percentage of income spent on overhead and fundraising.

The popular press, the charitable "watchdog" agencies, and our own ingrown instinct all tell us this is the right way to determine whether you're doing a good job of running your organization. As the argument goes, if you spend more than 10 or 20 cents to raise a dollar - a "fundraising ratio" of 10 to 20 percent - then there must be something wrong with you.

Well, that's bunk.

The fundraising ratio is a meaningful measurement for America's biggest charities: the Red Cross, the Salvation Army, UNICEF, Goodwill Industries, CARE, the American Cancer Society. All these groups are decades old, command instant name recognition, and have large development departments with the talent and the resources to use every conceivable means to raise money and can make the most of every dollar spent on fundraising. Each of them raises more than $300 million a year.

But applying the same simplistic criteria to young public-interest groups with budgets a hundredth or a thousandth the size usually makes no sense at all.

In exceptional cases, where fraud or flagrant mismanagement is suspected, an extremely high fundraising ratio may be an early warning signal. An organization that is spending 95 cents to raise every dollar after three or four years of extensive direct mail promotion is clearly not worthy of donors' support. A closer look may reveal that the organization is promising a miraculous cancer cure and working out of a third-floor walkup and a post office box, and that the organization's founder and $90,000-a-year executive director is the brother-in-law and former employee of its direct mail consultant.

Bur while fraudulent charities have existed since a charitable impulse moved some far-sighted noble to give away the first shekel, they are uncommon today. It's a tragic mistake to hobble thousands of sincere and effective public-interest organizations with rules designed to inhibit a few bad actors. Moreover, where fraud is likely, an unusually high fundraising ratio is probably just one of many grave and obvious problems.

If charitable donors were to limit their gifts to the handful of the nation's nearly one million nonprofit, tax-exempt organizations that meet these conventional criteria for nonprofit performance, charities would be few and far between.

Groups springing up to meet new needs - or simply to keep the old agencies honest - would die as quickly as they were born. Only an organization with a truly secure funding base can fulfill these extravagant regulatory fantasies.

When a few phone calls and a lunch meeting with a wealthy donor can produce a multi-million dollar gift or bequest, fundraising costs are minimal when expressed as a percentage of the proceeds. Much the same goes for an organization with a large, loyal following of donors who can be counted on to renew their support year after year. In either case, the fundraising ratio is likely to be low.

But a small, less well-established group - or one just starting out to address a newly emerging need - is unlikely to be in a position to achieve the same results with such little effort. It may take several years of repeat giving and continuous cultivation before it can count on getting gifts from a donor.

Fundraising is hard work and - for most nonprofits - it's expensive, especially at the beginning.

Partly because so many so-called "authorities" keep beating the drum for the most restrictive definitions of acceptable fundraising practices, relatively few donors will give more than token sums to any but the best established, blue-ribbon charities. To smaller and newer organizations, gifts are typically much less generous. And obtaining them can take a great deal of time and money. People tend not to trust what they don't know.

But funds contributed to even the oldest and best-known charity might just be going down the drain on misguided or irrelevant projects, getting socked away in fatter and fatter "reserve" funds, or used to keep a passel of unimaginative people at work in featherbedding jobs.

After all, an old organization could just as easily have misbegotten priorities or incompetent staff as a new one.

The real measure of a nonprofit's effectiveness is the results it achieves. By that yardstick, many nonprofits with enviable fundraising ratios are singularly ineffective compared with some of the scrappy, innovative, grassroots groups with which I'm familiar - ventures that are rarely able to raise a dollar for less than 35 or 40 cents.

Nonprofits spring into existence to fill unmet needs, to challenge old concepts, and to espouse new ideas. It's no accident that many public-interest groups have such a tough time raising funds; what they advocate is downright unpopular.

But even those organizations that meet universally acknowledged needs and avoid controversy altogether are likely to face an uphill battle getting their fundraising programs up to a level of efficiency that allows for a consistently low fundraising ratio and still provides for necessary growth.

To do so takes time. After people, issues, and money, time is the fourth dimension of fundraising. It's often unseen and rarely appreciated. But no fundraising program may be fairly evaluated without a full understanding of this most precious of commodities.

Mal Warwick is founder and chairman of Mal Warwick Donordigital and the author of twenty books on fundraising. His most recent book is The Business Solution to Poverty with Paul Polak.