There is a common misconception about what matters when deciding which charity to support.
Many believe that an organization’s overhead costs should only account for 15-25% of an organizations budget. The percent of charity expenses that go to what is commonly referred to as “overhead” which includes things like rent, employee salaries, administrative costs and bills- is actually 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 example, you might ask: Is their financial information available on their website? Who makes up the organization’s board of directors? What stories or data are they sharing related to the outcomes of their work? For years, the Community Foundation of the New River Valley 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 the nonprofit organizations that serve the New River Valley.
That is not to say that overhead has no role in ensuring charity accountability. At the extremes, the overhead ratio can offer insight: it can be a valid data point for rooting out fraud and poor financial management. In most cases, however, focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance does more damage than good.
In fact, we believe many of our charities should spend more on overhead. Overhead costs include important investments charities make to improve their work: investments in training, planning, evaluation, and internal systems— as well as their efforts to raise money so they can operate their programs. These expenses allow a charity to sustain itself (the way a family has to pay the electric bill) or to improve itself (the way a family might invest in college tuition).
When we focus solely or predominantly on overhead, we can create what the Stanford Social Innovation Review has called “The Nonprofit Starvation Cycle.” We starve charities of the freedom they need to best serve the people and communities they are trying to serve.
This is one reason the Community Foundation of the New River Valley has a separate grant-making category, as part of its competitive grants process, focused solely on providing organizations with operating support. This funding is used to support core operating expenses of organizations that can provide a track record of high performance.
So when you are making your charitable giving decisions, please consider the whole picture. The people and communities served by charities don’t need low overhead they need high performance.