Let’s Embrace Overhead
Ann C. Fitzgerald, President
In the 990 tax return, overhead is a combination of “management”, “general,” and “fundraising” expenses. And these are essential operational costs, without which your organization could not exist, let alone thrive.
While services like Charity Navigator rank more favorably the nonprofits that spend 10% or less on fundraising expenses, opinions about overhead are starting to change.
Funders are beginning to realize that low overhead does not necessary equate to greater nonprofit impact and efficiency. Indeed, overhead that is too low should be as much of a concern as overspending in this area.
It costs money to run programs, attract donors, and promote your mission. Growing nonprofits may need to embrace higher overhead costs at pivotal times in order to build capacity.
When it comes to the investment in fundraising, consider these tips:
- Allocate fundraising expenses correctly. Ensure that staff salaries and outreach activities are accurately allocated. For instance, mailings to donors that do not ask for donations should fall under programmatic expenses, as they are educational.
- Determine your fundraising efficiency ratio. Divide contributions revenue by total fundraising expenses to get the percentage. Many nonprofit leaders find that they are actually under-investing in fundraising; they are not even spending 10% of contributions revenue on fundraising activity.
- Know when to increase your investment. Many nonprofits may dramatically increase investment in fundraising for a period time when they are doing a lot of prospecting for new donors. Recognize when you need to do this and be ready to explain this to the board or donors.
- Change the narrative. Stop using the words “overhead costs” and describe these expenses as organizational investments to build capacity. To be successful, nonprofits need to invest in people, training, planning, evaluation, internal systems, and fundraising.
- Communicate your impact and effectiveness.Plan and track your group’s expenses and outcomes. Be sure to engagingly communicate your impact and your effectiveness to donors and prospects – help them understand that your impact far outweighs any arbitrary financial ratios.
- People are an investment, too. Your employees are your greatest asset, and excessive turnover really hurts an organization. Overhead costs that support your team are worth it! Look for a post soon on how to invest in your fundraising team.
Don’t fear the overhead! Invest in your good work, and see your organization thrive.
Ann C. Fitzgerald is Founder and President of AC Fitzgerald, using her decades of experience in fundraising, management, leadership, and sales to help nonprofits build their capacity and achieve success. She is a sought-after speaker, writer, and advisor.