The Overhead Myth: Debunking nonprofit administrative spending

May 30, 2022
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Nabil Yusufali

With the recent social revolutions taking place around the world, people are looking for ways to get involved now more than ever. This, combined with social media campaigns, have made nonprofits the perfect way for people to get involved from anywhere in the world. However, donors obviously want to make sure that their donations are being spent correctly. Hundreds of articles and news sources recommend different strategies for vetting nonprofits to create more financial transparency.

But what if your money isn’t directly helping the cause? What if it’s being spent on “operational costs” or administrative spending (office spaces, salaries, marketing, etc.)?

Enter the Overhead Myth. Nonprofit overhead is defined as spending on administrative costs and fundraising. Think of it as human resources spending. The myth lies in the perception that nonprofits overspend on these overhead costs. Thus, your donation to aid impoverished communities may be used to line the pockets of a high-level executive.

But is overhead spending really such a bad thing? Any good company needs training, well-paid professionals, and proper equipment to run so why should nonprofits be any different? The truth is, they shouldn’t be.

Unfortunately, trying to do good for society is no simple task. Nonprofits need fleets of professionals, office spaces, equipment, and even insurance coverage to run smoothly. Exactly like a business, a nonprofit needs the proper resources to advance their cause. There is this donor desire for their money to only ever be used directly for furthering the causes of the nonprofit and not toward overhead. This mindset ignores the simple fact that people deserve to be paid for their work. Salaries need to be paid, software bought, rent for an office, and even utility bills all need to be taken care of. The only way for a nonprofit to do this is through these overhead funds.

It is understandable that donors don’t want their funds to be used for overhead costs. After all, it makes you feel better to say that your donation helped struggling communities rather than saying that your donation paid the light bill for the month. Rather than using overhead as a sign of success for nonprofits, measure their actual impact. Which nonprofits are making the biggest difference? Do they have a good return on investment? All these questions are a better way to determine which nonprofit to support rather than solely focusing on overhead.

Lastly, try to reframe the way you think about overhead. Every donor has causes and movements that they seek to support and further. Why can’t your donation to keep the lights on be as noble as a donation to feed a family? Both honor the nonprofit’s cause, albeit in different ways. 

Zooming out, contributing to overhead is a way for donors to strengthen their chosen nonprofit’s foundation and grow the organization. The idea that these investments are unnecessary or ineffective is disrespectful to the very people running the nonprofit and the cause they support. Contributing to administrative costs or operational spending helps keep the nonprofit alive in the long run so it can continue to serve the people that need them most. And if you ask me, I can think of no greater form of charity than that.

So, the next time you donate, would you select “Administrative Costs”?

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