Should small donors focus on small organizations?

This post discusses an interesting question: how can a donor giving $500 get the most impact from his/her gift? But I think the answer given misses the point. First, it centers around service-provider organizations and not advocacy organizations, so this idea of the organization using the gift to expand to serve more people doesn't apply to all groups. Second, a gift of $500 for a small organization can have a great impact and can begin a major donor relationship that will be critically important to that organization over time.

Should small donors focus on small organizations?

via The GiveWell Blog by Holden on 10/20/08

We received the following email from reader David Micley:

I want to donate $500 to an effective charity. Ive been doing research on your site and it seems like PSI is a great choice in terms of helping global health. I have not yet made my decision as to which charity I will donate to, but as I continue to research, I continue to ask myself a fundamental question. How much of my money actually makes a difference in the effectiveness of a large charity? The amount of money that a huge charity has such as PSI makes me feel as if my $500 will be but a penny in a wishing well. Will my money be more effective donating to smaller charities that are in more need of money? Or is the large charity truly the place to find the most effective charitable work, and even if I feel my impact isn't so strong relative to the size of the charity, it will be the most efficient way to help other people in need?

Our FAQ recommends that small donors with little information give to larger charities, but doesn't address this angle - the question of whether $500 has more impact when it's a larger percentage of the budget.

My view is that the size of a charity is less relevant here than whether it is operating at full capacity.

If a charity is already at an "equilibrium" where its costs are about equal to revenues, and it's serving everyone its core activities can serve, then it will get questionable value for an extra $500. This is true whether the charity is large or small. It may attempt to expand its activities, start new programs, and serve more people, but a $500 donation seems unlikely to be the key driver behind such an expansion.

If a charity has more clients than it can currently afford to serve, or more worthwhile projects on the table than it can currently fund, a $500 donation can help it serve more people (or serve them better) - regardless of how big the charity is as a whole. To use a for-profit analogy, when you give McDonald's 99c, your contribution is an extremely tiny percentage of its overall revenue, but it still produces an extra burger. McDonald's, Inc. had no role in endorsing or funding this analogy.

Figuring out the extent to which a charity is "at capacity," and what the impact of additional funds will be, is something that we struggle with, and we have no easy or fully reliable way of doing it. However, it's worth noting that a large charity may be better positioned to handle increases in revenue, and use them to expand projects that are already repeatable/scalable, than a small one. And we feel relatively confident that the large charities we recommend are very far from serving everyone they could serve.

For this reason, the "will I make a difference?" question seems to tilt slightly in favor of giving to large charities when making small donations. $500 might be a small percentage of PSI's revenues, but if you put credence in our estimate that PSI prevents a death for every ~$1000, that donation can be a huge deal in human terms.