Can I have a cheer for (appropriate) overhead?

A couple of posts back, I ranted about the “ignorance” of critics who judge the merits of a fundraising program solely on a dollar-for-dollar equation. And I railed at the harm that the public’s aversion to “overhead” has done to nonprofit organizations. In support of my argument, I threw in links to like-minded bloggers.

In case my earlier attempt at an apologetic for right spending on overhead (including fundraising) failed to convince, I’m back, with another expert in tow.

I encourage you to read what Nell Edgington of  Social Velocity has to say to a blogger who advises donors to ask questions that “perpetuate thinking that actually hurts, rather than helps the nonprofit sector.”


Here are the questions that got Edgington’s  dander up.

  • How much goes to the cause? How high are their expenses?
  • What is their cost-per-fundraised-dollar ratio?
  • Do they even need your money? Will your money just be lying around in their reserve?

Edgington writes:

. . . the distinction between program (or “cause”) and administrative expenses is meaningless at best, and destructive at worst. If a nonprofit organization is creating change, then everything they do is in support of that change. How can a program run if there is no financial engine (fundraising) to fund it? If there is no building or space to house it? If there is no financial management or regular audits? If there is no regular evaluation of whether the program is making a difference? How can you possibly separate “program” from “overhead?” We must move beyond this distinction and encourage nonprofits to raise (and donors to give) more capacity capital, or the money that nonprofits so desperately need to create effective and efficient organizations.

We have to get away from the nonprofit taboo that operating reserves are wrong. Nonprofits cannot plan for the future, have a sustainable financial model, experiment with program changes, take risks, or any of the other things that are absolutely necessary to creating social change, without some operating reserves. If nonprofits are continually forced to go month to month without any cushion they will never emerge as strong, sustainable organizations capable of creating lasting change.

We must move away from thinking that encourages nonprofits to scrape by without the tools and infrastructure they desperately need. We must stop measuring nonprofit performance with meaningless financial metrics and instead evaluate nonprofits on their ability to deliver change. If a nonprofit is creating real change, does the minutia of how they spend money really matter?

Together now. You cheer. I cheer. We all cheer for (appropriate) overhead.

For another helpful look at the topic of appropriate overhead, check out The Nonprofit Starvation Cycle (Bridgespan Group).

What's your take on this topic?

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