Rethinking the Overhead Myth News | The Community Foundation of Greater Memphis

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Rethinking the Overhead Myth

(Dec. 8, 2022) It’s incredibly satisfying to give to meaningful charities and seeing the impact of our gifts. As donors, all of us want to feel that our dollars are being used responsibly to create the most good.

A trend has emerged over the past several years where donors have been skeptical of overhead expenses like facilities, equipment, staff salaries and training, and fundraising. They can assume that nonprofits with lower overhead ratios are better than those with higher ratios—with the thinking that the more money spent on direct programs and services, the more effective the organizations are.

But research shows that very low overhead costs can be detrimental to organizations’ health and ability to fulfill their missions. One recent study showed that when arts nonprofits devoted 35 percent of their budget to overhead, they did best in terms of attendance. Attendance dipped when overhead got too high—or too low.

It’s always reasonable for donors to do their research and expect nonprofits to steward their gifts well. However, it may be time to rethink whether a nonprofit is worthy of a donor’s dollars by merely calculating the share of its budget spent on overhead.