Overhead costs are controversial. Every nonprofit has them, and they are essential to carrying out any mission. Rent, payroll, technology, admin support—no organization can conduct business without investing in these basic needs every month.
Yet every nonprofit is challenged to address significant societal needs and make transformational change while spending significantly less than for-profit organizations on the same services.
Our donors are actually encouraged—by our own industry—to measure our effectiveness by looking at overhead ratios, when what is needed is a frank and transparent conversation of success indicators and the actual cost of doing business.
Because we all know that paying our employees less only leads to significant employee turnover and handicaps our ability to consistently provide high-quality services. Operating in unsafe and often crumbling buildings does not inspire hope and progress for our clients (or donors)!
Overhead ratios, or the ratio of the organization’s operating costs to its income, are often used as the primary method of judgement for individuals to measure how valuable their donations were toward a particular mission.
However, only measuring overhead ratios can lead to misinterpretation of data and an incomplete understanding of the nonprofit’s successes.