If you’re a nonprofit leader or fundraiser, chances are you have faced questions regarding your organization’s overhead expenses. Most recently, Wounded Warriors Project has come under fire for lavish spending, including stays at 5-star hotels and extravagant spending on food and alcohol at company events.
If these allegations prove true, few would argue against this being a case of negligent and wasteful spending of funds. But let’s take the example to the other extreme. What if overhead was minimized as much as possible, and employees were forced to couch surf or stay at seedy motels on the outskirts of town? Wouldn’t that simply lead to greater costs elsewhere, like recruiting and training?
The answer, of course, lies somewhere in the middle, and is a balance each organization must work to find. There isn’t a one size fits all overhead number that applies to all organizations.
Simply focusing on maintaining the lowest possible overhead can stymie an organization’s growth. Investments like a new CRM platform, direct marketing program, or additional fundraisers may not result in an instant return, but can contribute positively to the bottom line in 2-3 years. Each investment must be analyzed within the context of the organization.
While we can’t provide a blanket answer on the amount of overhead an organization should have, here are a few suggestions on how to approach the topic for your organization:
- Be transparent. Even if you wanted to hide expenses, it would be difficult to do today with watchdog groups like GuideStar and Charity Navigator. Be open and discuss major investments with your board. When in doubt, ask yourself if you would be comfortable defending a decision on 60 Minutes.
- Measure return. Being transparent doesn’t mean you shouldn’t make investments. Marketing and fundraising programs can be fairly straightforward to measure in terms of dollars or impressions. Thinking about sending an employee to a conference, but not sure about the cost? Assign them to come back with 2-3 ideas that can be implemented, and then track how they perform. While not all returns will be in monetary terms, try to translate them into dollars. This will make you more effective when communicating investments with key stakeholders.
- Focus on impact. It’s true that, when looked at as a percentage, marketing and fundraising initiatives may raise your overhead, especially early on in these investments. But assuming they are providing a positive return, the funds your organization spends on programming will increase. With more funds, you will be able to provide a better service, or serve a larger group of people, growing your impact. Is the purpose of your organization to serve a certain group, or to keep your overhead below a certain number?
Data from Charity Navigator shows that 7 out of 10 organizations spend at least 75 percent of their budget on programs and services, with 9 out of 10 spending at least 65 percent. More information of how Charity Navigator scores an organization’s financial health can be found here.
AMPERAGE Fundraising Advisers is a full-service fundraising company whose mission is to move the needle for our clients. For more information on Amperage Fundraising Advisers or to make a recommendation for a future blog post, contact us today!