I am a professional that works exclusively with nonprofits and I absolutely agree that the emphasis on overhead leads to a lack of investment in the business of being a nonprofit that seriously jeopardizes long term performance and fulfillment of the charity’s mission.
Thank you and please feel free to contact me if I can offer any additional information.
– Christa Divis, Jones and Associates LLC, CPAs
I’m the lead author on the majority of the publications that came out of the Nonprofit Overhead Cost Project, and I’m thrilled that Guidestar is taking the lead on driving the overhead issue. There is a huge task ahead to educate the public, board members, and institutional funders in foundation and government.
– Kennard T. Wing, Organizational Performance Improvement Professional
Early on in this process, probably over a year ago now, WRI contributed to the Charting Impact discussions and submitted their report. I’m also part of a CFO roundtable with about 25 -30 NGO’s that are also very interested in moving the discussion away from capping of overheads. Generally capping of overheads causes NGOs t o use very valuable unrestricted funding to cover the gaps that result.
– Steve Barker, Chief Financial Officer and Vice President of Administration, World Resources Institute
As ED for a new non profit, entering our 2nd fiscal year today, I am so grateful for this shift in focus. Since we incorporated last September, I’ve worked 60+ hours a week for less than part-time pay. I don’t have another job, a spouse supporting me or a trust fund, but am willing to risk my financial life for a program and cause I believe in with the understanding that a new business of any kind takes time to grow. I have a suggestion for those that are concerned about how their donations are being used: donate to local charities where you can get to know the people running the programs and see what they are up against. I believe this will give a better understanding of the overhead myth. I’m all for a locavore charitable giving movement -#GiveLocal. Thank you GuideStar, Charity Navigator and BBB Wise Giving Alliance for addressing this issue.
– Manon, July 1, 2013
It’s about time. The story you shared is being played out again and again by hundreds of non-profits setting themselves up for failure. Like any industry aiming for long term sustainable success International Development needs systems, tools, HR and general infrastructure, all of which require appropriate investments. If done right, long-term sustainable results are achieved.
I hope this campaign helps to change the attitudes of donors. If they really care about long term impact they should pay attention to this!
– Paula MacKinnon, June 22, 2013
Your initiative should be appreciated and applauded by all concerned — the donor community, non-profits, and the people they serve. Misplaced focus on overhead ratios has hurt non-profits seeking to plan strategically for a more effective future, incentivized GIK valuation abuses, and been misleading to the donor community. On this point, we have been asking the question for some time now: Would you rather invest your donation dollar in an enterprise that raises funds efficiently (or in one which has scaled its administrative functions to a less than optimal level), or in an enterprise whose programs get results for the people they serve?
Clearly, your initiative is needed, and will benefit all concerned… Thanks!
– Wayne Snyder, June 19, 2013
Thank you for this initiative. When individual nonprofits and nonprofit executives sound this alarm, I get the feeling that people see it as self-serving – as if we are trying to hide inefficiency by convincing the donor about the need to fund overhead. I’m tired of fighting that battle. It’s not a fair fight. If a nonprofit has to spend time and energy educating a donor about this issue, they usually end losing anyways as the donor moves on to an organization promising a much rosier, lower-overhead picture. So, I think it needs to be an industry wide movement driven by umbrella organizations like yours. So thank you again for taking this issue head on and doing the hard work of donor education.
– Mathias Craig, June 18, 2013
It is necessary to have good infrastructure in place to ensure a NPO’s programs have the proper support they need to be effective and expand impact. I’ve long been irritated by this measure of “performance”. Bravo for starting this public plea to repeal an ineffective benchmark!
– Andrea Moravec, June 18, 2013
Thanks for your leadership in making it clear that overhead ratios are not a way to assess the effectiveness of nonprofits. The field has unfortunately allowed overhead to become a proxy for understanding how well a nonprofit is managed. As we move away from using overhead numbers, let’s focus even more rigorously to understand what factors truly matter for nonprofit effectiveness — and how funders can help!
– Mario Morino, June 17, 2013
It is a long overdue discussion that is vital to the nonprofit industry. While measurements of G&A, Personnel costs and Fundraising expenditures are still important to review, at the end of the day nonprofits generally all exist to solve important social problems. How do you compare a low cost org running a program that doesn’t have eradication/self-sustainability as an end goal, with one that invests in creating a quality replicable program that truly leads to long term program self-sustainability and/or eradication of the ill within the targeted beneficiary group? Thinking small sometimes only leads to small results! In my corporate for-profit career I understood the value of investing what was needed in the infrastructure required to produce great products, active markets and large profits. All too often people working in the non-profit world are expected to embrace a poverty mentality, while at the same time change that reality for tens of thousands of others without batting an eye. As an earlier commenter wrote, maybe it is best to become familiar with the nature of expenditures that make up an orgs overhead that you find unpalatable (gifts, entertaining donors, flashy brochures, expensive travel & hotel costs) than the pure cost itself. I really think the conversation is a healthy one that finally needs to be allowed out of the closet!
– Murray Hills, June 17, 2013
It is a paradox of the world of foundations and donors that they want (1) tight financial controls, (2) elaborate financial reporting, (3) sophisticated measures of outcomes and impact, and (4) more fundraising, while insisting that organizations cut “overhead.” Overhead consists of these items they want so badly! Overhead is quality leadership, quality financial controls, quality program evaluation, and quality fundraising–not just lights and water.
