How Individuals can Help With the Overhead Myth Smackdown

Boy oh boy, does the general public hate the concept of nonprofits having overhead.

This article was written by featured writer Amber Smith.

If you spend any time on social media or, you know, in the world, you’ve probably been exposed to the concept of “nonprofit overhead” at some point, on some level. Loosely defined, nonprofit overhead is “funds spent on administrative costs and fundraising costs” and are often thought by the general public to include things like staff salaries, office spaces and buildings, utilities, some marketing expenses, and equipment.

Boy oh boy, does the general public hate the concept of nonprofits having overhead. In a survey a few years back, about 62% of Americans reported feeling that nonprofits spend more than is reasonable on overhead. This contributes to a lack of public trust in nonprofits and impacts the resources folks are willing to donate to some very worthy causes. Personally, I can’t count the number of comments on social media I’ve seen from people I know complaining about a nonprofit they refuse to support because of the percent they purportedly spend on overhead. There are even graphics and memes about nonprofit overhead spreading like wildfire that are downright lies.

This obsession with overhead started a few decades ago, when charity watchdog groups were trying to determine an easy way for donors to understand whether a nonprofit was worthy of their donations. They came up with the idea to judge a cause’s effectiveness and efficiency based on its overhead ratio — the percent a nonprofit spends on overhead versus direct programmatic costs — and the idea spread, becoming a pervasive part of philanthropy and the dialogue on charitable giving ever since. It seemed like a noble endeavor. After all, we all want to know our donations are being used wisely, right?

The problem is, essentially, they were wrong, or at least pretty far from right. Overhead is complex, with many overhead costs impacting how effectively a charity can operate and serve its mission, even if it is not overtly clear in the numbers. Most importantly, having a low overhead does not always mean a nonprofit is making a big impact, and having a high overhead does not mean a nonprofit isn’t. And it’s a big problem. More than half of donors say they trust the ratings that charity watchdog groups put out there when making a decision about where to donate. That means that if these watchdog groups get it wrong, a lot of good people and causes could suffer. Oh, the pressure.

A few years ago, some professionals in the sector started to speak up. Dan Pallotta’s famous TED Talk, “The Way We Think About Charity is Dead Wrong” generated some good buzz. And now, charity watchdog groups are working to right the ship and discover more accurate ways of judging a nonprofit’s worthiness, such as measuring its actual social impact. They are also trying to correct previous misconceptions through campaigns like the “Overhead Myth”.

In the effort to highlight the Overhead Myth, nonprofits, nonprofit collectives, and funders have obvious roles to play, educating their team members and supporters and putting forth statements urging the public to understand how to more effectively measure a cause’s worthiness of support.

But what can everyday people do to help cut down the myth for the good of the world? Here are five ideas:

1. Educate Yourself: First, understand the role overhead plays in nonprofits and social enterprises. Understand that without overhead, nonprofits enter a cycle of “starvation”. Tackling a major social problem is like running a marathon, and a hangry nonprofit is no more good to society than a hangry person is. Consider what would occur if you took away some of those things that might be considered “overhead” from a well-run nonprofit organization:

a. Salaries for professional staff such as volunteer managers, social workers, doctors, scientists, or fundraisers. Who needs skilled professionals working full time to try to keep the lights on long enough to solve major social issues, anyway?

b. Computers and software. It’s cheaper and way more efficient to process this homeless client’s job application or do this accounting by hand on paper, isn’t it?

c. Insurance coverage. Costly accidents or a staff person’s illness help a cause, right?

d. An office space or building. We can operate this open door clinic, homeless or domestic violence shelter, museum, or advocacy group without a roof, can’t we?

e. The electricity and running water. Luxuries, to be sure.

Can you imagine asking a nonprofit organization to stop spending “so much” on those things considered overhead? Can you imagine feeling offended that an organization needed technology, a roof over their heads, water, electricity, and trained, professional staff to help people in need in an effective way? I can’t.

2. Ask the right questions: When trying to figure out where to give your time or money, bless the wonderful organizations in your community by not asking what their overhead ratio is. Instead, learn about their true impact. Ask about the people they’ve served and the lives they’ve changed. And, share the answers they give with your friends and coworkers. Be brave enough to put forth stories of impact on your social media feeds and state that overhead doesn’t matter; impact does.

3. Put your time and money where your mouth is: Reward causes that demonstrate impact over overhead with your donations and time, and ask your friends and employers to do the same. Do your research to understand which nonprofits are making the biggest impact, regardless of overhead, by examining other factors like the number of people they’ve served or their social return on investment (basically, how much good they get done relative to their budget — a much better way to assess effectiveness than overhead!). Make donations to nonprofits you support and honor them by earmarking those donations for things that will improve infrastructure for their cause. Instead of cringing at the idea of putting your dollars towards things like staff, space, or technology, recognize that these things will enable the cause you love to truly thrive and solve problems for the community, and seek out ways to support these needs specifically.

4. Help rebrand “Overhead”: It’s true. The word “overhead” is not only boring, it has an icky connotation no matter how much we try to show how little it relates to the actual impact being made by a cause. Most importantly, as we’ve discussed, it’s not an accurate measure of effectiveness. So instead let’s call spending that causes must do on these types of things — infrastructure, salary, training — what is really is: Necessary. A whole mass of other, more appropriate terms are emerging to replace overhead, like “Core Funds” or “Operational Costs”. Give these new phrases a spin, and share them with your friends.

5. If you work for a nonprofit, at any level, stop talking about low overhead like it’s awesome: I know. It takes guts to be on the forefront of this. While everyone is still talking about it, if you don’t, you feel left out. But we need someone to be brave. If you’re an individual who happens to work for a nonprofit organization, start by de-emphasizing your organization’s low overhead, and ask your organization’s leadership to do the same. Instead, brag about your organization’s real impacts. Oh, and Tweet about your organization’s support for dashing the Overhead Myth. It’ll take a little while to undo what has been done, but that’s social change for you, huh?

Thanks for reading! Join the #NonprofitRevolution at Wethos.co & click here to refer an organization!