Donors are Against Nonprofit Overhead? Why?

Wishing Well by scott-tanis on Flickr
Wishing Well by scott-tanis on Flickr

I’ve been thinking a lot lately about overhead in nonprofits.  All credit to Dan Pallotta at Harvard Business Review for getting me to really consider it.

It seems like the magic ticket for getting donors large and small to trust their money to your cause is to promise low overhead.

Even Seth Godin, a thinker and writer I respect and enjoy, asked for donations to a cause he believed in and touted “zero overhead.”  I bet that this was a deal-maker for many donors – all their money could go directly to building a well instead of disappearing into the underworld of overhead.

Is overhead in nonprofit and charity work really so horrible?  Do donors prefer to not have knock-out accounting professionals running nonprofit finances?  Do they wake up in cold sweats after nightmares of their money going toward rent for an organization that could dig more wells after Seth and his crew of one-time donors move on?

Unlikely. “Overhead” probably just sounds like wasted money. It’s easy to not realize what “administrative costs” actually are until you stop and think about them: accounting, an office manager, internet access, rent, and electricity.

Are these unreasonable ways for an organization to spend money? Does having these roles and services increase or decrease output? What about quality of output? What about capacity for continued output?

Maybe we can think about the purpose of nonprofit overhead before determining that it’s not worthy of our $50 one-time donation.

4 thoughts on “Donors are Against Nonprofit Overhead? Why?

  1. More than that, overhead is also funds for capacity-building. If a program wants to expand and offer services in another neighborhood, for example, they need to have cash on hand to hire a director and staff, buy furniture, pay real estate costs, etc… Even if they know the work done in the new site will be fully funded, the costs in starting up are considerable. By denying agencies money for overhead, they contribute to an agency’s inability to expand good services to meet real needs.

  2. MJ – Sometimes it seems like nonprofit priorities are less about providing and expanding quality services to meet real needs and more about making do with less. It’s like our perceived value is more about our frugality than our (potential) impact.

    (Why expand in order to provide services to another neighborhood when you can just stretch what you already have a little thinner and a little farther?)

  3. I agree, but it’s probably going to be impossible to get donors to understand that, particularly first-time donors. If nonprofits do whatever divvying is needed to be able to say that donations for a certain campaign are “no overhead,” then we’ll make more money. I’m interested in educating donors, but I’m more interested in having a successful organization.

  4. Elliot,

    Thanks for your comment! I guess I see donor education as a long-term investment, and the “no overhead” strategy as a short-term pitch/gimmick.

    I agree with you that we need short-term solutions to survive in tough times. But is our long-term strategy as nonprofits really just continually juggling funding so that we can call out, “Look over here! No overhead for this campaign!” forever?

    My hope is no. First, this would set up the sector for some over-hyped scandal about misappropriation of funds. Second, the longer this strategy continued, the longer it would support the idea that overhead is indeed not important enough to spend money on.

    Long-term strategies could include donor education, tax code reform (Dan Pallotta makes some really interesting points at, and changes in watchdog agency ratings. Developments in these areas could change the way we’re seen, the expectations put on us, and the way we operate (hopefully all for the better). But as you point out, it’s the “no overhead” that brings in the money right now.

    I guess I just worry that we might be securing today’s campaigns’ success at the expense of the future of the sector.

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