The Real Cost of Overhead

In these columns I address real-life obstacles and challenges that nonprofits face in creating sustainable funding to deliver their missions and achieve their goals. Readers write via email to receive a quick consultation and perhaps have their particular problems addressed in these columns.

As a thank-you to my readers, from now through the end of the year, I am sending a complimentary copy of my book, "The Eight Principles of Sustainable Fundraising," to the reader whose situation is used in each week's article.

I received an email last week from the executive director of a small cultural nonprofit in the Midwest. She detailed to me her recent experience of being plunged into what I call "donor hell."

I'm not exaggerating. Truly, Liz's organization underwent the near-death ordeal that you hope never comes — but it did.

For years, this little group was the undiscovered "jewel" of its community. It did so much with so little. It was a point of pride. Then disaster hit.

Frugality had reached the summit. Always operating on a small budget, this group wanted to eke out more. The executive director assumed custodial duties. Everything — and I do mean everything — was recycled. Being frugal — reducing administrative expense to put more into programming — became the overriding value.

On a particular day, a small group of leading supporters had convened to discuss an upcoming fundraising push. Notepaper was handed out. At one point in the meeting, a longtime leading donor flipped over her sheet. On the reverse was a portion of her confidential donor record. Expressing disbelief, others present examined their own sheets. On each and every page was a donor's confidential information — if only in clipped 4-inch-by-5-inch format sliced from an 8.5-inch-by-11-inch page.

I need not relate the rest of what ensued.

Prior to this bombshell exploding, a few staff members had, from time to time, suggested the paper in question be shredded. Not on your life. It costs money to have it shredded and carted away, and it's a real waste not to reuse it. We want the highest rating for the lowest overhead, they were told.

This tale of woe, although culminating in a true crisis of trust, was years in the making. Most such debacles usually are. They start when you create the conditions for them. Like overnight success, the overnight failure is usually 10 years in the making.

Liz's worthy organization sought to be frugal for years. Not a bad thing. Gradually, but surely, this desire to be financially responsible morphed into a cost-cutting monster. That's when the need to keep faith with investors, donors — those who pay the bills — somehow got lost in the desire to maximize cash flow and reduce overhead to zero — if possible.

Every activity has its cost. The key is keeping these costs in proportion to their return. Being willing to re-examine long-held assumptions and make change is essential to remaining relevant to those who support you as well as those you serve. Whenever we believe we have it all figured out, that's a sure sign that we do not.

Recovering from a breach of trust is possible. It won't be easy. It won't happen immediately. As I wrote to Liz in my response to her, you can do it if you're willing to be honest with yourself, 'fess up to your supporters and then ask them how you should move forward.

The last part is the hardest. It's difficult to take direction from others, especially those whose trust we've violated. Assuming the intrinsic worth of our mission without validation from those who invest in us is very risky, however.

My last email exchange with Liz indicated organization leadership had taken its lumps and learned from its mistake. As you'd expect, the organization's fundraising totals have taken a dramatic hit. Programs will have to be cut. Some will not survive. A few donor stalwarts have stayed loyal, however, and rebuilding has begun.

I extend my special thanks to Liz for sharing her experience. A copy of "The Eight Principles of Sustainable Fundraising" is in the mail to her.

Please let me hear from you concerning your particular situation and the difficulties you face in developing sustainable revenue streams. Email me (info@TheEightPrinciples.com), and I'll give you a quick response. I'll choose some of these thorny obstacles to share, along with my insights, in upcoming columns.

Cheers!