Charity Overhead: Myth, Mystery or Just a Misunderstanding?

If you've been paying attention to the both the trade publications and consumer media, you've probably noticed a more frequent focus on overhead — that combination of fundraising and general and administrative (operations) that costs money that is then not available for programming — than, you know, fulfilling your mission.

But let's face it — overhead is a fact of life. Electricity, printer ink and telephones are generally not optional extras. We need a certain amount of overhead to function. Just try convincing your employees that working in a stifling hot room in July without the benefit of a chair to sit on is a realistic expectation; sweat shops are frowned upon, probably even more so than charity overhead rates. And to make matters worse, those persnickety employees insist on being paid, using the excuse that they, too, have overhead — like food, water and toilet paper. Not glamorous — but hey, that's reality.

I recently viewed the DVD of a panel discussion, "Charity Watchdogs, Donor Perceptions and the Overhead Myth," a program held Jan. 30 by the Direct Marketing Association of Washington (D.C.). Since I haven't read much about the content of this discussion, I want to share with you comments from the panelists that I found interesting, insightful and, yes, at times, challenging. Don't expect to agree with them all, but "listen" and then decide what else you can do today to give your donors confidence that you are worthy of their support.

Dan Pallotta, president and CEO, Charity Defense Council: Yes, the man who perhaps started all this discussion when he gave a TED Talk entitled "The Way We Think About Charity Is Dead Wrong" was on this panel. Following are a few of his opening comments: "We do this work because we want to see problems solved in our lifetimes." "The deepest flaw in the use of the fundraising measure is its injustice towards and discrimination against less popular causes."

H. Art Taylor, president and CEO, BBB Wise Giving Alliance: "There is a reason why donors care about non-program costs, and it's because our sector works because of this whole issue of trust [between donors and charities]." Donors "support us mainly because we give them hope that our efforts and their support will someday lead to change." "Reasonableness, perseverance, self-sacrifice are among these values that I think donors look to charities to have when they make their investments … We must show them that these values exist … Reports on impact will be helpful, but it will not take away from this need that donors have to know that they can trust us because the values are there."

Steve Nardizzi, CEO, Wounded Warrior Project: "I get a three-star rating on Charity Navigator … because I choose to … If I follow those rating criteria, then I'm going to make less of an impact and not more." "Many charities do not report on their impact, and in the absence of transparency by reporting the numbers you served and the impact you've made, you leave the public very little choice but to look somewhere else and to look for some other measure of your effectiveness." "Fundraising cannot be decoupled from the fundraising causes [donors] support."

Bunkie Righter, director of business development, GuideStar USA Inc.: "The overhead ratio is a wrong way to rate charities. It is an ineffective and wrong way of looking at the performance of a charity and [determining] whether or not it is a good charity or a bad charity." "One of the reasons that people started looking at [overhead ratio] is they want an easy answer … [and] we are not finding a way at scale to tell people the story they need to be told to make their decisions."

Andrew Watt, president and CEO, Association of Fundraising Professionals: "In an ideal world … we would have, over the last 40 or 50 years, helped to create an environment in which every single one of our organizations was helping the people who are passionately interested in helping us achieve those outcomes understand what it takes to 'keep the show on the road.'"

Takeaways
Throughout the panel discussion, the words "trust" and "values" were prominent. Do your donors trust you? Have you given them a reason to trust you? That takes more than just printing a disclaimer on your reply form or publishing an annual report that donors can find online. It takes sharing the impact you have made, the stories of transformations, photos that illustrate change, statistics and, yes, even hurdles still to be overcome.

But one of the hardest things for nonprofits, in my opinion, is making it a priority to collect those stories and convert impact into easily digested information. "Our impact!" sections on websites go months without being updated; am I to assume that in the last year, you have had NO impact? Numbers we share are vague: "We helped thousands" or "a growing number of people." Our claims are grandiose without any proof to back them up.

I contend that donors genuinely want to trust the nonprofits they choose to support. They want to know that their $25 is somehow bringing us a small step closer to finding the cure, improving the environment, changing lives, or giving hope and help to people in crisis. They don't expect that $25 to singlehandedly accomplish those goals, but surely when their gifts are combined with all the others you receive, some small improvement must happen.

So why aren't you telling them, showing them, that that is true? No matter how busy we are, we owe it to our faithful donors to give them proof positive that we are making a difference, one step at a time. That's one way trust is forged.