Overheard on Overhead

FrugalThey’re calling it the overhead myth, the idea that the amount a nonprofit spends on overhead is somehow indicative of its success and value. More accurately, there’s a persistent focus in philanthropy on lowering overhead costs as much as possible. But advocates say:

The percent of charity expenses that go to administrative and fundraising costs—commonly referred to as “overhead”—is a poor measure of a charity’s performance.

We ask you to pay attention to other factors of nonprofit performance: transparency, governance, leadership, and results. For years, each of our organizations has been working to increase the depth and
breadth of the information we provide to donors in these areas so as to provide a much fuller picture of a charity’s performance.

This week, three leaders in philanthropy issued an open letter to donors (PDF): Ken Berger, president and CEO of Charity Navigator; Jacob Harold, CEO of Guidestar; and Art Taylor, president and CEO of BBB Wise Giving Alliance. The letter’s goal is to convince donors that “the people and communities served by charities don’t need low overhead, they need high performance” and that the two aren’t always mutually exclusive.

The letter urges citizens and others in the philanthropy sector to co-sign the letter in support of lessening the emphasis on overhead. It also asks nonprofits to share their data through Guidestar as a way of demonstrating achievement and its complicated and unclearly defined relationship to overhead.

We expect the Overhead Myth to be a topic of much conversation in the near future. Still to come are perspectives from foundations and other grantmakers with a focus on overhead in their giving; nonprofits with high overhead and great success stories; and the pundit perspective on launching this ambitious change to philanthropy.

Read more about the overhead myth letter:

Add other articles and perspectives and share your thoughts on overhead as overdone  in the comments section.


Nikki Powell

Nikki Powell is PEAK Grantmaking's communications and practices director. You can find her on Twitter @nikkiwpowell.