Raise your hand if you’ve ever:
• Been asked your organization’s overhead cost by a donor.
• Had to share your organization’s overhead percentage on a grant application.
• Felt inclined to define your agency’s overhead costs.
• Realized that your position was an overhead cost.
Chances are you’ve dealt with one or more of those scenarios during your tenure in the nonprofit realm. And it’s beyond frustrating. Because so many of us are overhead: from grant professionals to development directors and accountants to administrative assistants.
It’s a ridiculous number based on nothing other than someone else’s belief that a 10% (or less) overhead is an effective measure of an organization’s successful management and use of resources.
But it’s nothing more than a myth. FULL STOP.
Kimberly and I chat about the fact that so many of the people and resources needed to run a nonprofit are considered overhead costs – you know, the essentials necessary (and often in the background) to keep ALL the programs and projects running efficiently and effectively. You can join our discussion on the latest episode of the Fundraising HayDay Podcast HERE.
The overhead myth is counterproductive and harmful to nonprofits’ long-term effectiveness. It’s problematic and hinders nonprofits from achieving their missions. Let me count thy ways…
1. UNDERINVESTMENT IN CRUCIAL INFRASTRUCTURE
Limiting overhead to 10% often means nonprofits can’t invest adequately in essential infrastructure like technology, staff training, and systems development. This underinvestment can lead to inefficiencies, outdated processes, and an inability to scale operations effectively. Ironically, trying to keep overhead low can result in less efficient use of resources overall.
2. DIFFICULTY ATTRACTING AND RETAINING TALENT
Nonprofits need skilled professionals to run effectively, but low overhead budgets often translate to below-market salaries and limited professional development opportunities. This makes it challenging to attract and retain top talent, often leading to burnout and the loss of quality employees (assuming they agree to work at your nonprofit in the first place).
3. LIMITED CAPACITY FOR INNOVATION AND GROWTH
Innovation requires resources – both time and money. With tight overhead restrictions, nonprofits may lack the capacity to explore new approaches, pilot programs, or conduct research that could dramatically improve their impact. This can lead to stagnation and missed opportunities for growth and increased effectiveness.
4. REDUCED ABILITY TO MEASURE AND DEMONSTRATE IMPACT
Impact measurement and evaluation are crucial for nonprofits to understand and improve their effectiveness. However, these activities are often categorized as overhead. Limiting overhead can mean cutting corners on evaluation, making it harder for nonprofits to demonstrate their impact to donors, foundations (and other funders), and stakeholders. Without fully understanding the success (or lack thereof) of our programming, how will we know what truly works and doesn’t.
5. NEGLECT OF ESSENTIAL ADMINISTRATIVE FUNCTIONS
Functions like human resources, financial management, and compliance are vital for any organization’s health and sustainability. Severe overhead limitations can lead to understaffing or neglect of these areas, potentially exposing the nonprofit to legal, financial, or operational risks.
6. PERPETUATES A HARMFUL NARRATIVE ABOUT NONPROFIT WORK
The 10% overhead myth reinforces the idea that nonprofit work should be done on a shoestring budget, potentially devaluing the professional skills and resources required to run effective organizations. This narrative can make it harder for nonprofits to advocate for the resources they truly need.
7. DISCOURAGES NECESSARY RISK-TAKING
Innovation often involves risk and initial investment. Strict overhead limits can make nonprofits overly risk-averse, sticking to “safe” programs rather than exploring potentially game-changing new approaches.
What did I miss on this list? Let me know by emailing hello@haydayservices.com.
Yes, fiscal responsibility is important, but the 10% myth does more damage than good. Instead of focusing or arbitrary ratios, donors and nonprofits should prioritize overall impact and effectiveness. This means allowing for higher overhead percentages to invest in the people, systems, and innovation necessary for long-term success. By moving beyond the overhead myth, we can create a nonprofit sector that is truly equipped to tackle society’s most pressing challenges.
- Right Sizing Your Agency for Grant Funding - September 5, 2024
- Need Statements: A Vital Element of All Grant Proposals - August 30, 2024
- Unlocking Courageous Leadership with Julie Boll - August 29, 2024
