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Can We Move Beyond the Nonprofit Overhead Myth?

By Nell Edgington



mythEver since last year’s Letter to the Donors of America from GuideStarCharity Navigator, and BBB Wise Giving Alliance there has been a growing movement to debunk the “nonprofit overhead myth,” the notion that donors should evaluate nonprofits based on the percent they spend on “overhead” (fundraising and administrative) costs.

More and more articles (a most recent one here) are cropping up explaining the overhead myth and highlighting donors who overcame it. And even fundraising journal Advancing Philanthropy is devoting their entire Spring issue to the topic.

But at the same time we have very obvious examples of the continuing strength of the overhead myth. The latest is nonprofit darling Charity:Water, which is often held up as the gold standard of innovative fundraising and nonprofit strategy, claiming that 100% of their donations go “directly to the field.” And thus the overhead myth lives on.

Will we ever be rid of the idea that nonprofits can somehow achieve a nirvana where very little (or no) money goes to boring things like salaries, technology, infrastructure, fundraising, leadership development, planning, R&D?

I wonder if we could gain more traction by talking less about the negatives of an overhead myth and talking more about the positives of nonprofit organization building.

For example, one of the things that is often considered “overhead” and rarely gets funded is nonprofit leadership development. But in the for-profit sector, leadership development is viewed as an incredibly important and worthy investment. According to a recent article by the Foundation Center, the business sector spent $12 billion on leadership development in 2011, whereas the nonprofit sector spent $400 million, or viewed another way, businesses spent $120 per employee on leadership development, whereas the nonprofit sector spent $29 per employee.

And leadership development can have such a positive return on investment. A stronger nonprofit leader can:

  • Recruit, train and manage a more productive and effective staff
  • Engage a more invested board of directors
  • Use money and other limited resources more strategically
  • Open a nonprofit to bigger and better networks
  • More effectively manage to outcomes
  • Create an overall more highly performing nonprofit

So what if we refocused the overhead myth discussion on the power of nonprofit organization building? Beyond leadership development, investing in nonprofit organization building means money for things like: talented, effective fundraising staff; smart long-term planning; performance management systems; effective technology.

At the core, organization building is about creating a smart, strategic nonprofit that can actually realize the outcomes it was set up to achieve. Organization building can make the difference between a nonprofit that is just getting by and a nonprofit that is actually solving problems.

If you want to learn more about funding nonprofit organization building, download the Power of Capacity Capital E-book or the Raising Capacity Capital Webinar.

Photo Credit: liquidnight

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About the Author: Nell Edgington is President of Social Velocity (www.socialvelocity.net), a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively. For more information, check out Social Velocity consulting services and clients.


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5 Comments to Can We Move Beyond the Nonprofit Overhead Myth?

Prentice Zinn
February 13, 2014

We have gained as much traction on the nonprofit overhead discussion as a hog on ice.

The discussion is beating a dead horse. According to a recent study, all of the rants, essays, haiku-poems, webinars (ugh!), tweets, and the 567 blog posts in the past year exhorting funders to kick the overhead myth habit have convinced a whopping 2.5 donors to check into rehab.

Myths by definition are a stubborn cultural phenomenon. They are addictive. They are seductive. They are powerfully resistant to “rational actor” appeals. Many of the organizational performance metrics, ratios and rules-of-thumb spewed by many and enshrined in our so-called analysis comfort us in a hazy narcotic stupor. It will take years of therapy, skin patches, voodoo chants, anti-venom, and arm wrestling to disabuse us from our dependence on comically simplistic analyses of efficiency, impact, and ROI.

Thank you for offering a more strategic alternative to the existing litany. Let’s talk about what works. It is way more interesting, productive, and engaging than all of the finger-waving to the chorus of believers.

Nell Edgington
February 13, 2014

Very well said, Prentice.

[…] Can We Move Beyond the Nonprofit Overhead Myth? Ever since last year’s Letter to the Donors of America there has been a growing movement to debunk the “nonprofit overhead myth.” We might get further focusing instead on the positive impact of organization building. @NEdgington […]

[…] want to thank Social Velocity for bringing this article to my attention. Analyzing the work of nonprofit organizations is tricky, […]

Pete Miragliotta
February 20, 2014

Well put. I’m currently working on a program for NPOs that I call Managing for Impact. One of the foundational elements of the MFI approach is to move(or at least try to) the conversation to the types of NPO building mentioned here by focusing on actual documented results in addition to the many heart warming anecdotes that many charities rely upon. I believe that by demonstrating positive outcomes and objective measurements, funders will be more encouraged to invest in effective organizations and may even move away from requiring their own, frequently useless, reporting that so many of them fail to provide support for.

I’m interested in feedback from other NPO advisors and professionals and am always interested in developing new collaborations.

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