Why Does Overhead Have Such a Bad Reputation?
A lot of non-profits feel compelled to talk about how little they spend on overhead. But when you tell donors and funders that 100 percent of the funds they give will go to the cause, what are you actually saying?
You are reassuring them that their dollars will go straight to the outcome your organization is working towards, but not the infrastructure that makes that work possible – so-called overhead expenses.
After all, everyone knows that donors will feel disappointed if their money is spent on overhead, right? Those are expenses that should be tightly managed and minimized.
The way we look at how charities work is wrong
Increasingly, donors are paying close attention to how their funds are being spent. There are investigations and exposés on charity spending habits.
Rating systems like Charity Navigator evaluate a charitable organization based on its expenses, assign them to broad categories like “programs,” “fundraising,” and “administration,” and then pit these against one another.
But when you tell your donors that you are trying to minimize your overhead costs, you are telling them that overhead is not important, that it has nothing to do with the altruistic, mission-focused areas of your work.
In fact, overhead includes things like:
operational expenses, like financial reporting and auditing, travel, attendance at conferences, professional development, program evaluation, legal and other professional services, and marketing
capital investments, like technology, tools, and workspace
key staff roles, such as bookkeeping, fundraising, public outreach, and research
These are not frivolous by any stretch of the imagination. If a charity is to achieve its vision, raising brand awareness, growing capacity, and properly managing day-to-day operations are absolutely vital.
Why you should be proud to invest in overhead
Consider how a year of program evaluation could help improve your work – third-party experts helping you set baselines and benchmarks, and establishing processes to gather and report qualified results. Think about how investing in technology and digital solutions could enable community building and drive your public mobilization.
Imagine how recruiting and growing top talent to deliver your programs and services could help you grow your organization and realize your mission faster. These are all things the corporate sector actively invests in; social purpose organizations need to uphold the same kind of thinking.
Financial accountability and transparency are as important to non-profits and charities as they are to corporations. But comparing the amount directly spent on the social purpose work itself and the operational expenses associated with making it happen is not the way to achieve greater accountability.
Crush the idea of a charity case
Enough with earnest appeals for funds that favor sizzle over substance. The most important measure of an organization’s work is the social impact: the outcomes being achieved every day and the long-term transformation it supports. Here in Canada, people say they trust charities and non-profits and yet they are quick to object that they spend too much money on things like administration and fundraising.
Organizations should build trust and then leverage it. Your donors have already declared their allegiance. Be proud to talk about how you are investing in good monitoring and in testing new approaches.
Deepen donors’ trust by making things more efficient as well as more effective. Invest in your growth, by developing new revenue streams and expanding your operations. Show your donors how confident you are that your theory of change works, and what it will take to deliver more “good,” more effectively.
If you are focused on the change you want to make in the world, your best donors will be more confident than ever that 100 percent of their money is being well spent, no matter where it ends up in the financial report.
