Video Transcript
Nonprofit “overhead” is a hot button issue among donors and the general public. Unfortunately, many people “judge” a nonprofit based on how much they spend on overhead.
I’m not sure why or how this started, but it has been perpetuated by the mainstream media, as well as certain websites that rate charities.
Sadly it’s not just donors, but many nonprofit board and staff members as well subscribe to this type of thinking. But I say, “No more”!
Focus on Outcomes, Not Overhead
I challenge you as a nonprofit professional to help change the conversation! To focus on effectiveness and outcomes, not on overhead.
Overhead is such a ridiculous “measure” of a nonprofit’s value and effectiveness, but it’s one of the only ones used by many donors.
How is it possible that smart, educated people believe that a nonprofit is more responsible or efficient, simply because it spends less on staff salaries and other administrative costs?
Does that mean that a nonprofit is great if it has only 10% overhead but is ineffective?
What about a nonprofit which has outstanding results and outcomes, but spends 50% of its funding on operations?
If you haven’t read the book A Path Appears by Nick Kristoff and Sheryl WuDunn, I highly recommend it. They make a great argument for this type of thinking in their book.
Consider it Another Way
Investors in for profit companies would never judge an organization for spending money in research and development or for paying high salaries to their employees to have the best employees available.
For some reason, most of the nonprofit sector expects to pay their staff peanuts and then have them be the best in the field and work 60 hours per week! It’s ridiculous.
And then, when a nonprofit CEO is highly paid, they are often criticized for it!
It’s hypocritical because donors expect nonprofits to be responsible with their donations (as they should) and have programs with stellar outcomes. But, how can a nonprofit attract the best employees if you can’t pay them what they’re worth?
I recently read a blog post that put forth the notion that you can’t change the world sitting in broken chairs, which is such a fantastic analogy because donors expect us to be responsible with their money and achieve great results on pennies. These donors would never work in the conditions many nonprofit staff members work in with hand me down furniture and 10 year old computers!
Talk to Your Board and Donors
It’s up to you to have this conversation with your board members and donors. It’s up to you to change the conversation about the way nonprofits are measured, And kill the idea of overhead as a responsible way of measuring a charity’s effectiveness.
Start with your board at your next board meeting. Have a discussion about why it’s important to have the best staff members and good working conditions.
Next, communicate with your donors — send them emails and write articles in your newsletter about how you want them to measure your effectiveness.
Finally, write letters to the editor.
It’s up to us to all of us change the conversation and educate our donors and the general public. Then, and only then, maybe we’ll start to see the real change in this world that every donor and nonprofit organization strives for.
What are your thoughts on this issue? Leave your comment below.
As the Chair to a committee of a national non-profit I have a lot of responsibilities. Because I do this as a volunteer I cannot put the time and effort into the position it deserves. So, a few things get dropped or not done to it’s fullest potential. There are other volunteers, but they get burned out really fast and quit. This is why I’m breaking off as a separate NPO so I can raise funds to hire a few people to spend 40 hours a week on projects and be more effective.
There are some people who disagree, but they aren’t offering to help. Go figure.
Great job, Allen! Keep up the good work.
“If I don’t tell my own story effectively, I’m inviting everyone else to tell it for me.”
Great point! Thanks, Kelly!
I completely agree. We did a cost benefit analysis and decided to build a home office instead of renting space. We have a beautiful LEED certified building. I had a donor come by and tell me, ‘we must not need his money if we have built such a wonderful building”. We are paying less for this building then we did when we were renting. We also do not have mold, rats, etc. We built green so we could be good stewards of our donors $$. During the capital campaign we explained all this, but this donor must not have seen/read this…Sigh
As for employee salaries, nonprofit salaries are not the ones that ‘they’ should be looking at….
Laurie,
Congratulations on your new building. I hope you do wonderful work from it for many years to come. Some donors are never going to get it, but it’s our job to try to explain it to them!
“It’s up to you to change the conversation about the way nonprofits are measured, [a]nd kill the idea of overhead as a responsible way of measuring a charity’s effectiveness. ”
With all due respect, I don’t think this approach will lead to some sort of sea change. Fighting _against_ the idea of using overhead as a means of measuring efficiency will be seen as a dodge, and lead people to suspect the organization has something to hide. That will sap confidence.
Instead, and I take this to be your point, you should first find and support _other_ measures of effectiveness that people will accept. You have that conversation without attacking the idea of overhead. Once a new measure is established and accepted, you can reduce reliance on overhead until it’s negligible, or at least viewed as just one way among several of measuring impact. That creates a positive, constructive discussion, rather than a negative, defensive one.
Your treatment of overhead as an either/or conversation will simply remind people that the worst nonprofits — the ones accused of using 80-90% of donor dollars on indirect expenses — often say the same thing you’re saying here: don’t worry about how we spend our money.
Point blank, if your financial overhead is high, you won’t qualify to participate in certain federally-funded grant programs, so while getting rid of this gross measure may be a good idea, the road ahead to an common alternative — a spin-free, factual measure all nonprofits agree to be measured by — is going to be a reach.
With all due respect, how can you ask someone who makes $25K a year to donate so that a CEO can get his $400K a year salary? Is it really true that you have to pay people highly to get them to work for a non-profit? Whatever happened to believing in the cause?
Bea –
First, believing in the cause and making a decent living are not mutually exclusive. Yes, I believe we should pay nonprofit executives well, so we can attract the best and the brightest people to manage nonprofit programs, services, and donations! Second, only a small fraction of nonprofit executives make anywhere close to $400,000. Only the largest nonprofit organization are paying their CEO’s large salaries, and then I would say even more emphatically YES, we need to be paying for the best people to be managing large organizations. We want smart, competent, experienced, and committed people managing our nonprofits. So, I say YES, pay them what they deserve.
Amy
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Cheers, Tom Wood