Launching a campaign to end the Overhead Myth

– By Jacob Harold, president and CEO of GuideStar –

My nonprofit friends, it’s time we changed the conversation about “the overhead ratio”: the percentage of your organization’s expenses that go to administrative and fundraising costs.

For too long, we’ve let a few bad apples—the rare cases of outright fundraising fraud—confuse donors about what matters when judging a nonprofit.

This confusion is actively harming the nonprofit community, creating what the Stanford Social Innovation Review called “The Nonprofit Starvation Cycle.” Experts agree that many nonprofits should invest more in overhead, particularly administrative costs. You all know this as well as I do: you need to invest in your organization to be able to effectively serve your missions.

We’ve been calling for a more nuanced understanding for some time, as have others, and today we have stepped up the effort.

My counterparts at BBB Wise Giving Alliance and Charity Navigator, Art Taylor and Ken Berger, respectively, have joined me in signing an open letter to the donors of America denouncing the overhead ratio as an indicator of nonprofit performance—though recognizing its rare utility as a filter for fraud.  

The letter, published today on a new website, overheadmyth.com, states that “Overhead costs include important investments charities make to improve their work: investments in training, planning, evaluation, and internal systems—as well as their efforts to raise money so they can operate their programs. When we focus solely or predominantly on overhead…we starve charities of the freedom they need to best serve the people and communities they are trying to serve.” The letter instead recommends that donors focus their attention on more relevant factors behind nonprofit performance: transparency, governance, leadership, and results.

I ask you today to stand with GuideStar, BBB Wise Giving Alliance, and Charity Navigator to end the Overhead Myth. You can support the campaign in four ways:

  1. Print out the letter, which is under a Creative Commons license, and include it in you donor solicitations, or on your website, or however else you wish.
  2. Spread the word about the letter among your networks. For those of you using social networking sites, we’ve created a social media tool kit with language that you can copy-and-paste. 
  3. Sign the pledge on overheadmyth.com and publicly commit to shifting the conversation from overhead to impact.
  4. And, most importantly, you can offer donors an alternative by sharing detailed information about your programs, strategies, measurement systems, and governance.  Tell a data-rich story about the people, communities, and ecosystems you serve.  If we do that, we can end the overhead myth.

Will you join us in the campaign to end the Overhead Myth? Please leave a comment below!

The above can also be found on the GuideStar Blog: http://trust.guidestar.org/2013/06/17/launching-a-campaign-to-end-the-overhead-myth/.

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