Do you remember the Greek myth of Sisyphus, the king who had to push a boulder up a hill, watch it roll back down, and repeat this sequence for the rest of eternity?
That’s how I feel about the Overhead Myth.
In case you’re not familiar with it, the Overhead Myth is a campaign by GuideStar, the BBB Wise Giving Alliance, and Charity Navigator to get donors to stop using overhead ratios—the percentage of total expenses that goes to fundraising and administrative costs—to evaluate charities. Now in its third year, the campaign first reached out to donors to explain why overhead ratios are poor measures of nonprofit effectiveness. Last year, it suggested ways nonprofits can demonstrate impact.
So why does the Overhead Myth remind me of Sisyphus? Because it’s a never-ending battle, one we’ve been fighting the entire time I’ve been with GuideStar.
When I joined GuideStar in November 1999, we were already immersed in the struggle against using financial ratios as the sole way to evaluate nonprofits. Ratios, we explained to anyone who would listen, are meaningless without context. (If you’re interested in the context for financial ratios, see this post from last year.)
Don’t get me wrong: financial accountability matters. An organization that spends 95 percent of its budget on fundraising is probably not a good choice for your gift. You might also want to question a nonprofit that receives thousands of dollars in donations but claims it has no fundraising costs. That’s not possible. (Just taking all those checks to the bank is a fundraising cost.) But, outside of such extremes, ratios don’t tell you how well a nonprofit accomplishes its mission.
But here’s the difference between me, my colleagues throughout the nonprofit world, and Sisyphus: where the Greek gods sentenced Sisyphus to his never-ending task as punishment, my colleagues and I choose to fight the Overhead Myth. We know that in the long run, battling the Overhead Myth will make the world a better place. Every donor we convince is a donor who will make better decisions based on better data. Many nonprofits that find ways to demonstrate effectiveness will be inspired to improve.
So move out of our way. We’ve got a big rock to push. Or, better, yet, join us. You’ll be most welcome.