The Myth of 'Too Much Overhead'

If you feel like you're a fairly giving person (as in charitable giving), I've got some not so good news for you. Chances are everything you may think you know about what it takes to financially run a nonprofit is probably wrong. And for that reason, you're probably hurting the groups whose missions you most want to help.

According to studies done by Grey Matter Research and Opinions 4 Good, a survey of one thousand donors showed that most people still believe in the "myth of overhead." That's the industry term for the erroneous belief that groups keeping operational costs low are somehow more effective at accomplishing their missions.

The point of me getting into this with you today is that sometimes overhead costs should be looked upon as worth it. That's especially true if the money permits the nonprofit to be more successful and expand in a smart way. I guess I'm talking about an Invest-What-It-Takes approach here.

Nonprofits, it seems to me, have an undeserved reputation caused by a few organizations who have been greedy and infected donors with the wrong impression about the good most of you do.

I once read of a veterans' group that brought in over $370 million a year which is wonderful, except for the fact that they spent 40% on employee "indulgences," whatever that's supposed to mean.

That can certainly taint the mentality of donors, wouldn't you agree?

While the typical person really knows very little about what their favorite charity is actually spending on overhead, I have found that most donors estimate that it's significantly more than is reasonable to expect. That can only lead to missing out on future funding.

It can't be denied that there is a real impact on nonprofits that feel obligated to address this problem of perception when it comes to overhead.

In my opinion, it's really important that nonprofits not pay so much attention to keeping ratios down that they end up hurting themselves and therefore constraining their causes in the long run.

Maybe the problem is with the very word "overhead." It's not very descriptive, is it? I have heard some people refer to the term "shared costs" (meaning the "o" word).

What I really think the problem boils down to is that many nonprofits still don't have a good way of measuring their impact and then effectively communicating those numbers when they get a handle on them. That's one of the reasons the overhead ratio became so popular in the first place.

Maybe it makes for a nice looking pie chart in your annual or impact report, but it's really telling only a very, very small percentage of the story you need to tell.

Have an opinion on this subject? Let me know.