Right now, if you open Google and search for “Canadian nonprofits with a bad reputation” the suggested searches related to the entry include, “Canadian charities with lowest administrative costs” and “Which charities spend the most on administration.” As nonprofit professionals, we all know and recognize both fundraising costs and administrative costs as necessary, and as having different roles in sustaining an organization. Paying for rent, utilities, and insurance, as well as other overhead necessities such as investments in people, processes, technology, and administration, actually improve efficiency and achieve meaningful, sustainable impacts. On the other hand, donors believe in efficiency based on low overhead. While it’s possible to spend too much on overhead, the confusion about overhead has resulted in overall under-funding of these necessary costs. This misconception is keeping charities from prospering and helping people to their fullest capabilities. As a better way to fund organizational programs, we need to debunk the myth of overhead as disconnected from program delivery, instead positioning it as mission-critical.
The interpretation of overhead by charities is at odds with the interpretation of overhead by donors, and looks a bit like the pie charts pictured below. Where donors (left) view overhead as the amount of their donation directed away from the cause and lessens their impact, charities (right) view overhead as a critical investment, necessary to generate future income, pay qualified staff and ensure the future sustainability of the organization.
We need to retire the pie chart on the left, and instead use the image on the right to help us communicate true program costs. Our donors, rather than thinking of overhead as diminishing our programs, can reimagine it as an investment in core mission support. In witnessing the gap in the centre, donors can recognize core “overhead” mission support functions as necessary, vital, integral:
- Strong, strategic finance and accounting
- Human resources practices
- Capable, responsive board governance
- Talented and engaged staff
Demonstrating this to donors and funders can help make the case that there is a direct relationship between funding for “overhead” and service quality and outcomes. They can better understand how funding only direct expenses will in turn deny funding for core mission support, leaving the gap we see at the centre of the organization, putting the organization’s overall health at risk.
If your organization is putting together a visual guide to communicate your impact, consider how you can better demonstrate the true costs of your programs. Your nonprofit has a mission that matters, but your supporters probably don’t all understand that it costs something to deliver it. Help your donors to better conceptualize infrastructure as a key to program effectiveness, and critical to mission delivery.