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Overhead Is Overrated

Giving should be joyful!

And nothing takes the joy out of giving faster than the suspicion that our gift might not be well used. We want our dollars to make an impact, but is looking at a nonprofit’s overhead rate really the best way to determine if a nonprofit is a good charitable investment?

Jennifer Abbott
Jennifer Abbott, Director of Philanthropy

At Manatee Community Foundation, we caution against using overhead rate as the key measure of efficiency – and certainly not of another key factor, effectiveness. While you want to know if a charitable organization is actually helping its clients make positive gains, a low overhead rate will not answer this question for you. In fact, studies show that under-investing in administrative costs is consistently linked with poor organizational performance and sustainability.

Think of it this way – would you seek out the hospital with the absolutely lowest overhead costs for your critical surgery? The one that brags about how they haven’t invested in new technology in years and don’t pay for staff training? Where the nursing staff is also in charge of all janitorial services and volunteers do all of the surgery scheduling? Of course not!

Nonprofits are businesses with important missions that require investment in overhead. The mental health provider needs a technology upgrade to serve clients safely and remain compliant with regulations. The domestic violence shelter needs an experienced CFO, paid a fair market wage, to manage complex grant accounting and oversee your donation. And the teen mentor program needs funding to run background checks and purchase office supplies. These are not things we would recommend they do without. All entities, for-profit businesses and non-profit organizations, incur these kinds of legitimate costs.

As much as we wish that one clear and simple number would let us know what organizations are worthy and well-run, that magic statistic simply doesn’t exist. A more accurate assessment of a nonprofit’s efficiency requires consideration of not only what it spends on overhead, but also of what impact it is having. At Manatee Community Foundation, we are always looking for the results that nonprofits are achieving for those that they serve. Not how many did people they reach, but how many are better off because of their program?

With just a little research, you can feel confident in your giving and relish the joy that comes from knowing your donation made a difference.

To learn more about how to evaluate nonprofits:

  • View our Virtual Workshop on Charity Ratings from February 24, 2021 at 10:00 am. Watch the recording
  • Read the article (Mis) Understanding Overhead from the National Council of Nonprofits
  • Follow MCF’s blog for a future articles on how to be a savvy giver
  • Check out our local GivingPartner.org to investigate how local nonprofits are reporting their results
  • Reach Out to us! We are always delighted to be a resource for charitable people who want to make a difference. You can reach me at JAbbott@ManateeCF.org or call (941) 747-7765.

Jennifer Abbott is the Director of Philanthropy of Manatee Community Foundation.