What is Cost Per Outcome?
Cost per outcome is a tool that charities and rating organizations can use to determine how cost-effective their programmatic activities are. It breaks down the work of a charity into one simple question: How much money do you spend to produce one measure of impact for your organization? This measure is used most commonly by direct service organizations. For example, Operation Smile can perform one life-changing surgery to treat a cleft palate for $240.
How is Cost Per Outcome Calculated?
Cost per outcome algorithms vary, but generally, they involve totaling a charity's expenses to produce a program and dividing that number by the number of results achieved. For example, a meal program might add up its food costs, facility costs, staff costs, and other expenses and divide that number by the number of people served.
Currently, few charities are calculating their cost per outcome as such. Most organizations, especially those producing more nebulous outcomes, are getting to the step before calculating cost per outcome: monitoring and evaluation. Monitoring and evaluation can look like many things, but overall it aims to measure a program or charity’s impact. For example, a meal program might create a baseline of many hungry individuals are in the service area where it works, and then, as the service is provided, it would see how many hungry people it can reach and provide nutrition. Monitoring and evaluation is a useful tool, but it falls short of the specificity offered by cost per outcome.
How Does Charity Navigator Incorporate Cost Per Outcome into Ratings?
Charity Navigator is working to increase the number of charities with cost per outcome calculated by collaborating with organizations and creating algorithms that can generate a cost per outcome. This process involves in-depth evidence review as well as nonprofit outreach. Program-specific algorithms are determined by working with organizations in cause areas to identify crucial variables needed to assess a class for output. Focus groups, individual conversations, and public comments are also essential to the process of selecting the outcomes to measure. If the wrong outcome is measured for a cause area, the cost per outcome isn’t useful to a donor or a nonprofit. Charity Navigator displays the cost per outcome as a portion of the Impact & Results beacon to help donors guide their giving choices. Charities participating in the process receive their own cost per outcome, which can help them improve and advertise their success. (Learn more about Charity Navigator’s cost-per-outcome process in the Ratings Methodology Guide.)
Why Should Donors Care About Cost Per Outcome?
Donors should be curious about how their donations are impacting beneficiaries. We know that donors want to make an impact, but that word has a lot of definitions. Cost per outcome is one way a donor can confidently assess a charity and know that their donation benefits recipients.
How Can Donors Use Cost Per Outcome to Guide Decision-making?
For donors who already have a preferred organization or cause, cost per outcome can be a good check to ensure that their head and heart are properly aligned in their giving. Cost per outcome can help a donor give confidently, knowing that their dollars produce a specific output.
For donors looking for a cause or specific charity to support, cost per outcome can help narrow down choices. Donors who want their dollars to go the farthest can compare interventions and charities working in those spaces with apples-to-apples criteria. Charity Navigator aims to create a basis for comparison that works both within and across issue areas to help improve discoverability for donors.
We recommend incorporating cost per outcome as one element of your charitable decision-making process, but not the only one. Your heart - your desire to do good and fix the ills that you see in the world - should also play a role. Combining head and heart criteria allows you to make the giving decisions that will fill you with confidence and joy.