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  • Writer's pictureVic Hancock Fell

Donors don’t want charities to spend any money on overheads and it’s not OK

Updated: Apr 4

The overhead problem

My mind was really opened up to the overhead problem when I watched activist Dan Pallotta’s viral TED talk in favour of overhead – The Way We Think about Charity Is Dead Wrong. Too many nonprofits, he says, are rewarded for how little they spend — not for what they get done. Instead of equating frugality with morality, he asks us to start rewarding charities for their goals and accomplishments (even if that comes with expenses).

Recently in a great article for Harvard Business School, Carmen Nobel discusses Elizabeth A. Keenan’s research into donor attitudes to overheads and find that “charitable donors are willing to stomach the idea of overhead costs—as long as they know someone else’s donation is covering them”.

Nobel reports:

“Despite the understanding that CEOs of nonprofits need to be paid, if given the choice of where their money would go, most people donating money wouldn’t choose to contribute to the salary of the organization’s CEO,” says Elizabeth A. Keenan, an assistant professor in the Marketing unit at Harvard Business School.

“As nonprofits try so hard to pare down their overhead expenses, they end up feeding the expectation that the overhead ratio can and should be very low,” Keenan says. “As donors see that overhead is low in one organization, they expect it to be low everywhere. Some refer to it as the ‘nonprofit starvation cycle.’”

How is the sector reacting?

Some charities are trying to overcome the overhead problem by coming up with ways for donors to avoid their donation being spent on anything other than direct project costs. For example charity:water have something called the ‘100% Model‘ . They say ‘we depend on private donors, foundations and sponsors to cover everything from staff salaries to basic office systems to office rent and supplies’. This means that 100% of public donations are spent directly on their projects providing clean water to some of the world’s poorest people.

Another charity using this approach is the small UK charity Raise the Roof who state on their website that ‘private donations and merchandise income covers our admin costs, so 100% of your donations go into projects’.

Many in the nonprofit sector, myself included, worry that enabling overhead-free donations in this way will perpetuate the idea that overhead is a bad thing.

Overhead-free donations aren’t the only thing perpetuating the overhead problem. Some charities are even promoting the idea that they don’t need staff to operate. Raise the Roof also say on their website that, ‘We rely on our committed volunteer team, meaning we have no staff costs’. Is this really a message we want to promote across our sector? Is is sustainable for an organisation to have no staff and have donors expecting that 100% of their donation will be spent on projects?

Keenan says, “charities work so hard to basically train or teach their donor base that overhead is important and necessary,”.

What can we do?

Acknowledging that administrative expenses are a necessary and critical component of a nonprofit’s success, Keenan and her research partners are investigating alternative ways to mitigate overhead aversion, partially through education campaigns such as Pallotta’s.

It saddens and frustrates me to think that charities, who are held up to such high standards by the public, even more so than the public or private sector organisations, should be expected to operate in a way that prevents them from employing passionate, experienced and dedicated staff members or spending money in a way that will secure the future sustainability of their organisation and support for their beneficiaries.

What's your take on the overhead debate?


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