Why Overhead Matters
Every year, as we prepare our annual report, we split our spending into three different categories: Program Costs, Management, and Fundraising. That’s because many donors want to know the percentage of their donation that will be going directly to programs, which is natural – you want to know that your dollars will be doing good.
Some donors might insist that their money go straight to a specific program, or refuse to give to organizations if overhead costs take up more than an arbitrary percentage of their budget.
There’s a widespread myth that many nonprofits are poor stewards of donations – that money is being spent on extravagant offices or exorbitant executive salaries. That couldn’t be further from the truth. In fact, it’s much more common for nonprofit employees to be underpaid than overpaid.
“Overhead” is a vague term which encompasses all sorts of expenses. Insurance, utilities, and administrative staff all count as overhead.
All of the money that goes into overhead plays an important role in the success of a nonprofit. The money we spend on our mortgage and maintenance means we’re able to shelter the young people who walk through our doors. Our IT infrastructure allows us to keep YSNMN running. Our talented administrative staff means that our program staff don’t need to worry about funding, data management, or stress that their paychecks won’t be ready on time. Our investment in our staff means that talented people can grow their careers right here at The Bridge.
Additionally, nonprofits operate more like businesses than many people realize. That means we analyze data, metrics, draft reports and report to donors, donors like you. The people who analyze the data and run the many reports we provide to funders are part of the “overhead” equation for every nonprofit and without them, we cannot operate.
When we under-invest in overhead, we leave our organizations weaker and more vulnerable.
Judging a nonprofit by their overhead percentage won’t help you find the best organizations to donate to – that requires researching their outcomes. If you’re looking for a place to do your own research, check out Charity Navigator or GuideStar.
In the meantime, don’t hold back on your donations because you’re afraid they’ll go to overhead costs. Those expenses are vital for keeping nonprofits strong so that they can do good for years to come.