Non-profits MUST invest in excellent financial controls, excellent program evaluation and reporting, skilled and effective fundraising, savvy and productive marketing, and capitalization of risk ventures. We won’t solve homelessness, cure cancer, educate the next generation, produce great art, care for the mentally ill, or keep our environment clean if we starve the organizations that do these things.
Kudos to Guidestar, Charity Navigator, and BBB for stepping up to the plate to defeat the myth of overhead.
– Patrick J. Nugent, June 17, 2013
Fantastic! It is indeed time that ‘administrative’ expenses be looked at under a new light. No nonprofit can exist without the ‘nuts & bolts’ of keeping an office open. And, yes, these costs are ‘program’ expenses. There is much to be discussed on this subject. There are many fine lines and subtleties as what is program and fundraising expenses. It is difficult to assess in what percentage of the rent, phone, paper, stamps, etc. are appropriate and necessary, but… it is time.
Thank you for opening this dialogue.
– Linda Hansen, June 17, 2013
Amen! As a nonprofit Executive Director I whole-heartedly support this effort. The overhead rate here at FACES is low: 13%. And while our impact is measurable, I think it could be even greater if we had the opportunity to invest more in building our infrastructure.
Many thanks to GuideStar, the BBB Wise Giving Alliance, and Charity Navigator for leading the charge.
– Pat Mitchell, SFCC, June 17, 2013
Having spent over 30 years in the nonprofit sector, I am elated by the news of this initiative. Although an organization’s expenses should be scrutinized, it is only one measure of a nonprofit’s effectiveness. All nonprofits need to spend donor monies wisely. Charities must have the ability to invest in infrastructure to advance their missions. This may mean that expenses increase for a period of time while investments are made. I applaud the efforts to dispel the Overhead Myth.
– Ron Sylvan, June 17, 2013
Hurray, someone is finally seeing the light! As a small nonprofit with a budget of less than $150,000, all of our so-called overhead is actually needed to run the program. You have to have a business office of some kind to work out of and you do need some kind of business address to receive mail so that you can legitimize your cause in the eyes of potential funders. Yet that is considered overhead but it is necessary to run the actual programming. Once an organization is big enough and have “stuff,” meetings in coffee shops no longer suffice. There needs to be a place for staff whether volunteer or paid can work together to develop and run the programming which can take place off site.
The staffing of this portion of the organization is also necessary to run the actual programs. Program staff without adequate support staff are worthless. Who handles the scheduling of clients? My program, a children’s theater, “starves” itself by having very limited staffing. The program which transforms children’s lives could be much bigger but so much of the funding out there is for programming not capacity building. Thank you so very much for this effort! The children who will be served as our programming grows thank you in advance for assisting with growing the Crescent City Lights Youth Theater to serve them in 2014 and beyond which is not possible in 2013. If you need more info from me, please email me. This is a big problem in the sector as a whole. Changing the mindset of funders and donors is a big part of the creation of sustainable nonprofit organizations.
– Julie Condy, June 17, 2013
Thank goodness! I thought I was the only one preaching that this unnecessary focus on “overhead” was misguided. What counts are results: can the non-profit establish criteria for measuring its success both qualitatively and quantitatively? Is the non-profit transparent to the community? Is the non-profit achieving its mission? The arbitrary emphasis on the vague term “overhead” is destructive and hampers fund raising efforts. Bravo for this letter!.
– Steven Libman, The Libman Group, June 17, 2013
This is so long overdue! A productive and ethical nonprofit MUST have adequate management and administrative support personnel in order to conduct its mission-driven work, and MUST be able to sustain itself through its marketing and fundraising efforts. Thank you for this important effort to inform the public.
– Diane Fletcher, June 17, 2013
Dear Art, Jacob, and Ken,
I write to congratulate you and to thank you for your efforts to help deal with the Overhead Myth issue that complicates the larger public environment in which philanthropy and nonprofits operate. At the Indiana University Lilly Family School of Philanthropy, we are pleased to be a partner with you in helping create better understanding among funders and donors of the true indicators of successful outcomes in philanthropy.
Overhead and fundraising costs have been key challenges for nonprofit organizations for the past 20 years and more. It has been my own personal soapbox issue and that of many others who have tried to improve understanding and funding of these costs over the years, including through research, such as in our study conducted with the Urban Institute that included an entire website dedicated to helping educate the public.
Donors and funders today want nonprofit organizations to do thoughtful planning, deliver effective programs through excellent management, and conduct effective fundraising and thorough evaluation. These are all overhead costs and are essential investments for effective, high-performing organizations. Yet all of these activities are too often bundled without reflection or thoughtful discussion into cost ratios that are easy to calculate and that obscure and oversimplify understanding of the legitimate needs and costs of nonprofit organizations.
In a world where data is increasingly available, your organizations are increasingly important to helping donors and funders understand better the dynamics of the strategic and effective philanthropy that many of them seek. Those of us who help donors and nonprofit executives understand these issues have an ethical responsibility to get organizations to focus on accountability, transparency, and trust building. It is only through a high level of trust in what we all do that we can hope to sustain philanthropy. It is only through demonstrated organizational effectiveness that we can hope to expand philanthropy and make it a more powerful force in our society.
All of us who have been working seriously to create better understanding of the important characteristics of high-performing and effective nonprofit organizations welcome you as partners in educating donors, funders, and nonprofit executives about the best ways to measure the effectiveness of their contributions, grants, and work, instead of merely falling back on one measure of operational efficiency that over simplifies the complexity of high-performing nonprofit organizations.
Best wishes for success with your efforts. Please let us know if we can be helpful.
– Gene Tempel, Founding Dean, Indiana University Lilly Family School of Philanthropy, July 3