"Only X% of your gift goes to overhead." OR
"Only X cents on the dollar go to overhead costs."
Why? Because you do both your organization and your donors a great disservice when you focus on overhead as the key indicator of your worthiness to receive donations.
Your overhead ratio—the percentage of total expenses devoted to administrative and fundraising costs—tells people nothing about your organization's effectiveness. It fails to measure the most important thing of all: how well your nonprofit is accomplishing its mission.
The heads of the BBB Wise Giving Alliance, Charity Navigator, and GuideStar have joined together to demonstrate why the Overhead Myth is harmful and how nonprofits can battle it.
Say Goodbye to the Overhead Myth
In a letter released October 21, 2014, Ken Berger (president and CEO of Charity Navigator), Jacob Harold (president and CEO of GuideStar), and Art Taylor (president of the BBB Wise Giving Alliance) note:
While overhead can help us identify cases of fraud or gross mismanagement and serve as a part of an organization's dashboard of financial management metrics, it tells us nothing about the results of your work (i.e., how you meet your mission).
The focus on overhead, they continue, leads nonprofits to shortchange their organizational needs, which in turn limits their results. In the end, everyone suffers:
This starvation cycle hurts nonprofits and donors, but, most important, it hurts our shared work for a better world.
We hear you panicking. "Donors expect us to talk about overhead," you say. "If we invest in infrastructure, donors won't give to us."
We can help you with that. In fact, we can all help each other with that.
It's true that over the years, donors have been taught (brainwashed) to rely on overhead ratios to evaluate nonprofits. Working together, however, we in the nonprofit sector can change this state of affairs.
Say Hello to the Overhead Solution
So what exactly do Messrs. Bergen, Harold, and Taylor say you should do? Three things:
- Demonstrate ethical practice and share data about your performance.
- Manage toward results and understand your true costs.
- Help educate funders (individuals, foundations, corporations, and government) on the real cost of results.
The letter elaborates on these goals and provides resources to help you achieve them. The Overhead Myth/Overhead Solution website also offers free tools to turn myth into solution.
Working toward the Overhead Solution won't be a quick fix, but it's one whose impact will increase as more nonprofits embrace it. In the words of the three leaders, "Let us drive a conversation about nonprofit trustworthiness and performance that is worthy of the people, the communities, and the ecosystems we all serve."
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Suzanne E. Coffman
© 2014, GuideStar USA, Inc.
Suzanne Coffman is GuideStar's editorial director and editor of the GuideStar Newsletter.