A good, standard benchmark for a healthy nonprofit is to spend at least 65%–75% of total expenses on program services, with 80% or higher considered excellent. Conversely, administrative and fundraising costs should ideally remain below 25%–35% of the total budget.
Current ratio = Current assets / Current liabilities.
A current ratio of “1” or more generally demonstrates the ability to meet those obligations.
The 80/20 rule (Pareto Principle) for nonprofits suggests that roughly 80% of results come from 20% of causes, most commonly meaning 20% of donors provide 80% of donations, but it also applies to programs, volunteers, and marketing efforts, guiding organizations to focus resources on high-impact areas like major donors or effective programs for greater efficiency and fundraising success. It emphasizes donor stewardship, program evaluation, and targeted communications to maximize impact, though some argue for diversifying away from over-reliance on a small donor base.
The "33 rule" for nonprofits usually refers to the IRS Public Support Test, requiring 501(c)(3) public charities to show they receive at least one-third (33 1/3%) of their support from the general public or other public charities over a five-year rolling period, distinguishing them from private foundations by ensuring broad community reliance. This is crucial for maintaining public charity status, involves reporting on Form 990 Schedule A, and can be passed through meeting the 10% "facts and circumstances" test if the main test is missed.
In this version of the test, at least ⅓ (or 33.3%) of a nonprofit's funding should come from donations from the general public (according to IRS standards) combined with program service income.
Most evaluators consider a ratio of 0.20 or less to be a strong benchmark for fundraising efficiency. This means your organization spends less than $0.20 to raise each dollar.
The 50/30/20 rule is a budget guideline that allocates 50% of after-tax income to Needs (housing, groceries, utilities), 30% to Wants (dining out, entertainment, shopping), and 20% to Savings & Debt (emergency fund, retirement, loan payments). While not directly a "charity rule," you can incorporate giving by slightly reducing the 30% "Wants" category to free up funds for donations, making charitable contributions a fixed part of your budget rather than an afterthought.
The nonprofit should communicate its mission clearly to all its stakeholders—board, staff, donors, volunteers, partners, and the general public—so that everyone understands its goals and works toward a common purpose. All the nonprofit's programs and operations should be aligned to advance its mission.
What are the most common mistakes nonprofits make? Some of the most common mistakes include unclear missions, weak board engagement, poor donor communication, lack of financial transparency, and neglecting compliance requirements. Many of these issues are fixable with the right tools and support.
Simply put, when a charity asks for $19 a month, they are using a psychologically strategic number that appears more affordable than $20 and therefore is more likely to be given.
How much should a nonprofit spend on salaries? Typically, nonprofits spend between 15% and 40% of their revenue on salaries, buildings, equipment, utilities, supplies, fundraising, and so on.
Five Key Financial Ratios for Stock Analysis
This is to say that a current ratio of less than 1.0 is generally a bad current ratio. This isn't to say, however, that a current ratio of 1.0 is necessarily good. Remember, not all current assets on a business' balance sheet will be realizable at book value.
What should a nonprofit pay its chief executive? The board of directors is responsible for hiring and establishing compensation (salary and benefits) for the executive director/CEO that is “reasonable and not excessive,” but is also enough to attract and retain the best possible talent to lead the organization.
Initial and Ongoing Costs
Creating a nonprofit organization takes time, effort, and money. Fees are required to apply for incorporation and tax exemption with state and federal entities, as well as maintaining such status through annual renewals.
The minimum investment return for any private foundation is 5 percent of the excess of the combined fair market value of all assets of the foundation, other than those used or held for use for exempt purposes, over the amount of indebtedness incurred to buy these assets.
CharityWatch considers a charity to be highly efficient when our end calculations produce a Program % of 75% or greater and a Cost to Raise $100 of $25 or less.
A good quick ratio is generally 1.0 or higher, as the ideal ratio is 1:1, which means you can cover all short-term debts with liquid assets.
A commonly used reserve goal is 3-6 months' expenses. At the high end, reserves should not exceed the amount of two years' budget. At the low end, reserves should be enough to cover at least one full payroll. However, each nonprofit should set its own reserve goal based on its cash flow and expenses.